Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Our risk management and derivative accounting policies are presented within Part II—Item 8 Financial Statements, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" and Note 16, "Derivative Instruments and Hedging Activities" in our Annual Report and did not significantly change during the first three quarters of 2020. As noted in Note 16 of the Notes included in our Annual Report, due to the nature of our counterparty agreements, and the fact that we are not subject to master netting arrangements, we are not able to net positions with the same counterparty and, therefore, present our derivative positions on a gross basis in our unaudited condensed consolidated balance sheets. Our significant derivative positions have not changed considerably since December 31, 2019.

Derivative Fair Value Measurements

We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk adjustments to account for our counterparties' credit risk, as well as our own non-performance risk, as appropriate. The fair value of our warrants to acquire common shares of HEXO Corp. ("HEXO") at a strike price of CAD 6.00 per share are estimated using the Black-Scholes option-pricing model.

The table below summarizes our derivative assets and liabilities that were measured at fair value as of September 30, 2020 and December 31, 2019.

			Fair value measurements as of September 30, 2020
	As of September 30, 2020		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In millions)
Cross currency swaps	$	(7.0)	$	—	$	(7.0)	$	—
Interest rate swaps	(267.4)		—		(267.4)		—
Foreign currency forwards	3.0		—		3.0		—
Commodity swaps	(17.6)		—		(17.6)		—
Warrants	0.5		—		0.5		—
Total	$	(288.5)	$	—	$	(288.5)	$	—

			Fair value measurements as of December 31, 2019
	As of December 31, 2019		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In millions)
Cross currency swaps	$	10.0	$	—	$	10.0	$	—
Interest rate swaps	(111.5)		—		(111.5)		—
Foreign currency forwards	2.1		—		2.1		—
Commodity swaps and options	(41.2)		—		(41.2)		—
Warrants	2.7		—		2.7		—
Total	$	(137.9)	$	—	$	(137.9)	$	—

As of September 30, 2020 and December 31, 2019, we had no significant transfers between Level 1 and Level 2. New derivative contracts transacted during the nine months ended September 30, 2020 were all included in Level 2.

Results of Period Derivative Activity

The tables below include the results of our derivative activity in our unaudited condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, and our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and September 30, 2019.

Fair Value of Derivative Instruments in the Unaudited Condensed Consolidated Balance Sheets (in millions):

	As of September 30, 2020
			Derivative Assets			Derivative Liabilities
	Notional amount		Balance sheet location	Fair value		Balance sheet location	Fair value
Derivatives designated as hedging instruments:
Cross currency swaps	$	400.0	Other current assets	$	—	Accounts payable and other current liabilities	$	(7.0)
			Other non-current assets	—		Other liabilities	—
Interest rate swaps	$	1,500.0	Other current assets	—		Accounts payable and other current liabilities	(53.1)
			Other non-current assets	—		Other liabilities	(214.3)
Foreign currency forwards	$	169.5	Other current assets	3.1		Accounts payable and other current liabilities	(0.5)
			Other non-current assets	0.9		Other liabilities	(0.5)
Total derivatives designated as hedging instruments				$	4.0		$	(275.4)
Derivatives not designated as hedging instruments:
Commodity swaps(1)	$	938.3	Other current assets	$	16.1	Accounts payable and other current liabilities	$	(47.2)
			Other non-current assets	25.1		Other liabilities	(11.6)
Warrants	$	51.8	Other non-current assets	0.5		Other liabilities	—
Total derivatives not designated as hedging instruments				$	41.7		$	(58.8)

	As of December 31, 2019
			Derivative Assets			Derivative Liabilities
	Notional amount		Balance sheet location	Fair value		Balance sheet location	Fair value
Derivatives designated as hedging instruments:
Cross currency swaps	$	900.0	Other current assets	$	1.8	Accounts payable and other current liabilities	$	—
			Other non-current assets	8.2		Other liabilities	—
Interest rate swaps	$	1,500.0	Other non-current assets	—		Other liabilities	(111.5)
Foreign currency forwards	$	237.9	Other current assets	1.9		Accounts payable and other current liabilities	(0.8)
			Other non-current assets	1.4		Other liabilities	(0.4)
Total derivatives designated as hedging instruments				$	13.3		$	(112.7)
Derivatives not designated as hedging instruments:
Commodity swaps(1)	$	598.4	Other current assets	$	5.7	Accounts payable and other current liabilities	$	(36.4)
			Other non-current assets	1.0		Other liabilities	(11.5)
Commodity options(1)	$	18.4	Other current assets	—		Accounts payable and other current liabilities	—
Warrants	$	53.1	Other non-current assets	2.7		Other liabilities	—
Total derivatives not designated as hedging instruments				$	9.4		$	(47.9)

(1)Notional includes offsetting buy and sell positions, shown in terms of absolute value. Buy and sell positions are shown gross in the asset and/or liability position, as appropriate.

Items Designated and Qualifying as Hedged Items in Fair Value Hedging Relationships in the Unaudited Condensed Consolidated Balance Sheets (in millions):

Line item in the balance sheet in which the hedged item is included	Carrying amount of the hedged assets/liabilities				Cumulative amount of fair value hedging adjustment(s) in the hedged assets/liabilities(1) Increase/(Decrease)
	As of September 30, 2020		As of December 31, 2019		As of September 30, 2020		As of December 31, 2019
	(In millions)
Current portion of long-term debt and short-term borrowings	$	—	$	—	$	—	$	(0.2)
Long-term debt	$	—	$	—	$	4.4	$	6.5

(1)    Entire balances relate to hedging adjustments on discontinued hedging relationships.

The Pretax Effect of Cash Flow Hedge and Net Investment Hedge Accounting on Accumulated Other Comprehensive Income (Loss) (in millions):

Three Months Ended September 30, 2020
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative
Forward starting interest rate swaps	$	23.9	Interest income (expense), net	$	(0.8)
Foreign currency forwards	(4.4)		Cost of goods sold	0.9
			Other income (expense), net	(0.3)
Total	$	19.5		$	(0.2)

Three Months Ended September 30, 2020
Derivatives in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)(1)
Cross currency swaps	$	(19.0)	Interest income (expense), net	$	—	Interest income (expense), net	$	2.8
Total	$	(19.0)		$	—		$	2.8

Three Months Ended September 30, 2020
Non-derivative financial instruments in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
EUR 800 million notes due 2024	$	(39.0)	Other income (expense), net	$	—	Other income (expense), net	$	—
Total	$	(39.0)		$	—		$	—

Three Months Ended September 30, 2019
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative
Forward starting interest rate swaps	$	(77.8)	Interest income (expense), net	$	(0.7)
Foreign currency forwards	3.6		Cost of goods sold	0.5
			Other income (expense), net	(0.1)
Total	$	(74.2)		$	(0.3)

Three Months Ended September 30, 2019
Derivatives in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)(1)
Cross currency swaps	$	37.6	Interest income (expense), net	$	—	Interest income (expense), net	$	6.6
Total	$	37.6		$	—		$	6.6

Three Months Ended September 30, 2019
Non-derivative financial instruments in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
EUR 800 million notes due 2024	$	37.9	Other income (expense), net	$	—	Other income (expense), net	$	—
Total	$	37.9		$	—		$	—

Nine Months Ended September 30, 2020
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative
Forward starting interest rate swaps	$	(155.9)	Interest income (expense), net	$	(2.2)
Foreign currency forwards	4.4		Cost of goods sold	4.5
			Other income (expense), net	(1.1)
Total	$	(151.5)		$	1.2

Nine Months Ended September 30, 2020
Derivatives in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)(1)
Cross currency swaps	$	(13.8)	Interest income (expense), net	$	—	Interest income (expense), net	$	11.3
Total	$	(13.8)		$	—		$	11.3

Nine Months Ended September 30, 2020
Non-derivative financial instruments in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
EUR 800 million notes due 2024	$	(40.7)	Other income (expense), net	$	—	Other income (expense), net	$	—
Total	$	(40.7)		$	—		$	—

Nine Months Ended September 30, 2019
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative
Forward starting interest rate swaps	$	(156.5)	Interest income (expense), net	$	(2.2)
Foreign currency forwards	(7.9)		Cost of goods sold	2.8
			Other income (expense), net	(0.6)
Total	$	(164.4)		$	—

Nine Months Ended September 30, 2019
Derivatives in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)(1)
Cross currency swaps	$	44.2	Interest income (expense), net	$	—	Interest income (expense), net	$	17.0
Total	$	44.2		$	—		$	17.0

Nine Months Ended September 30, 2019
Non-derivative financial instruments in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized from AOCI on derivative		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
EUR 800 million notes due 2024	$	45.5	Other income (expense), net	$	—	Other income (expense), net	$	—
EUR 500 million notes due 2019	10.1		Other income (expense), net	—		Other income (expense), net	—
Total	$	55.6		$	—		$	—

(1)Represents amounts excluded from the assessment of effectiveness for which the difference between changes in fair value and period amortization is recorded in other comprehensive income.

As of September 30, 2020, we expect our reclassification of AOCI into earnings related to cash flow hedges to be immaterial over the next 12 months as our expected net losses primarily offset our expected net gains. For derivatives designated in cash flow hedge relationships, the maximum length of time over which forecasted transactions are hedged as of September 30, 2020 is approximately 4 years, as well as those related to our forecasted debt issuances in 2021, 2022, and 2026.

The Effect of Fair Value and Cash Flow Hedge Accounting on the Unaudited Condensed Consolidated Statements of Operations (in millions):

Three Months Ended September 30, 2020
	Location and amount of gain (loss) recognized in income on fair value and cash flow hedging relationships(1)
	Cost of goods sold		Other income (expense), net		Interest income (expense), net
Total amount of income and expense line items presented in the unaudited condensed consolidated statement of operations in which the effects of fair value or cash flow hedges are recorded	$	(1,551.0)	$	2.4	$	(67.9)
Gain (loss) on cash flow hedging relationships:
Forward starting interest rate swaps
Amount of gain (loss) reclassified from AOCI into income	—		—		(0.8)
Foreign currency forwards
Amount of gain (loss) reclassified from AOCI into income	0.9		(0.3)		—

Three Months Ended September 30, 2019
	Location and amount of gain (loss) recognized in income on fair value and cash flow hedging relationships(1)
	Cost of goods sold		Other income (expense), net		Interest income (expense), net
Total amount of income and expense line items presented in the unaudited condensed consolidated statement of operations in which the effects of fair value or cash flow hedges are recorded	$	(1,685.4)	$	(13.7)	$	(65.6)
Gain (loss) on cash flow hedging relationships:
Forward starting interest rate swaps
Amount of gain (loss) reclassified from AOCI into income	—		—		(0.7)
Foreign currency forwards
Amount of gain (loss) reclassified from AOCI into income	0.5		(0.1)		—

Nine Months Ended September 30, 2020
	Location and amount of gain (loss) recognized in income on fair value and cash flow hedging relationships(1)
	Cost of goods sold		Other income (expense), net		Interest income (expense), net
Total amount of income and expense line items presented in the unaudited condensed consolidated statement of operations in which the effects of fair value or cash flow hedges are recorded	$	(4,486.6)	$	3.4	$	(206.5)
Gain (loss) on cash flow hedging relationships:
Forward starting interest rate swaps
Amount of gain (loss) reclassified from AOCI into income	—		—		(2.2)
Foreign currency forwards
Amount of gain (loss) reclassified from AOCI into income	4.5		(1.1)		—

Nine Months Ended September 30, 2019
	Location and amount of gain (loss) recognized in income on fair value and cash flow hedging relationships(1)
	Cost of goods sold		Other income (expense), net		Interest income (expense), net
Total amount of income and expense line items presented in the unaudited condensed consolidated statement of operations in which the effects of fair value or cash flow hedges are recorded	$	(4,858.2)	$	(0.7)	$	(204.5)
Gain (loss) on cash flow hedging relationships:
Forward starting interest rate swaps
Amount of gain (loss) reclassified from AOCI into income	—		—		(2.2)
Foreign currency forwards
Amount of gain (loss) reclassified from AOCI into income	2.8		(0.6)		—

(1)    We had no outstanding fair value hedges during the first three quarters of 2020 or 2019.

The Effect of Derivatives Not Designated as Hedging Instruments on the Unaudited Condensed Consolidated Statements of Operations (in millions):

Three Months Ended September 30, 2020
Derivatives not in hedging relationships	Location of gain (loss) recognized in income on derivative	Amount of gain (loss) recognized in income on derivative
Commodity swaps	Cost of goods sold	$	41.4
Warrants	Other income (expense), net	(0.7)
Total		$	40.7

Three Months Ended September 30, 2019
Derivatives not in hedging relationships	Location of gain (loss) recognized in income on derivative	Amount of gain (loss) recognized in income on derivative
Commodity swaps	Cost of goods sold	$	(25.3)
Warrants	Other income (expense), net	(11.4)
Total		$	(36.7)

Nine Months Ended September 30, 2020
Derivatives not in hedging relationships	Location of gain (loss) recognized in income on derivative	Amount of gain (loss) recognized in income on derivative
Commodity swaps	Cost of goods sold	$	(46.5)
Warrants	Other income (expense), net	(2.1)
Total		$	(48.6)

Nine Months Ended September 30, 2019
Derivatives not in hedging relationships	Location of gain (loss) recognized in income on derivative	Amount of gain (loss) recognized in income on derivative
Commodity swaps	Cost of goods sold	$	(29.8)
Warrants	Other income (expense), net	(3.5)
Total		$	(33.3)

The gains and losses recognized in income related to our commodity swaps are largely driven by changes in the respective commodity market prices, primarily in aluminum and diesel.