Derivative Instruments

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative InstrumentsThe Company enters into derivative transactions in certain situations based on management’s assessment of current market conditions and perceived risks. Management intends to respond to evolving business and market conditions and in doing so, may enter into such transactions as deemed appropriate.

Credit Risk. As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk. The Company manages this risk by limiting its counterparties to large financial institutions which meet the Company’s credit rating standards and have an established banking relationship with the Company. As of September 30, 2021, the Company did not expect any losses as a result of default of its counterparties.

Interest Rate Derivative Instruments. In March 2020, the Company executed three 30-year treasury lock agreements with an aggregate notional value of $400.0 million and a weighted average interest rate of 1.45%, and in November 2020, the Company executed three 30-year treasury lock agreements with an aggregate notional value of $250.0 million and a weighted-average interest rate of 1.78%. The purpose of the treasury locks is to hedge the U.S. Treasury benchmark interest rate associated with future interest payments related to the anticipated refinancing of the $444.7 million principal amount of 3.00% senior notes due May 15, 2023 (the “3.00% Senior Notes”) and the $200.0 million principal amount of 3.85% senior notes due November 15, 2023 (the “3.85% Senior Notes”). The Company has designated the treasury locks as cash flow hedges and recorded unrealized gains and losses in accumulated other comprehensive income (loss). For the three and nine months ended September 30, 2021, the unrealized gain of $90.7 million recognized in accumulated other comprehensive income decreased by $2.1 million and increased by $55.1 million, respectively, from the balances at June 30, 2021 and December 31, 2020, reflecting a change in the value of the treasury locks as U.S. treasury rates rose during the first quarter of 2021, and then fell during the second and third quarters of 2021. Upon settlement, the unrealized gain or loss in accumulated other comprehensive income (loss) will be amortized to interest expense over the life of the future underlying debt issuance.

Foreign Currency Derivative Instruments. The Company’s Mexican subsidiaries have net U.S. dollar-denominated monetary liabilities which, for Mexican income tax purposes, are subject to periodic revaluation based on changes in the value of the Mexican peso against the U.S dollar. This revaluation creates fluctuations in the Company’s Mexican income tax expense in the consolidated statements of operations and the amount of income taxes paid in Mexico. The Company also has net monetary assets denominated in Mexican pesos that are subject to periodic re-measurement and settlement that create fluctuations in foreign currency gains and losses in the consolidated statements of operations. The Company hedges its net exposure to foreign currency fluctuations in earnings by entering into foreign currency forward contracts. The foreign currency forward contracts involve the Company’s agreement to buy or sell pesos at an agreed-upon exchange rate on a future date.

Below is a summary of the Company’s 2021 and 2020 foreign currency derivative contracts (amounts in millions, except Ps./USD):

Foreign currency forward contracts
	Contracts to sell Ps./receive USD						Offsetting contracts to purchase Ps./pay USD
	Notional amount		Notional amount		Weighted-average exchange rate (in Ps./USD)		Notional amount		Notional amount		Weighted-average exchange rate (in Ps./USD)		Cash received/(paid) on settlement
Contracts executed in 2021 and outstanding	$	200.0	Ps.	4,127.6	Ps.	20.6	—		—		—		—
Contracts executed in 2020 and settled in 2020	$	75.0	Ps.	1,555.5	Ps.	20.7	$	78.0	Ps.	1,555.5	Ps.	20.0	$	(2.9)
	Contracts to purchase Ps./pay USD						Offsetting contracts to sell Ps./receive USD
	Notional amount		Notional amount		Weighted-average exchange rate (in Ps./USD)		Notional amount		Notional amount		Weighted-average exchange rate (in Ps./USD)		Cash received/(paid) on settlement
Contracts executed in 2021 and settled in 2021	$	100.0	Ps.	1,993.5	Ps.	19.9	$	98.1	Ps.	1,993.5	Ps.	20.3	$	(1.9)
Contracts executed in 2020 and settled in 2020 (i)	$	555.0	Ps.	11,254.3	Ps.	20.3	$	534.3	Ps.	11,254.3	Ps.	21.1	$	(20.7)
Contracts executed in 2019 and settled in 2020 (ii)	$	105.0	Ps.	2,041.2	Ps.	19.4	$	108.6	Ps.	2,041.2	Ps.	18.8	$	3.6

(i) During the nine months ended September 30, 2020, the Company settled $535.0 million of these forward contracts, resulting in cash paid of $24.0 million.

(ii) During the nine months ended September 30, 2020, the Company settled $105.0 million of these forward contracts, resulting in cash received of $3.6 million.

The Company has not designated any of the foreign currency derivative contracts as hedging instruments for accounting purposes. The Company measures the foreign currency derivative contracts at fair value each period and recognizes any change in fair

value in foreign exchange gain (loss) within the consolidated statements of operations. The cash flows associated with these instruments is classified as an operating activity within the consolidated statements of cash flows.

Offsetting. The Company’s treasury lock agreements and foreign currency forward contracts are executed with counterparties in the U.S. and are governed by International Swaps and Derivatives Association agreements that include standard netting arrangements. Asset and liability positions from contracts with the same counterparty are net settled upon maturity/expiration and presented on a net basis in the consolidated balance sheets prior to settlement.

The following tables present the fair value of derivative instruments included in the Consolidated Balance Sheets (in millions):

	Derivative Assets
	Balance Sheet Location	September 30, 2021		December 31, 2020
Derivatives designated as hedging instruments:
Treasury lock agreements	Other assets	$	90.7	$	35.6
Total derivatives designated as hedging instruments		90.7		35.6
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other current assets	2.7		—
Total derivatives not designated as hedging instruments		2.7		—
Total derivative assets		$	93.4	$	35.6

The following table summarizes the gross and net fair value of derivative assets (in millions):

As of September 30, 2021	Gross Assets		Gross Liabilities		Net Amounts Presented in the Consolidated Balance Sheets
Derivatives subject to a master netting arrangement or similar agreement	$	94.2	$	(0.8)	$	93.4
As of December 31, 2020
Derivatives subject to a master netting arrangement or similar agreement	$	35.6	$	—	$	35.6

The following table presents the effects of derivative instruments on the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30 (in millions):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI on Derivative				Location of Gain/(Loss) Reclassified from AOCI into Income	Amount of Gain/(Loss) Reclassified from AOCI into Income
	2021		2020			2021		2020
Treasury lock agreements	$	(2.1)	$	3.3	Interest expense	$	(0.6)	$	(0.7)
Total	$	(2.1)	$	3.3		$	(0.6)	$	(0.7)

Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative
		2021		2020
Foreign currency forward contracts	Foreign exchange gain (loss)	$	4.9	$	6.7
Total		$	4.9	$	6.7

The following table presents the effects of derivative instruments on the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30 (in millions):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI on Derivative				Location of Gain/(Loss) Reclassified from AOCI into Income	Amount of Gain/(Loss) Reclassified from AOCI into Income
	2021		2020			2021		2020
Treasury lock agreements	$	55.1	$	16.1	Interest expense	$	(1.8)	$	(1.9)
Total	$	55.1	$	16.1		$	(1.8)	$	(1.9)

Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative
		2021		2020
Foreign currency forward contracts	Foreign exchange gain (loss)	$	0.8	$	(20.6)
Total		$	0.8	$	(20.6)

See Note 6, Fair Value Measurements, for the determination of the fair values of derivatives.