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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-03-01 compared with 2021-02-23 · 37 added, 25 removed, 33 unchanged (65% of the section changed)

9 unchanged sentences

corporations, money market instruments, certain qualifying money market mutual funds, certain repurchase agreements, and tax-exempt obligations of states, agencies and municipalities in the U.S.

Our cash equivalents and investments as of December 31, 2020 consisted of time deposits and money market funds which are not subject to significant interest rate risk.

Our cash equivalents as of December 31, 2021 consist of money market funds which are not subject to significant interest rate risk.

We are exposed to risks associated with changes in interest rates in connection with our term loan borrowings.

On June 7, 2018, we entered into the amended credit agreement to provide for a revolving credit facility of $1.6 billion, which replaced the existing revolving credit facility of $1.25 billion, and a new $667.7 million term loan facility, which replaced the $750.0 million term loan facility, of which $584.3 million principal amount was outstanding as of December 31, 2020.

In May 2021 we entered into a credit agreement, or the Credit Agreement, that provides for (i) a seven-year $3.1 billion term loan B facility, or the Dollar Term Loan, (ii) a seven-year €625.0 million term loan B facility, or the Euro Term Loan and, together with the Dollar Term Loan, collectively known as the Term Loan and (iii) a five-year $500.0 million revolving credit facility, or the Revolving Credit Facility.

We used the proceeds from the Term Loan (i) to repay in full $575.9 million under that certain credit agreement, dated as of June 18, 2015 (as amended) among the Company, and certain of our other subsidiaries as borrowers, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent, or the Existing Credit Agreement, (ii) to fund, in part, the cash consideration payable in connection with the GW Acquisition and (iii) to pay related fees and expenses.

There were no borrowings outstanding under the Revolving Credit Facility as of December 31, 2021.

To achieve a desired mix of floating and fixed interest rates on our term loan, we entered into interest rate swap agreements in March 2017 that are designated as cash flow hedges.

These derivative instruments are utilized for risk management purposes, and we do not use these derivatives for speculative trading purposes.

The interest rate swap agreements have a notional amount of $300.0 million and are effective from March 3, 2017 through July 12, 2021 and convert the floating rate on a portion of our term loan to a fixed rate of 1.895%, plus the borrowing spread.

The impact of a hypothetical increase or decrease in interest rates on the fair value of our interest rate swap contracts would be offset by a change in the value of the underlying liability.

If interest rates were to increase or decrease by 100 basis points, interest expense for 2021 would increase or decrease by approximately $4.2 million, based on the unhedged portion of our outstanding variable rate borrowings.

In 2014, we completed a private placement of $575.0 million aggregate principal amount of the 2021 Notes, of which we have repurchased $356.2 million of the aggregate principal amount.

In 2017, we completed a private placement of $575.0 million aggregate principal amount of the 2024 Notes.

In June 2020, we completed a private offering of an aggregate $1.0 billion principal amount of the 2026 Notes.

The 2021 Notes, 2024 Notes and 2026 Notes have fixed annual interest rates of 1.875%, 1.50% and 2.00%, respectively, and we, therefore, do not have economic interest rate exposure on the Exchangeable Senior Notes.

However, the fair values of the Exchangeable Senior Notes are exposed to interest rate risk.

Generally, the fair values of the Exchangeable Senior Notes will increase as interest rates fall and decrease as interest rates rise.

The fair values of the Exchangeable Senior Notes are also affected by volatility in our ordinary share price.

As of December 31, 2020, the fair values of the 2021 Notes, the 2024 Notes and the 2026 Notes were estimated to be approximately $224 million, $615 million and $1.3 billion, respectively.

In July 2017, the Financial Conduct Authority, the authority that regulates LIBOR, announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

In September and December 2021, we made voluntary prepayments totaling €416.7 million or $502.0 million on the Euro Term Loan.

The Dollar Term Loan is subject to a London Inter-Bank Offering Rate, or LIBOR, floor of 0.50%.

Based on the outstanding borrowings of $3.3 billion as of December 31, 2021, a hypothetical 1% increase or

decrease in interest rates, above the LIBOR floor in the case of Dollar Term Loan borrowings, would increase or decrease net income for 2022 by approximately $33.2 million.

In April 2021, we issued $1.5 billion in aggregate principal amount of 4.375% senior secured notes, due 2029, or the Secured Notes.

In 2017, we completed a private placement of $575.0 million aggregate principal amount of 1.50% exchangeable senior notes due 2024, or the 2024 Notes, and in June 2020, we completed a private offering of $1.0 billion aggregate principal amount of 2.00% exchangeable senior notes due 2026, or the 2026 Notes.

The Secured Notes, the 2024 Notes and the 2026 Notes have fixed annual interest rates of 4.375%, 1.50% and 2.00%, respectively, and we therefore, do not have economic interest rate exposure on the Secured Notes, the 2024 Notes and the 2026 Notes.

However, the fair values of the Secured Notes, the 2024 Notes and the 2026 Notes are exposed to interest rate risk.

Generally, the fair values of the Secured Notes, the 2024 Notes and the 2026 Notes will increase as interest rates fall and decrease as interest rates rise.

The fair values of the 2024 Notes and the 2026 Notes are also affected by volatility in our ordinary share price.

As of December 31, 2021 the fair values of the Secured Notes, the 2024 Notes and the 2026 Notes were estimated to be approximately $1.6 billion, $576.0 million and $1.1 billion, respectively .

In July 2017, the Financial Conduct Authority, or FCA, the authority that regulates LIBOR, announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

In a further update, on November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, with the support of the U.S.

Federal Reserve and FCA, announced plans to consult on ceasing publication of LIBOR on December 31, 2021 for only the one week and two month LIBOR tenors, and on June 30, 2023 for all other LIBOR tenors.

While this announcement extends the transition period to June 2023, the U.S.

Federal Reserve concurrently issued a statement advising banks to stop new LIBOR issuances by the end of 2021.

The Alternative Reference Rates Committee, or ARRC, in the U.S.

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ARRC has proposed a paced market transition plan to SOFR from USD LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD LIBOR.

We have certain financial contracts, including the amended credit agreement and our interest rate swaps, that are indexed to USD LIBOR and are monitoring this activity and evaluating the related risks.

We currently have a USD LIBOR cross currency swap which matures in March 2022;

as such, the impact of Inter-Bank Offering Rate, or IBOR, reform is not expected to be material.

Foreign Exchange Risk .

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dollars by currency movements against the U.S.

Our primary currency translation exposure is related to our subsidiaries that have functional currencies denominated in the euro.

A hypothetical 10% strengthening or weakening in the rates used to translate the results of

our foreign subsidiaries that have functional currencies denominated in euro would have increased or decreased net income for the year ended December 31, 2020 by approximately $21 million.

Our primary currency translation exposure is related to our subsidiaries that have functional currencies denominated in sterling and euro.

A hypothetical 10% strengthening or weakening in the rates used to translate the results of our foreign subsidiaries that have functional currencies denominated in sterling and euro would have increased or decreased net income for the year ended December 31, 2021 by approximately $14.6 million and $9.9 million, respectively.

Transactional exposure arises where transactions occur in currencies other than the functional currency.

Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction.

The resulting monetary assets and liabilities are translated into the appropriate functional currency at exchange rates prevailing at the balance sheet date and the resulting gains and losses are reported in foreign exchange gain (loss) in the consolidated statements of income.

As of December 31, 2020, our primary exposure to transaction risk related to euro net monetary liabilities, including intercompany loans, held by subsidiaries with a U.S.

As of December 31, 2021, our exposure to transaction risk primarily related to the translation of our Euro Term Loan and sterling and euro denominated net monetary liabilities, including intercompany loans, held by subsidiaries with a U.S.

dollar functional currency.

We have entered into foreign exchange forward contracts to manage this currency risk.

These foreign exchange forward contracts are not designated as hedges;

In order to hedge our exposure to foreign currency exchange risk associated with our Euro Term Loan, we entered into a cross-currency interest rate swap contract in May 2021 with a maturity date of March 31, 2022.

The terms of this contract convert the principal repayments and interest payments on our Euro Term Loan into U.S.

As of December 31, 2021, the cross-currency interest rate swap had a notional amount of $251.0 million which is designated for accounting purposes as a fair value hedge.

The net liability fair value of the cross currency swap was $15.2 million as of December 31, 2021.

The carrying amount of the Euro Term Loan and the fair value of the cross-currency interest rate swap contract will be remeasured with changes in the euro to U.S.

dollar foreign exchange rates recognized within foreign exchange gain (loss) in the consolidated statements of income (loss).

The impact of a hypothetical increase or decrease in the euro to U.S.

dollar exchange rate on the fair value of our cross-currency interest rate swap contract would be offset by a change in the value of the Euro Term Loan.

We have entered into foreign exchange forward contracts to manage the currency risk associated with the translation of our other sterling and euro-denominated net monetary liabilities, including intercompany loans.

These foreign exchange

forward contracts are not designated as hedges;

gains and losses on these derivative instruments are designed to offset gains and losses on the underlying balance sheet exposures.

As of December 31, 2021, we held foreign exchange forward contracts with notional amounts totaling $347.2 million.

The net asset fair value of outstanding foreign exchange forward contracts was $11.1 million as of December 31, 2020.

The net liability fair value of outstanding foreign exchange forward contracts was $2.6 million as of December 31, 2021.

Based on our foreign currency exchange rate exposures as of December 31, 2021, a hypothetical 10% adverse fluctuation in exchange rates would decrease the fair value of our foreign exchange forward contracts by approximately $15.4 million as of December 31, 2021.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk