The Company actively monitors its exposure to interest rate and foreign currency exchange rate risks and uses derivative financial instruments to manage the impact of risks associated with underlying interest rate and foreign exchange rate exposures. The Company's use of these derivative financial instruments may result in short-term gains or losses and increased earnings volatility. The instruments held by the Company are recorded in the consolidated balance sheets at fair value in prepaid expenses and other, other assets, accrued expenses or other long-term liabilities.

The Company may designate derivatives as a hedge of a forecasted transaction or a hedge of the variability of the cash flows to be received or paid in the future related to a recognized asset or liability (cash flow hedge). The portion of the changes in the fair value of the derivative used as a cash flow hedge that is offset by changes in the expected cash flows related to a recognized asset or liability is recorded in other comprehensive income/(loss) (OCI). Amounts recorded in OCI may be realized and reported in the consolidated statements of operations on the same line item as the hedged item in the event the hedged item is settled, did not or is no longer expected to occur or if the hedging relationship is no longer effective.

The Company may designate fair value hedges to mitigate foreign currency exchange rates on non-functional currency assets or liabilities. The Company uses the mark-to-market approach to remeasure the hedged item and the hedging instrument. The changes in the fair value of the hedged item is included in other income/(loss), net and are offset by changes in the fair value of the hedging instrument which are reported in the same income statement line item.

In addition, the Company may designate net investment hedges to reduce the impact of the variability of foreign currency exchange rates on its net investments in certain non-U.S. operations using cross-currency swaps. The Company measures the effectiveness of the hedge by offsetting the changes in the fair value of the cross-currency swap and the hedged asset or liability. Gains and losses on the after-tax effective portion of the net investment hedge are reported in currency translation adjustments where they remain until the investment is liquidated. The Company records the portion of the gain or loss on the hedging instrument that exceeds the gain or loss of the hedged item as an offset to the tax impact recognized during the period.

The Company matches the hedge instrument to the underlying hedged item (assets, liabilities, firm commitments or forecasted transactions). At inception of the hedge and at least quarterly thereafter, the Company assesses whether the derivatives used to hedge transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. When it is determined that a derivative instrument ceases to be a highly effective hedge of the underlying transaction, the Company discontinues hedge accounting, and any gains or losses on the derivative instrument thereafter are recognized in earnings during the period in which it no longer qualifies for hedge accounting. Gains and losses on any excluded components of derivatives designated as hedges are recorded in OCI and amortized to other income/(loss), net over the life of the hedge.

From time to time, the Company may enter into certain derivative instruments that may not be designated as hedges for accounting purposes. The Company believes such instruments are closely correlated with the underlying exposure, thus reducing the associated risk. The gains or losses from the changes in the fair value of derivative instruments not accounted for using hedge accounting are recognized in current period earnings within other income/(loss), net.



		Fair Value
	Balance Sheet Location	June 30, 2019		December 31, 2018
Asset Derivatives:
Derivatives designated as cash flow hedges:
British pound forward contracts	Prepaid expenses and other	$	3,055	$	—
British pound forward contracts	Other assets	—		26,011
Total derivatives designated as hedges		$	3,055	$	26,011
Derivatives not designated as hedges:
Cross-currency swap contract	Prepaid expenses and other	$	—	$	19,684
Total derivatives not designated as hedges		$	—	$	19,684

Liability Derivatives:
Derivatives designated as cash flow hedges:
Interest rate swap agreements	Accrued expenses	$	6,774	$	1,954
British pound forward contracts	Accrued expenses	14		—
Interest rate swap agreements	Other long-term liabilities	53,446		12,441
British pound forward contracts	Other long-term liabilities	—		59
Derivative designated as a net investment hedge:
Cross-currency swap contract	Other long-term liabilities	807		—
Derivative designated as a fair value hedge:
Cross-currency swap contract	Other long-term liabilities	2,387		—
Total derivatives designated as hedges		$	63,428	$	14,454

The following table shows the effective portion of net changes in the fair value of the Company's derivative instruments designated as hedges recognized in OCI, net of tax for the three and six months ended June 30, 2019 and 2018 (dollars in thousands):



	Total Derivatives Designated as Hedges OCI Activity, Net of Tax
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Derivatives Designated as Hedges:
Cash Flow Hedges:
Interest rate swap agreements	$	(21,299	)	$	2,687		$	(34,705	)	$	9,580
Foreign currency forward contracts	—			288			—			288
British pound forward contracts, net ^(a)	1,026			(274		)	1,458			(265		)
	$	(20,273	)	$	2,701		$	(33,247	)	$	9,603
Net Investment Hedge:
Cross-currency swap contract	$	(822	)	$	—		$	(822	)	$	—

Fair Value Hedge:
Cross-currency swap contract	$	(430	)	$	—		$	(430	)	$	—

Total derivatives designated as hedges	$	(21,525	)	$	2,701		$	(34,499	)	$	9,603

The three and six months ended June 30, 2018 represented a net loss of $9.2 million and $3.7 million, respectively, for the mark-to-market of the U.K. intercompany loan, partially offset by a net gain of $9.0 million and $3.5 million, respectively, for the mark-to-market of the British Pound forward contracts.

The following table shows the effect of the Company's derivative instruments not designated as hedges for the three and six months ended June 30, 2019 and 2018 in the consolidated statements of operations (dollars in thousands):



		Amount Recognized in Earnings
	Location of Amount Recognized in Earnings	Three Months Ended				Six Months Ended
		June 30,				June 30,
		2019		2018		2019			2018
Derivatives Not Designated as Hedges:
Cross-currency swap agreements, net ^(a)	Other income/(loss), net	$	715	$	272	$	(1,770	)	$	(2,490	)

The three months ended June 30, 2018 represented a net gain of $3.0 million for the mark-to-market of the GRail Intercompany Loan, partially offset by a net loss of $2.8 million for the mark-to-market of the swaps. The six months ended June 30, 2018 represented a net loss of $5.1 million for the mark-to-market of the GRail Intercompany Loan, partially offset by a net gain of $2.6 million for the mark-to-market of the swaps.



	Six Months Ended
	June 30, 2019
Derivatives designated as hedges:
British pound forward contracts	$	26,088

Derivatives not designated as hedges:
Cross-currency swap contract	19,272
Total cash received from settlement of derivative transactions, investing activities	$	45,360

The Company uses interest rate swap agreements to manage its exposure to the changes in interest rates on the Company's variable rate debt. Interest payments accrued each reporting period for these interest rate swaps are recognized in interest expense.

During the three and six months ended June 30, 2019, $1.0 million and $1.5 million, respectively, of net losses associated with the Company's interest rate swaps were realized and recorded as interest expense in the consolidated statements of operations. During the three and six months ended June 30, 2018, $0.2 million and $0.7 million, respectively, of net losses associated with the Company's interest rate swaps were realized and recorded as interest expense in the consolidated statements of operations. Based on the Company's fair value assumptions as of June 30, 2019, it expects to realize $7.0 million of net losses that are reported in accumulated other comprehensive loss (AOCL) into earnings within the next 12 months. See Note 11, Accumulated Other Comprehensive Loss, for additional information regarding the Company's derivatives designated as hedges.

As of June 30, 2019, the Company's foreign subsidiaries had $1.0 billion of third-party debt, including finance leases, denominated in the local currencies in which the Company's foreign subsidiaries operate, including the Australian dollar, the British pound, the Canadian dollar and the Euro. The debt service obligations associated with this foreign currency debt are generally funded directly from those foreign operations. As a result, foreign currency risk related to this portion of the Company's debt service payments is limited. However, in the event the foreign currency debt service is not paid by the Company's foreign subsidiaries and is paid by its United States subsidiaries, the Company may face exchange rate risk if the Australian dollar, the British pound, the Canadian dollar or the Euro were to appreciate relative to the United States dollar and require higher United States dollar equivalent cash.

The Company is also exposed to foreign currency exchange rate risk, including non-functional currency intercompany debt, typically associated with acquisitions and any timing difference between announcement and closing of an acquisition of a foreign business. To mitigate currency exposures related to non-functional currency denominated intercompany debt, foreign currency forward contracts or cross-currency swaps may be entered into for periods consistent with the underlying debt. In cases where foreign currency forward contracts or cross-currency swaps do not qualify for hedge accounting, the gains or losses from changes in the fair value are recognized in current period earnings within other income/(loss), net.

In 2015, the Company, in conjunction with the acquisition of Freightliner Group Limited (Freightliner) in the U.K., transferred cash from the United States to the U.K. through an intercompany loan with a notional amount of £120.0 million (or $181.0 million at the exchange rate on the effective date of the loan). To mitigate the foreign currency exchange rate risk related to the outstanding balance of this loan, the Company entered into British pound forward contracts, which were accounted for as cash flow hedges. During the six months ended June 30, 2019, the Company settled certain of its British pound forward contracts, which had notional amounts totaling £120.0 million with a settlement date of March 31, 2020 and exchange rates ranging from 1.50 to 1.51 GBP to USD. Upon settlement, the Company received cash proceeds of $26.1 million.

As of June 30, 2019, the Company's outstanding British pound forward contracts had a notional amount of £32.6 million with a settlement date of March 31, 2020 and exchange rates ranging from 1.28 to 1.57 GBP to USD. During the three and six months ended June 30, 2019, $0.5 million and $0.7 million, respectively, of net gains were recorded as interest income in the consolidated statements of operations. During the three and six months ended June 30, 2018, $0.2 million and $0.3 million, respectively, of net gains were recorded as interest expense in the consolidated statements of operations. Based on the Company's fair value assumptions as of June 30, 2019, it expects to realize $0.3 million of net gains that are reported in AOCL into earnings within the next 12 months. See Note 11, Accumulated Other Comprehensive Loss, for additional information regarding the Company's derivatives designated as hedges.

In 2016, in conjunction with an acquisition in Australia, the Company's subsidiaries, G&W Australia Holdings LP (GWAHLP) and GWI Holding B.V. (GWBV), entered into an A$248.9 million non-recourse subordinated partner loan agreement (GRail Intercompany Loan), which is eliminated in consolidation. To mitigate the foreign currency exchange rate risk related to the non-functional currency intercompany loan, the Company entered into two Euro/Australian dollar floating-to-floating cross-currency swap agreements (the Swaps) on December 22, 2016. These agreements did not qualify as hedges for accounting purposes, and, accordingly, mark-to-market changes in the fair value of the Swaps relative to the underlying GRail Intercompany Loan were recorded over the life of the agreements, which expired on June 30, 2019. Upon settlement of the agreements, the Company received cash proceeds of €17.0 million (or $19.3 million at the exchange rate on June 30, 2019).

In June 2019, the Company entered into two new cross-currency swap agreements designated as fair value hedges of the non-functional currency GRail intercompany loan. In addition, the Company entered into a cross-currency swap in June 2019 that was designated as a net investment hedge of the GWBV investment. During the three and six months ended June 30, 2019, the Company recognized a gain of less than $0.1 million of foreign currency translation adjustment within OCI and a loss of less than $0.1 million within other income/(loss), net in the consolidated statement of operations related to amortization of excluded components of its net investment hedge. Based on the Company's assumptions as of June 30, 2019, its net investment hedge and fair value hedge, which each terminate on June 30, 2021, are expected to realize $0.4 million and $0.2 million, respectively, of net losses that are currently reported in AOCL into earnings within the next 12 months. See Note 11, Accumulated Other Comprehensive Loss, for additional information regarding the Company's derivatives designated as hedges.