Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

(i) interest rate swap agreements (which are designated as cash flow hedges), (ii) cross-currency swap agreements (which are designated as net investment hedges) and (iii) foreign exchange currency forward contracts (which are not designated as hedges).

Interest Rate Swap Agreements Designated as Cash Flow Hedges

In March 2018, we entered into interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness. As of September 30, 2019 and December 31, 2018, we had $350,000 in notional value of interest rate swap agreements outstanding, which expire in March 2022. Under the interest rate swap agreements, we receive variable rate interest payments associated with the notional amount of each interest rate swap, based upon one-month LIBOR, in exchange for the payment of fixed interest rate payments (at the fixed interest rate specified in the interest rate swap agreements).

In July 2019, we entered into forward-starting interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness once our current interest rate swap agreements expire in March 2022. The forward-starting interest rate swap agreements have $350,000 in notional value, commence in March 2022 and expire in March 2024. Under the swap agreements we will receive variable rate interest payments based upon one-month LIBOR, in exchange for the payment of fixed interest rate payments at the rates specified in the interest rate swap agreements.

We have designated these interest rate swap agreements, including the forward-starting interest rate swap agreements, as cash flow hedges. Unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. At September 30, 2019 and December 31, 2018, we had a derivative liability of $12,046 and $973, respectively, which was recorded as a component of Other long-term liabilities in our Condensed Consolidated Balance Sheets. We have recorded the change in fair value of the interest rate swap agreements as a component of accumulated other comprehensive income. We have recorded unrealized losses of $3,468 and $11,073 for the three and nine months ended September 30, 2019, respectively. We have recorded unrealized gains of $1,980 and $4,183 for the three and nine months ended September 30, 2018, respectively. As of September 30, 2019, cumulative net losses of $12,046 are recorded within accumulated other comprehensive items, net associated with these cash flow hedges.

Net Investment Hedges

a. Cross-Currency Swap Agreements Designated as a Hedge of Net Investment

In August 2019, we entered into cross-currency swap agreements to hedge the variability of exchange rate impacts between the United States dollar and the Euro. Under the terms of the cross-currency swap agreements we notionally exchanged approximately $110,000 at an interest rate of 6.0% for approximately 99,055 Euros at a weighted average interest rate of approximately 3.65%. The cross-currency swap agreements, which expire in August 2023, are designated as a hedge of net investment against certain of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity. The cross-currency swaps are marked to market at each reporting period and any changes in fair value are recognized as a component of accumulated other comprehensive income. Unrealized gains are recognized as assets while unrecognized losses are recognized as liabilities. At September 30, 2019, we had a derivative asset of $1,972, which was recorded as a component of Other within Other assets, net in our Condensed Consolidated Balance Sheet, which represents the fair value of the cross-currency swap agreements. We have recorded unrealized gains of $1,972 for the three and nine months ended September 30, 2019.

b. Euro Notes Designated as a Hedge of Net Investment

In addition, we have designated a portion of our Euro Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. For the nine months ended September 30, 2019, we designated, on average, 279,821 Euros of our Euro Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. For the nine months ended September 30, 2018, we designated, on average, 209,276 Euros of our Euro Notes as a hedge of net investment of certain of our Euro denominated subsidiaries. As a result, we recorded foreign exchange gains (losses) of $13,101 and $14,962 for the three and nine months ended September 30, 2019, respectively, and $2,139 and $6,761 for the three and nine months ended September 30, 2018, respectively, related to the change in fair value of such debt due to currency translation adjustments, which is a component of accumulated other comprehensive items, net. As of September 30, 2019, cumulative net gains of $29,220, net of tax, are recorded in accumulated other comprehensive items, net associated with this net investment hedge.

Foreign Exchange Currency Forward Contracts Not Designated as Hedges

We have entered into forward contracts to hedge our exposures associated with certain foreign currencies. We have not designated any of these forward contracts as hedges. Our policy is to record the fair value of each derivative instrument on a gross basis. As of September 30, 2019, we had no outstanding forward contracts. As of December 31, 2018, we had outstanding forward contracts to purchase 29,000 Euros and sell $33,374 United States dollars. At December 31, 2018, we had a derivative asset of $93 which was recorded as a component of Prepaid expenses and other in our Condensed Consolidated Balance Sheet. We recorded losses for our derivative instruments not recognized as hedging instruments for the three and nine months ended September 30, 2019 of $0 and $737, respectively. We recorded losses for our derivative instruments not recognized as hedging instruments for the three and nine months ended September 30, 2018 of $616 and $4,172, respectively. The gains and losses for our derivative instruments not recognized as derivative instruments are included as a component of foreign currency transaction (gains) losses, net within Other (income) expense, net in our Condensed Consolidated Statement of Operations.