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Derivatives and Hedging
 9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Derivatives and Hedging
The Company is exposed to various risks arising from business operations and market conditions, including fluctuations in interest rates and certain foreign currencies. When deemed appropriate, the Company uses derivative and non-derivative instruments as risk management tools to mitigate the potential impact of interest rate and foreign exchange rate risks. The objective of using these tools is to reduce fluctuations in the Company’s earnings and cash flows associated with changes in these rates. Derivative financial instruments are not used for trading or other speculative purposes. The Company has not historically incurred, and does not expect to incur in the future, any losses as a result of counterparty default related to derivative instruments.
The Company formally documents relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking cash flow hedges to specific forecasted transactions or variability of cash flow to be paid. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the designated derivative and non-derivative instruments that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. When a designated instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively.
The following table summarizes the location and carrying amounts of the derivative instruments and the foreign currency denominated debt, a non-derivative financial instrument, that are designated and qualify as part of hedging relationships:
September 30, 2020December 31, 2019
Instrument
Balance Sheet Location
NotionalBalanceNotionalBalance
Cash flow hedges:
Interest rate swaps
Other current liabilities
$800,000$512$800,000$24,792
Net investment hedges:
Forward contracts
Prepaid expenses and other current assets
$925,810$42,181$925,810$39,965
Forward contractOther current liabilities$235,180$9,098$—$—
Foreign currency debt
Long-term debt
€700,000$822,080€700,000$784,000
The derivative instruments are recognized in the condensed consolidated balance sheets at fair value and are designated as Level 2 in the fair value hierarchy. They are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves.
Cash Flow Hedges
The Company uses interest rate swaps to mitigate variability in forecasted interest payments on a portion of the Company’s U.S. dollar-denominated unsecured variable rate debt. The interest rate swaps effectively convert a portion of the floating rate interest payment into a fixed rate interest payment. The Company designates the interest rate swaps as qualifying hedging instruments and accounts for them as cash flow hedges. On May 1, 2020, the Company dedesignated its interest rate swaps and modified them to match the terms of its modified debt agreement and as a result the $48,492 payable as of that date was deemed a financing transaction. As of September 30, 2020, the amount payable was $41,803. Subsequent cash flows to pay this amount over the remaining term of the agreement are reflected within financing activities in the condensed consolidated statement of cash flows. This payable is classified within other current liabilities on the condensed consolidated balance sheets. The corresponding amount in AOCL is being amortized to interest expense on a straight-line basis over the remaining life of the
hedged instrument. The Company redesignated the portion of the modified interest rate swap that is not related to the financing agreement as a qualifying hedging instrument. Gains and losses from fair value adjustments on the cash flow hedges are initially classified in AOCL and are reclassified to interest expense on the dates interest payments are accrued.
Hedges of Net Investments in Foreign Operations
The Company has designated certain derivative instruments and a portion of its foreign currency denominated debt, a non-derivative financial instrument, as hedges of the foreign currency exchange rate exposure of the Company's Euro-denominated net investment in a European subsidiary. The Company applies the spot method to assess the hedge effectiveness of the derivative instruments and this assessment for each instrument excludes the initial value related to the difference at contract inception between the foreign exchange spot rate and the forward rate (i.e., the forward points). The initial value of this excluded component is recognized as a reduction to interest expense in a systematic and rational manner over the term of the derivative instrument. All other changes in value for the net investment hedges are included in AOCL within foreign currency translation and would only be reclassified to earnings if the European subsidiary were liquidated, or otherwise disposed.
The tables below presents gains and losses related to designated cash flow hedges and net investment hedges:
(Loss) Gain Recognized in AOCL Before ReclassificationsGain Recognized in Interest Expense For Excluded Components
2020201920202019
Three Months Ended September 30,
Cash flow hedges:
Interest rate contracts
$(277)$(3,766)$— $— 
Net investment hedges:
Forward contracts
(49,660)35,796 6,574 5,596 
Foreign currency debt
(35,140)30,030 — — 
Total$(85,077)$62,060 $6,574 $5,596 

(Loss) Gain Recognized in AOCL Before ReclassificationsGain Recognized in Interest Expense For Excluded Components
2020201920202019
Nine Months Ended September 30,
Cash flow hedges:
Interest rate contracts$(29,107)$(25,332)$— $— 
Net investment hedges:
Cross-currency swap— 2,936 — 2,294 
Forward contracts(33,959)41,436 20,572 12,220 
Foreign currency debt(38,080)35,140 — — 
Total$(101,146)$54,180 $20,572 $14,514