Derivatives and Hedging

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We are exposed to various risks arising from business operations and market conditions, including fluctuations in interest rates and certain foreign currencies. When deemed appropriate, we use 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 our earnings and cash flows associated with changes in these rates. Derivative financial instruments are not used for trading or other speculative purposes. We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default related to derivative instruments.

We formally document our 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 flows to be paid. We also formally assess, 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.

Net Investment Hedges

We have designated certain derivative instruments and a portion of our foreign currency denominated debt, a non-derivative financial instrument, as hedges of the foreign currency exchange rate exposure of our Euro-denominated net investment in a European subsidiary. We apply 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 accumulated other comprehensive loss (“AOCL”) within foreign currency translation and would only be reclassified to earnings if the European subsidiary were liquidated, or otherwise disposed.

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 (in thousands):


		March 31, 2022				December 31, 2021
Instrument	Balance Sheet Location	Notional		Balance		Notional		Balance
Net investment hedges:
Forward contracts	Prepaid expenses and other current assets	$	1,406,950	$	97,842	$	925,810	$	73,819
Forward contracts	Other current liabilities	$	—	$	—	$	235,180	$	2,935
Foreign currency debt	Long-term debt	€	700,000	$	781,060	€	700,000	$	792,820

The tables below presents gains related to designated net investment hedges:


	Gain Recognized in AOCL before Reclassifications				Gain Recognized in Interest Expense for Excluded Components
(in thousands)	2022		2021		2022		2021
Three Months Ended March 31,
Net investment hedges:
Forward contracts	$	19,393	$	37,515	$	7,565	$	6,574
Foreign currency debt	11,760		40,950		—		—
Total	$	31,153	$	78,465	$	7,565	$	6,574