Fair value of financial instruments

3 Months Ended

Mar. 31, 2020

Investments in Marketable Securities

We have investments in mutual funds and equity securities that are carried at fair value in the financial statements. For these investments, fair value was based on quoted market prices, which we have categorized as a Level 1 valuation.

Fixed-Rate Debt

The fair value and carrying value of our fixed-rate debt are as follows:



(In millions)	March 31, 2020		December 31, 2019

Senior unsecured notes
Carrying value	$	600.0	600.0
Fair value	540.4		624.7

The fair value estimate of our senior unsecured notes was based on the present value of future cash flows, discounted at rates for similar instruments at the measurement date, which we have categorized as a Level 3 valuation.

Forward and Swap Contracts

We have outstanding foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies. At March 31, 2020, the notional value of our short term outstanding foreign currency forward and swap contracts was $722 million, with average maturities of approximately one month. These foreign currency forward and swap contracts primarily offset exposures in the British pound and the Brazilian real and are not designated as hedges for accounting purposes and, accordingly, changes in their fair value are recorded immediately in earnings. At March 31, 2020, the fair value of our short term foreign currency contracts was a net liability of approximately $5.4 million, of which $3.5 million was included in prepaid expenses and other and $8.9 million was included in accrued liabilities on the condensed consolidated balance sheet. At December 31, 2019, the fair value of these foreign currency contracts was a net asset of approximately $0.6 million, of which $0.8 million was included in prepaid expenses and other and $0.2 million was included in accrued liabilities on the condensed consolidated balance sheet.

We recognized gains of $1.3 million on our short term foreign currency contracts in the first three months of 2020 and gains of $3.9 million in the first three months of 2019 which are included in other operating income (expense). We additionally recognized losses of $7.7 million in the first three months of 2020 which are included in interest and other nonoperating income and expense since these contracts related to our business acquisitions.

In the first quarter of 2019, we entered into a long term cross currency swap contract to hedge exposure in Brazilian real, which is designated as a cash flow hedge for accounting purposes. At March 31, 2020, the notional value of this long term contract was $116 million with a weighted-average maturity of 2.3 years. At March 31, 2020, the fair value of the long term cross currency swap contract was a $28.4 million net asset, of which $3.0 million is included in prepaid expenses and other and $25.4 million is included in other assets on the condensed consolidated balance sheet. At December 31, 2019, the fair value of the long term cross currency swap contract was a $2.1 million net asset, of which a $4.9 million asset is included in other assets and a $2.8 million liability is included in accrued liabilities on the condensed consolidated balance sheet.

In the first three months of 2020, we recognized net gains of $25.4 million on this contract, of which gains of $26.1 million were included in other operating income (expense) to offset transaction losses of $26.1 million and expenses of $0.7 million were included in interest expense. In the first three months of 2019, we recognized net gains of $2.4 million on this contract, of which gains of $3.8 million were included in other operating income (expense) to offset transaction losses of $3.8 million and expenses of $1.4 million were included in interest expense.

In the first quarter of 2016, we entered into two interest rate swaps to hedge cash flow risk associated with changes in variable interest rates and that are designated as cash flow hedges for accounting purposes. At March 31, 2020, the notional value of these contracts was $40 million with a remaining weighted-average maturity of 0.5 years. At March 31, 2020, the fair value of these interest rates swaps was a liability of $0.4 million and was included in accrued liabilities on the condensed consolidated balance sheet. At December 31, 2019, the fair value of these interest rate swaps was an asset of $0.2 million and was included in prepaid expenses and other on the condensed consolidated balance sheet. The effect of these swaps is included in interest expense and was not significant in the first three months of 2020 or 2019.

In the first quarter of 2019, we entered into ten interest rate swaps that hedge cash flow risk associated with changes in variable interest rates and that are designated as cash flow hedges for accounting purposes. At March 31, 2020, the notional value of these contracts was $400 million with a remaining weighted-average maturity of 2.0 years. At March 31, 2020, the fair value of these interest rate swaps was a net liability of $33.0 million, of which $8.8 million was included in accrued liabilities and $24.2 million was included in other liabilities on the condensed consolidated balance sheet. At December 31, 2019, the fair value of these interest rate swaps was a net liability of $15.0 million, of which $3.6 million was included in accrued liabilities and $11.4 million was included in other liabilities on the condensed consolidated balance sheet. The effect of these swaps is included in interest expense. Accordingly, $0.8 million was included in interest expense in the first quarter of 2020. The amount included in interest expense in the first quarter of 2019 was not significant.

The fair values of these forward and swap contracts are based on the present value of net future cash payments and receipts, which we have categorized as a Level 2 valuation.

Other Financial Instruments

Other financial instruments include cash and cash equivalents, accounts receivable, floating rate debt, accounts payable and accrued liabilities. The financial statement carrying amounts of these items approximate the fair value.

There were no transfers in or out of any of the levels of the valuation hierarchy in the first three months of 2020.