Derivatives and Hedging Activity

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

16. Derivatives and Hedging Activity

We adopted ASU

2017-12

on January 1, 2019. Among other provisions, the new standard required modification to existing presentation and disclosure requirements on a prospective basis. As such, certain disclosures below conform to the disclosure requirements prior to the adoption of ASU

2017-12.

We are exposed to market risks, including changes in foreign currency exchange rates and interest rates. To manage the risk related to these exposures, we enter into various derivative instruments that reduce these risks by creating offsetting exposures. We generally do not enter into derivative transactions for trading or speculative purposes.

Foreign Exchange Risk Management

We are exposed to foreign exchange risk when we earn revenues, pay expenses, or enter into monetary intercompany transfers denominated in a currency that differs from our functional currency, or other transactions that are denominated in a currency other than our functional currency. We use foreign exchange derivatives, typically forward contracts and options, to reduce our overall exposure to the effects of currency fluctuations on cash flows. These exposures are hedged, on average, for less than three years.

Interest Rate Risk Management

We enter into various long-term debt agreements. We use interest rate derivatives, typically swaps, to reduce our exposure to the effects of interest rate fluctuations on the forecasted interest rates for up to three years into the future.

We have not received or pledged any collateral related to derivative arrangements at December 31, 2019.

The notional and fair values of derivatives designated as hedging instruments are as follows at December 31, 2019 and 2018 (in millions):


			Derivative Assets			Derivative Liabilities
Instrument	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At December 31, 2019
Interest rate contracts	$	800.0	Other current assets	$	2.8	Accrued compensation and	$	25.0
			Other noncurrent assets		5.4	other current liabilities
						Other noncurrent liabilities		23.0
Foreign exchange contracts (1)		31.7	Other current assets		4.5	Accrued compensation and		1.8
						other current liabilities
			Other noncurrent assets		8.5	Other noncurrent liabilities		2.6

Total	$	831.7		$	21.2		$	52.4

At December 31, 2018
Interest rate contracts	$	850.0	Other current assets	$	3.0	Accrued compensation and	$	13.0
						other current liabilities
Foreign exchange contracts (1)		51.4	Other current assets		0.9	Accrued compensation and		4.9
						other current liabilities
			Other noncurrent assets		5.7	Other noncurrent liabilities		7.9

Total	$	901.4		$	9.6		$	25.8

(1)

Included within foreign exchange contracts at December 31, 2019 were $342.0 million of call options offset with $342.0 million of put options, and $12.1 million of buy forwards offset with $43.8 million of sell forwards. Included within foreign exchange contracts at December 31, 2018 were $276.4 million of call options offset with $276.4 million of put options, and $23.1 million of buy forwards offset with $72.9 million of sell forwards.

The effect of cash flow hedge accounting on accumulated other comprehensive loss were as follows (in millions):


Instrument	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (1)			Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings			Amount of Gain (Loss) Recognized in Earnings Related to Amount Excluded from Effectiveness Testing			Statement of Earnings Classification
Year ended December 31, 2019
Interest rate contracts	$	(47.0	)	$	(1.2	)	$	—		Interest expense
Foreign exchange contracts		9.9			(1.6	)		(0.8	)	Commission revenue
					(1.4	)		1.2		Compensation expense
					(1.0	)		0.9		Operating expense

Total	$	(37.1	)	$	(5.2	)	$	1.3

Year ended December 31, 2018
Interest rate contracts	$	(9.3	)	$	1.1		$	—		Interest expense
Foreign exchange contracts		(6.4	)		2.3			—		Commission revenue
					1.3			—		Compensation expense
					1.0			—		Operating expense

Total	$	(15.7	)	$	5.7		$	—

(1)	During 2019, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss were a loss of $0.2 million.

We estimate that approximately $1.8 million of pretax income currently included within accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.