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Derivatives and Hedging Activities | 6 Months Ended
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Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | Derivatives and Hedging Activities Derivatives Designated as Hedging Instruments Net Investment Hedges. The Company is exposed to the impact of foreign exchange rate fluctuations on the value of investments in its foreign subsidiaries whose functional currencies are other than the U.S. Dollar. In order to mitigate the impact of foreign currency exchange rates, the Company has entered into various foreign currency debt obligations, which are designated as hedges against the Company's net investments in foreign subsidiaries. As of June 30, 2020 and December 31, 2019, the total principal amounts of foreign currency debt obligations designated as net investment hedges were $3,465.7 million and $4,078.7 million, respectively. The Company also uses cross-currency interest rate swaps to hedge a portion of its net investment in its European operations. As of June 30, 2020, U.S. Dollar to Euro cross-currency interest rate swap contracts with a total notional amount of $1,597.0 million were outstanding. As of December 31, 2019, U.S. Dollar to Euro cross-currency interest rate swap contracts with a total notional amount of $750.0 million were outstanding. At maturity of each outstanding contract, the Company will receive U.S. Dollars from and pay Euros to the contract counterparty. During the term of each contract, the Company receives interest payments in U.S. Dollars and makes interest payments in Euros based on a notional amount and fixed interest rates determined at contract inception. The effect of net investment hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income: |  |  |  |
|  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  |  | 2020 |  | 2019 |  | 2020 |  | 2019
Foreign currency debt |  | $ | (85,215 | ) |  | $ | (34,309 | ) |  | $ | 13,887 |  |  | $ | 29,606 |
Cross-currency interest rate swaps (included component) (1) |  | (10,333 | ) |  | (9,689 | ) |  | 3,807 |  |  | 5,826 |
Cross-currency interest rate swaps (excluded component) (2) |  | (1,510 | ) |  | 6,141 |  |  | 30,194 |  |  | 3,551 |
Total |  | $ | (97,058 | ) |  | $ | (37,857 | ) |  | $ | 47,888 |  |  | $ | 38,983 |
Amount of gain or (loss) recognized in earnings: |  |  |  |
| Location of gain or (loss) |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Cross-currency interest rate swaps (excluded component) (2) | Interest expense |  | $ | 5,459 |  |  | $ | 4,928 |  |  | $ | 10,548 |  |  | $ | 9,091 |
Total |  |  | $ | 5,459 |  |  | $ | 4,928 |  |  | $ | 10,548 |  |  | $ | 9,091 |
(1) | Included component represents foreign exchange spot rates.
(2) | Excluded component represents cross-currency basis spread and interest rates.
Cash Flow Hedges. The Company hedges its foreign currency translation exposure for forecasted revenues and expenses in its EMEA region between the U.S. Dollar and the British Pound, Euro, Swedish Krona and Swiss Franc. The foreign currency forward and option contracts that the Company uses to hedge this exposure are designated as cash flow hedges. As of June 30, 2020 and December 31, 2019, the total notional amounts of these foreign exchange contracts were $984.8 million and $824.8 million, respectively. As of June 30, 2020, the Company's foreign exchange contracts had maturity dates ranging from July 2020 to June 2022 and the Company recorded a net gain of $20.1 million within accumulated other comprehensive income (loss) relating to these foreign exchange contracts that will be reclassified to revenues and expenses as they mature in the next 12 months. As of December 31, 2019, the Company's foreign exchange contracts had maturity dates ranging from January 2020 to December 2021 and the Company recorded a net gain of $16.3 million within accumulated other comprehensive income (loss) relating to these foreign exchange contracts that will be reclassified to revenues and expenses as they mature in the next 12 months. The Company enters into intercompany hedging instruments ("intercompany derivatives") with wholly-owned subsidiaries of the Company in order to hedge certain forecasted revenues and expenses denominated in currencies other than the U.S. Dollar. Simultaneously, the Company enters into derivative contracts with unrelated third parties to externally hedge the net exposure created by such intercompany derivatives. The Company hedges the interest rate exposure created by anticipated fixed rate debt issuances through the use of treasury locks and forward starting swaps (collectively, interest rate locks), which are designated as cash flow hedges. As of June 30, 2020, the total notional amount of interest rate locks outstanding was $618.0 million. As of December 31, 2019, the Company had no interest rate locks outstanding. During the six months ended June 30, 2020, interest rate locks with a combined aggregate notional amount of $1.25 billion were settled related to the issuance of the 2025 Notes, 2027 Notes, 2030 Notes, and 2050 Notes in June 2020 as described i n Note 10 below. When interest rate locks are settled, any accumulated gain or loss included as a component of other comprehensive income (loss) are amortized to interest expense over the term of the interest rate locks. As of June 30, 2020, the Company recorded a net loss of $3.0 million within accumulated other comprehensive income (loss) to be reclassified to interest expense in the next 12 months for interest rate locks. As of December 31, 2019, the net loss and gain in accumulated other comprehensive income (loss) to be reclassified to interest expense in the next 12 months for interest rate locks was not significant. The effect of cash flow hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
|  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  |  | 2020 |  | 2019 |  | 2020 |  | 2019
Foreign currency forward and option contracts (included component)(1) |  | $ | (22,347 | ) |  | $ | (2,599 | ) |  | $ | 5,678 |  |  | $ | 8,366 |
Foreign currency option contracts (excluded component) (2) |  | 358 |  |  | (1,405 | ) |  | 1,676 |  |  | (1,405 | )
Interest rate locks |  | (650 | ) |  | — |  |  | (26,882 | ) |  | — |
Total |  | $ | (22,639 | ) |  | $ | (4,004 | ) |  | $ | (19,528 | ) |  | $ | 6,961 |
Amount of gain or (loss) reclassified from accumulated other comprehensive income to income:
|  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
| Location of gain or (loss) |  | 2020 |  | 2019 |  | 2020 |  | 2019
Foreign currency forward contracts | Revenues |  | $ | 20,558 |  |  | $ | 18,684 |  |  | $ | 41,777 |  |  | $ | 28,545 |
Foreign currency forward contracts | Costs and operating expenses |  | (10,498 | ) |  | (9,745 | ) |  | (21,498 | ) |  | (15,074 | )
Interest rate locks | Interest Expense |  | 90 |  |  | — |  |  | 258 |  |  | — |
Total |  |  | $ | 10,150 |  |  | $ | 8,939 |  |  | $ | 20,537 |  |  | $ | 13,471 |
Amount of gain or (loss) excluded from effectiveness testing included in income:
|  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
| Location of gain or (loss) |  | 2020 |  | 2019 |  | 2020 |  | 2019
Foreign currency forward contracts | Other income (expense) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 88 |
Foreign currency option contracts (excluded component) (2) | Revenues |  | (503 | ) |  | (17 | ) |  | (1,024 | ) |  | (17 | )
Total |  |  | $ | (503 | ) |  | $ | (17 | ) |  | $ | (1,024 | ) |  | $ | 71 |
(1) | Included component represents foreign exchange spot rates.
(2) | Excluded component represents option's time value.
Derivatives Not Designated as Hedging Instruments Embedded Derivatives. The Company is deemed to have foreign currency forward contracts embedded in certain of the Company's customer agreements that are priced in currencies different from the functional or local currencies of the parties involved. These embedded derivatives are separated from their host contracts and carried on the Company's balance sheet at their fair value. The majority of these embedded derivatives arise as a result of the Company's foreign subsidiaries pricing their customer contracts in U.S. Dollars. Economic Hedges of Embedded Derivatives. The Company uses foreign currency forward contracts to manage the foreign exchange risk associated with the Company's customer agreements that are priced in currencies different from the functional or local currencies of the parties involved ("economic hedges of embedded derivatives"). Foreign currency forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Foreign Currency Forward Contracts. The Company also uses foreign currency forward contracts to manage the foreign exchange risk associated with certain foreign currency-denominated monetary assets and liabilities. As a result of foreign currency fluctuations, the U.S. Dollar equivalent values of its foreign currency-denominated monetary assets and liabilities change. Gains and losses on these contracts are included in other income (expense), on a net basis, along with the foreign currency gains and losses of the related foreign currency-denominated monetary assets and liabilities associated with these foreign currency forward contracts. As of June 30, 2020 and December 31, 2019, the total notional amounts of these foreign currency contracts were $3.6 billion and $2.5 billion, respectively. The following table presents the effect of derivatives not designated as hedging instruments in the Company's condensed consolidated statements of operations (in thousands):
Amount of gain or (loss) recognized in earnings: |  |  |  |  |  |  |  |
|  |  | Three Months Ended June 30, |  | Six Months Ended June 30,
| Location of gain or (loss) |  | 2020 |  | 2019 |  | 2020 |  | 2019
Embedded derivatives | Revenues |  | $ | (2,741 | ) |  | $ | (185 | ) |  | $ | 4,710 |  |  | $ | 722 |
Economic hedge of embedded derivatives | Revenues |  | 2,301 |  |  | 598 |  |  | (5,601 | ) |  | 541 |
Foreign currency forward contracts | Other income (expense) |  | (113,016 | ) |  | 10,148 |  |  | 20,808 |  |  | 18,499 |
Total |  |  | $ | (113,456 | ) |  | $ | 10,561 |  |  | $ | 19,917 |  |  | $ | 19,762 |
Fair Value of Derivative Instruments The following table presents the fair value of derivative instruments recognized in the Company's condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 (in thousands):
| June 30, 2020 |  | December 31, 2019
| Assets (1) |  | Liabilities (2) |  | Assets (1) |  | Liabilities (2)
Designated as hedging instruments: |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |
Foreign currency forward and option contracts | $ | 27,084 |  |  | $ | 3,896 |  |  | $ | 24,853 |  |  | $ | 5,898 |
Interest rate locks | 886 |  |  | 1,583 |  |  | — |  |  | — |
Net investment hedges |  |  |  |  |  |  |
Cross-currency interest rate swaps | 60,252 |  |  | — |  |  | 26,251 |  |  | — |
Total designated as hedging | 88,222 |  |  | 5,479 |  |  | 51,104 |  |  | 5,898 |
Not designated as hedging instruments: |  |  |  |  |  |  |
Embedded derivatives | 8,227 |  |  | 1,223 |  |  | 4,595 |  |  | 2,268 |
Economic hedges of embedded derivatives | 1,937 |  |  | 42 |  |  | 1,367 |  |  | — |
Foreign currency forward contracts | 990 |  |  | 75,101 |  |  | 641 |  |  | 27,446 |
Total not designated as hedging | 11,154 |  |  | 76,366 |  |  | 6,603 |  |  | 29,714 |
Total Derivatives | $ | 99,376 |  |  | $ | 81,845 |  |  | $ | 57,707 |  |  | $ | 35,612 |
(1) | As presented in the Company's condensed consolidated balance sheets within other current assets and other assets.
(2) | As presented in the Company's condensed consolidated balance sheets within other current liabilities and other liabilities.
Offsetting Derivative Assets and Liabilities The Company presents its derivative instruments and the accrued interest related to cross-currency interest rate swaps at gross fair values in the condensed consolidated balance sheets. The Company enters into master netting agreements with its counterparties for transactions other than embedded derivatives to mitigate credit risk exposure to any single counterparty. Master netting agreements allow for individual derivative contracts with a single counterparty to offset in the event of default. For presentation on the condensed consolidated balance sheets, the Company does not offset fair value amounts recognized for derivative instruments or the accrued interest related to cross-currency interest rate swaps under master netting arrangements. The following table presents information related to these offsetting arrangements as of June 30, 2020 and December 31, 2019 (in thousands):
| Gross Amounts Offset in Consolidated Balance Sheet |  |  |  |
| Gross Amounts |  | Gross Amounts Offset in the Balance Sheet |  | Net Amounts |  | Gross Amounts not Offset in the Balance Sheet |  | Net
June 30, 2020 |  |  |  |  |  |  |  |  |
Derivative assets | $ | 119,426 |  |  | $ | — |  |  | $ | 119,426 |  |  | $ | (60,426 | ) |  | $ | 59,000 |
Derivative liabilities | 92,804 |  |  | — |  |  | 92,804 |  |  | (60,426 | ) |  | 32,378 |
December 31, 2019 |  |  |  |  |  |  |  |  |
Derivative assets | $ | 76,640 |  |  | $ | — |  |  | $ | 76,640 |  |  | $ | (37,820 | ) |  | $ | 38,820 |
Derivative liabilities | 45,832 |  |  | — |  |  | 45,832 |  |  | (37,820 | ) |  | 8,012 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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