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Derivatives and Hedging Activities | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | Derivatives and Hedging Activities Derivatives Designated as Hedging Instruments Net Investment Hedges. We are exposed to the impact of foreign exchange rate fluctuations on the value of investments in our foreign subsidiaries whose functional currencies are other than the U.S. Dollar. In order to mitigate the impact of foreign currency exchange rates, we have entered into various foreign currency debt obligations, which are designated as hedges against our net investments in foreign subsidiaries. As of September 30, 2021 and December 31, 2020, the total principal amounts of foreign currency debt obligations designated as net investment hedges were $1.5 billion and $1.9 billion, respectively. We also use cross-currency interest rate swaps, which effectively convert a portion of our U.S. dollar-denominated fixed-rate debt to foreign currency-denominated fixed-rate debt, to hedge the currency exposure associated with our net investment in our foreign subsidiaries. As of September 30, 2021 and December 31, 2020, we had cross-currency interest rate swaps outstanding with notional amounts of $4.0 billion and $3.3 billion respectively, with maturity dates ranging through 2026. From time to time, we use foreign currency forward contracts to hedge against the effect of foreign exchange rate fluctuations on our net investment in our foreign subsidiaries. As of September 30, 2021 and December 31, 2020, the total notional amount of foreign currency forward contracts designated as net investment hedges were $375.7 million and $355.6 million respectively. The effect of net investment hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign currency debt |  | $ | 36,308 |  |  | $ | (130,774) |  |  | $ | 81,290 |  |  | $ | (116,887) |
Cross-currency interest rate swaps (included component) (1) |  | 89,494 |  |  | (78,226) |  |  | 207,598 |  |  | (74,419) |
Cross-currency interest rate swaps (excluded component) (2) |  | (2,527) |  |  | (16,588) |  |  | (27,944) |  |  | 13,606 |
Foreign currency forward contracts (included component) (1) |  | 7,858 |  |  | (1,485) |  |  | 3,302 |  |  | (1,485) |
Foreign currency forward contracts (excluded component) (3) |  | (53) |  |  | (28) |  |  | (27) |  |  | (28) |
Total |  | $ | 131,080 |  |  | $ | (227,101) |  |  | $ | 264,219 |  |  | $ | (179,213) |
Amount of gain or (loss) recognized in earnings: |  |  |  |
| Location of gain or (loss) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Cross-currency interest rate swaps (excluded component) (2) | Interest expense |  | $ | 11,863 |  |  | $ | 6,613 |  |  | $ | 32,478 |  |  | $ | 17,161 |
Foreign currency forward contracts (excluded component) (3) | Interest expense |  | 38 |  |  | 1 |  |  | 242 |  |  | 1 |
Total |  |  | $ | 11,901 |  |  | $ | 6,614 |  |  | $ | 32,720 |  |  | $ | 17,162 |
(1)Included component represents foreign exchange spot rates. (2)Excluded component represents cross-currency basis spread and interest rates. (3)Excluded component represents foreign currency forward points. Cash Flow Hedges. We hedge our foreign currency transaction exposure for forecasted revenues and expenses in our 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 we use to hedge this exposure are designated as cash flow hedges. As of September 30, 2021 and December 31, 2020, the total notional amounts of these foreign exchange contracts were $898.5 million and $912.9 million, respectively. As of September 30, 2021, our foreign currency cash flow hedge instruments had maturity dates ranging from October 2021 to September 2023 and we had a net gain of $1.6 million recorded within accumulated other comprehensive income (loss) to be reclassified to revenues and expenses relating to these cash flow hedges as they mature in the next 12 months. As of December 31, 2020, our foreign currency cash flow hedge instruments had maturity dates ranging from January 2021 to December 2022 and we had a net loss of $35.4 million recorded within accumulated other comprehensive income (loss) to be reclassified to revenues and expenses relating to these cash flow hedges as they mature in the next 12 months. We enter into intercompany hedging instruments ("intercompany derivatives") with our wholly-owned subsidiaries in order to hedge certain forecasted revenues and expenses denominated in currencies other than the U.S. Dollar. Simultaneously, we enter into derivative contracts with unrelated third parties to externally hedge the net exposure created by such intercompany derivatives. We hedge the interest rate exposure created by anticipated fixed rate debt issuances through the use of treasury locks and swap locks (collectively, interest rate locks), which are designated as cash flow hedges. As of September 30, 2021, the total notional amount of interest rate locks outstanding was $350.0 million. As of December 31, 2020, we had no interest rate locks outstanding. During the nine months ended September 30, 2021, interest rate locks with a combined aggregate notional amount of $1.3 billion were settled related to the issuance of senior notes during the year. When interest rate locks are settled, any gain or loss from the transactions is deferred and included as a component of other comprehensive income (loss) and is amortized to interest expense over the term of the forecasted hedged transaction which is equivalent to the term of the interest rate locks. As of September 30, 2021 and December 31, 2020, we had a net loss of $4.2 million and $4.1 million, respectively, recorded within accumulated other comprehensive income (loss) to be reclassified to interest expense in the next 12 months for interest rate locks. The effect of cash flow hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign currency forward and option contracts (included component) (1) |  | $ | 27,860 |  |  | $ | (40,770) |  |  | $ | 61,067 |  |  | $ | (35,092) |
Foreign currency option contracts (excluded component) (2) |  | — |  |  | 639 |  |  | 151 |  |  | 2,315 |
Interest rate locks |  | 7,374 |  |  | (2,420) |  |  | 6,135 |  |  | (29,302) |
Total |  | $ | 35,234 |  |  | $ | (42,551) |  |  | $ | 67,353 |  |  | $ | (62,079) |
Amount of gain or (loss) reclassified from accumulated other comprehensive income to income:
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| Location of gain or (loss) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign currency forward contracts | Revenues |  | $ | (11,863) |  |  | $ | 2,904 |  |  | $ | (41,397) |  |  | $ | 44,681 |
Foreign currency forward contracts | Costs and operating expenses |  | 5,872 |  |  | (1,951) |  |  | 21,659 |  |  | (23,449) |
Interest rate locks | Interest Expense |  | (1,101) |  |  | (731) |  |  | (2,955) |  |  | (473) |
Total |  |  | $ | (7,092) |  |  | $ | 222 |  |  | $ | (22,693) |  |  | $ | 20,759 |
Amount of gain or (loss) excluded from effectiveness testing included in income:
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| Location of gain or (loss) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign currency option contracts (excluded component) (2) | Revenues |  | $ | — |  |  | $ | (430) |  |  | $ | (244) |  |  | $ | (1,454) |
Total |  |  | $ | — |  |  | $ | (430) |  |  | $ | (244) |  |  | $ | (1,454) |
(1)Included component represents foreign exchange spot rates. (2)Excluded component represents option's time value. Derivatives Not Designated as Hedging Instruments Embedded Derivatives. We are deemed to have foreign currency forward contracts embedded in certain of our 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 our balance sheet at their fair value. The majority of these embedded derivatives arise as a result of our foreign subsidiaries pricing their customer contracts in U.S. Dollars. Economic Hedges of Embedded Derivatives. We use foreign currency forward contracts to manage the foreign exchange risk associated with our 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. We also use 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 our 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 both September 30, 2021 and December 31, 2020, the total notional amounts of these foreign currency contracts was $3.4 billion. The following table presents the effect of derivatives not designated as hedging instruments in our condensed consolidated statements of operations (in thousands):
Amount of gain or (loss) recognized in earnings: |  |  |  |  |  |  |  |
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| Location of gain or (loss) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Embedded derivatives | Revenues |  | $ | 1,023 |  |  | $ | (3,308) |  |  | $ | 6,168 |  |  | $ | 1,402 |
Economic hedge of embedded derivatives | Revenues |  | (1,532) |  |  | 3,259 |  |  | (6,024) |  |  | (2,342) |
Foreign currency forward contracts | Other income (expense) |  | 62,840 |  |  | (50,022) |  |  | 127,615 |  |  | (29,214) |
Total |  |  | $ | 62,331 |  |  | $ | (50,071) |  |  | $ | 127,759 |  |  | $ | (30,154) |
Fair Value of Derivative Instruments The following table presents the fair value of derivative instruments recognized in our condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 (in thousands):
| September 30, 2021 |  | December 31, 2020
| Assets (1) |  | Liabilities (2) |  | Assets (1) |  | Liabilities (2)
Designated as hedging instruments: |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |
Foreign currency forward and option contracts | $ | 19,026 |  |  | $ | 10,471 |  |  | $ | 351 |  |  | $ | 52,804 |
Interest rate locks | 6,273 |  |  | — |  |  | — |  |  | — |
Net investment hedges |  |  |  |  |  |  |
Cross-currency interest rate swaps | 31,855 |  |  | 45,140 |  |  | — |  |  | 192,939 |
Foreign currency forward contracts | 742 |  |  | — |  |  | — |  |  | 17,041 |
Total designated as hedging | 57,896 |  |  | 55,611 |  |  | 351 |  |  | 262,784 |
Not designated as hedging instruments: |  |  |  |  |  |  |
Embedded derivatives | 6,339 |  |  | 991 |  |  | 3,255 |  |  | 3,858 |
Economic hedges of embedded derivatives | — |  |  | 1,999 |  |  | 4,372 |  |  | 12 |
Foreign currency forward contracts | 95,360 |  |  | 17,179 |  |  | 3,721 |  |  | 133,805 |
Total not designated as hedging | 101,699 |  |  | 20,169 |  |  | 11,348 |  |  | 137,675 |
Total Derivatives | $ | 159,595 |  |  | $ | 75,780 |  |  | $ | 11,699 |  |  | $ | 400,459 |
(1)As presented in our condensed consolidated balance sheets within other current assets and other assets. (2)As presented in our condensed consolidated balance sheets within other current liabilities and other liabilities. Offsetting Derivative Assets and Liabilities We enter into master netting agreements with our 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, we do 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 September 30, 2021 and December 31, 2020 (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
September 30, 2021 |  |  |  |  |  |  |  |  |
Derivative assets | $ | 190,938 |  |  | $ | — |  |  | $ | 190,938 |  |  | $ | (88,534) |  |  | $ | 102,404 |
Derivative liabilities | 93,401 |  |  | — |  |  | 93,401 |  |  | (88,534) |  |  | 4,867 |
December 31, 2020 |  |  |  |  |  |  |  |  |
Derivative assets | $ | 38,447 |  |  | $ | — |  |  | $ | 38,447 |  |  | $ | (35,100) |  |  | $ | 3,347 |
Derivative liabilities | 415,628 |  |  | — |  |  | 415,628 |  |  | (35,100) |  |  | 380,528 |

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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 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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