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Derivative Financial Instruments | 12 Months Ended
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Dec. 31, 2019
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | (12) Derivative Financial Instruments We are exposed to various market risks relating to our ongoing business operations. The primary market risks, which are managed using derivative instruments, are foreign currency exchange rate risk and interest rate risk. In certain circumstances, we enter into cross-currency swaps and foreign currency forward exchange contracts (“forward contracts”) to reduce the effects of fluctuating foreign currency exchange rates on our cash flows denominated in foreign currencies. Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. We have historically managed interest rate risk through the use of a combination of fixed and variable rate borrowings. Net Investment Hedges We use cross-currency swaps, forward contracts and a portion of our foreign currency denominated debt, a non-derivative financial instrument, to protect the value of our net investments in certain of our foreign subsidiaries. For derivative instruments that are designated and qualify as hedges of our net investments in foreign operations, the changes in fair values of the derivative instruments are recognized in foreign currency translation adjustments, a component of accumulated other comprehensive income (“AOCI”), to offset the changes in the values of the net investments being hedged. For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the change in the carrying value of the designated portion of the non-derivative financial instrument due to changes in foreign currency exchange rates is recorded in foreign currency translation adjustments. The €400.0 ($447.1) notes due September 2022 and the €500.0 ($555.8) notes due June 2026 were designated as a hedge of our net investment in our foreign subsidiaries with a Euro-functional currency as of December 31, 2019. In September 2019, we entered into a cross-currency swap agreement that net converts fixed-rate Swiss franc (“CHF”) payments to fixed-rate United States dollar payments. This swap was designated as a net investment hedge of our foreign subsidiary with CHF functional currency. The hedging relationship is expected to be perfectly effective, as the critical terms of the swap match the designated hedge. Effectiveness will be assessed prospectively and retrospectively every reporting period by confirming these conditions continue to be met. If they are no longer met at any time during the relationship, the hypothetical derivative method will be used to assess hedge effectiveness. The effect of our net investment hedges on AOCI for the year ended December 31, 2019, and 2018 was as follows:
|  |  |  |  |  |  |  |  |  |  |  | Gain (Loss) Reclassified |
|  | Gain (Loss) Recognized in OCI | Location of Gain (Loss) Reclassified |  | from AOCI into Income |
|  | Year Ended December 31, |  |  | from AOCI into Income |  | Year Ended December 31, |
Instrument |  | 2019 |  |  | 2018 |  |  |  |  | 2019 |  |  | 2018 |
Euro Notes |  | $ | 22.9 |  |  | $ | 45.4 |  |  | Interest and other (income) expenses, net |  | $ | — |  |  | $ | — |
Cross-currency swaps |  |  | (9.0 | ) |  |  | — |  |  | Interest and other (income) expenses, net |  |  | 8.7 |  |  |  | — |
Cash Flow Hedges We use cross-currency swaps to hedge the changes in cash flows of certain of our foreign currency denominated debt due to changes in foreign currency exchange rates. For our cross-currency swaps, we record the change in carrying value of the foreign currency denominated debt due to changes in exchange rates into earnings each period. The changes in fair value of the cross-currency swap derivatives are recorded in other comprehensive income (“OCI”) with an immediate reclassification into earnings for the change in fair value attributable to fluctuations in foreign currency exchange rates. In April 2019, we entered into a cross-currency swap agreement to convert our intercompany fixed-rate, CHF denominated note, including the annual interest payment and the payment of remaining principal at maturity, to a fixed-rate Euro denominated note. The economic effect of the swap agreement is to eliminate the uncertainty of cash flows in CHF associated with the note by fixing the principal at €202.3 with a fixed annual interest rate of 1.256%. This hedging arrangement has been designated as a cash flow hedge. The swap matures in April 2022, which matches the term of the intercompany note. Gains and losses from the hedge offset the changes in the value of principal and interest payments as a result of changes in foreign exchange rates. In September 2019, we entered into to a cross-currency swap agreement to convert an additional intercompany fixed-rate CHF note, including the annual interest payment and the payment of remaining principal at maturity, to a fixed-rate Euro denominated note. The economic effect of the swap is identical to the original April 2019 swap, and fixes the principal of €55.4 with a fixed interest rate of 1.143%. The swap matures in September 2022, which matches the term of the intercompany note. We assessed the hedging relationship at the inception of the hedge in order to determine whether the derivatives that are used in the hedging transaction are highly effective in offsetting the cash flows of the hedged item and will continue to assess the relationship on an ongoing basis. We apply the hypothetical derivative method in conjunction with regression analysis using a third-party valuation to measure effectiveness of our cross-currency swap agreement. The following tables present the impact that changes in the fair values of derivatives designated as cash flow hedges had on OCI, AOCI and earnings for the year ended December 31, 2019, and 2018:
|  |  |  |  |  |  | Gain Reclassified |
|  | Gain Recognized in OCI |  |  |  |  | from AOCI into Income |
|  | Year Ended December 31, |  |  | Location of Gain Reclassified |  | Year Ended December 31, |
Instrument |  | 2019 |  |  | 2018 |  |  | from AOCI into Income |  | 2019 |  |  | 2018 |
Cross-currency swaps |  | $ | 7.3 |  |  | $ | — |  |  | Interest and other (income) expenses, net |  | $ | 8.3 |  |  | $ | — |
We expect the net amount of pre-tax derivative gains and losses included in AOCI at December 31, 2019 to be reclassified into earnings to approximate $10.0 over the next twelve months. The actual amount that will be reclassified to earnings will vary due to future currency exchange rates. Non-Designated Instruments We also use certain derivatives, which are not designated as hedging instruments, as economic hedges of foreign currency and interest rate exposure. For our forward contracts that are not designated as hedges, any gain or loss resulting from the change in fair value is recognized in current period earnings. These gains or losses are offset by the exposure related to receivables and payables with our foreign subsidiaries and to interest due on our Euro-denominated notes, which is paid annually in June and September. The effect of our forward contracts that are not designated as hedging instruments on the consolidated statements of operations for the year ended December 31, 2019 was as follows:
|  | Location of Gain |  | Amount of Gain Recognized in Income
Instrument |  | Recognized in Income |  | Year Ended December 31, |  |
|  |  |  | 2019 |  |  | 2018 |  |
Foreign currency forward contracts |  | Interest and other (income) expenses, net |  | $ | 11.9 |  |  | $ | — |  |
Derivative and Non-Derivative Assets and Liabilities The following tables present the fair value of derivative and non-derivative assets and liabilities on the Consolidated Balance Sheets as of December 31, 2019, and 2018:
|  | Assets |
|  |  |  | December 31, |
|  | Balance Sheet Location |  | 2019 |  |  | 2018 |
Instruments designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |
Cross-currency swaps |  | Prepaid expenses and other assets |  | $ | 9.7 |  |  | $ | — |
Instruments not designated as hedges: |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | Accounts receivable, net |  |  | — |  |  |  | 0.1 |
Total instruments |  |  |  | $ | 9.7 |  |  | $ | 0.1 |
|  | Liabilities |
|  |  |  | December 31, |
|  | Balance Sheet Location |  | 2019 |  |  | 2018 |
Instruments designated as net investment hedges: |  |  |  |  |  |  |  |  |  |
Euro Notes |  | Long-term debt |  | $ | 1,002.9 |  |  | $ | 1,024.6 |
Cross-currency swaps |  | Accrued liabilities |  |  | 6.0 |  |  |  | — |
Instruments not designated as hedges: |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | Accrued liabilities |  |  | — |  |  |  | 0.1 |
Total instruments |  | $ | 1,008.9 |  |  | $ | 1,024.7 |
The fair value measurements of these items recorded in our Consolidated Balance Sheets for the years ended December 31, 2019 and 2018 are disclosed in Note 1 to the Consolidated Financial Statements.

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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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