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Derivatives and Hedging Instruments | 6 Months Ended
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Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Instruments | Derivatives and Hedging Instruments The Company may periodically enter into derivative financial instruments to manage risks related to interest rates and foreign currency. Certain of the Company’s derivative financial instruments qualify for hedge accounting treatment under the authoritative guidance for derivatives and hedging. During the second quarter of 2018, the Company early adopted ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities retroactive to January 1, 2018 with no material impact to its financial statements. Periods prior to January 1, 2018 have not been restated. The Company applies hedge accounting when derivatives are designated, qualified and highly effective as hedges. Effectiveness is formally assessed and documented at inception and each period throughout the life of a hedge using various qualitative or quantitative methods appropriate for each hedge. Under hedge accounting, the changes in fair value of the derivative and the hedged risk are generally recognized together and offset each other when reported in shareholders’ net income. Changes in the fair value of a derivative instrument may not always equal changes in the fair value of the hedged item. This is referred to as “hedge ineffectiveness” and, with the adoption of ASU 2017-12, is no longer measured and reported separately from the effective portion of the hedge. The Company excludes certain components of derivative instruments’ changes in fair value from the assessment of hedge effectiveness. With the adoption of ASU 2017-12, those excluded components are initially recorded in other comprehensive income and recognized in shareholders’ net income over the life of the derivative instrument. The Company did not record a cumulative-effect adjustment on January 1, 2018 (that would have impacted retained earnings and accumulated other comprehensive income by the same amount upon adoption) because there was no ineffectiveness recognized for hedges existing at that date. The following table summarizes the fair value of derivative instruments as recorded in the Company’s condensed consolidated statements of financial condition (in thousands):
| June 30, 2018 |  | December 31, 2017
Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency exchange contracts | Other assets |  | $ | 377 |  |  | Other assets |  | $ | 1,912 |
Foreign currency exchange contracts | Other liabilities |  | (633 | ) |  | Other liabilities |  | — |
Interest rate swap agreements | Other assets |  | 10 |  |  | Other liabilities |  | (7 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency exchange contracts | Other assets |  | 658 |  |  | Other assets |  | — |
Foreign currency exchange contracts | Other liabilities |  | (6,578 | ) |  | Other liabilities |  | (1,110 | )
Interest rate cap contracts | Other assets |  | 2,191 |  |  | Other assets |  | 3,922 |
Derivatives Designated as Hedging Instruments The Company has operations in foreign countries, which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in foreign currencies. To mitigate a portion of this risk, the Company enters into derivative financial instruments, principally foreign currency forward contracts with financial counterparties. The Company adjusts the level and use of derivatives as soon as practicable after learning that an exposure has changed and reviews all exposures and derivative positions on an ongoing basis. Certain of the foreign currency forward contracts are designated as cash flow hedging instruments and qualify for hedge accounting treatment. Gains and losses arising from such contracts are recorded as a component of accumulated other comprehensive income (“OCI”) as gains and losses on derivative instruments, net of income taxes. The hedging gains and losses in OCI are subsequently reclassified into earnings in the same period in which the underlying transactions affect the Company’s earnings. If all or a portion of the forecasted transaction is cancelled, the Company would reclassify the hedge into earnings. As of June 30, 2018, the total notional amount of the forward contracts that are designated as cash flow hedging instruments was $26.4 million. All of these outstanding contracts qualified for hedge accounting treatment. The Company estimates that approximately $0.3 million of net derivative loss included in OCI will be reclassified into earnings within the next 12 months. No gains or losses were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the six months ended June 30, 2018 and 2017. The Company may periodically enter into interest rate swap agreements to reduce its exposure to fluctuations in interest rates on variable interest rate debt and their impact on earnings and cash flows. As of June 30, 2018, there were two interest rate swap agreements outstanding with a total notional amount of $30.0 million Australian dollars (approximately $22.2 million U.S. dollars). The interest rate swap instrument is designated as a cash flow hedge and accounted for using hedge accounting. The following table summarizes the effects of derivatives in cash flow hedging relationships designated as hedging instruments on the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017 (in thousands):
Derivatives Designated as Hedging Instruments |  | Gain or (Loss) Recognized in OCI |  | Location of Gain or (Loss) Reclassified from OCI into Income |  | Gain or (Loss) Reclassified from OCI into Income
| Three Months Ended June 30, |  |  | Three Months Ended June 30,
| 2018 |  | 2017 |  |  | 2018 |  | 2017
Foreign currency exchange contracts |  | $ | (967 | ) |  | $ | 1,146 |  |  | Salaries and employee benefits |  | $ | 434 |  |  | $ | 297 |
Foreign currency exchange contracts |  | (76 | ) |  | 160 |  |  | General and administrative expenses |  | 35 |  |  | 27 |
Interest rate swap agreements |  | (21 | ) |  | 14 |  |  | Interest expense |  | 8 |  |  | 33 |
Derivatives Designated as Hedging Instruments |  | Gain or (Loss) Recognized in OCI |  | Location of Gain or (Loss) Reclassified from OCI into Income |  | Gain or (Loss) Reclassified from OCI into Income
| Six Months Ended June 30, |  |  | Six Months Ended June 30,
| 2018 |  | 2017 |  |  | 2018 |  | 2017
Foreign currency exchange contracts |  | $ | (1,074 | ) |  | $ | 1,735 |  |  | Salaries and employee benefits |  | $ | 983 |  |  | $ | 472 |
Foreign currency exchange contracts |  | (76 | ) |  | 240 |  |  | General and administrative expenses |  | 35 |  |  | 41 |
Interest rate swap agreements |  | (12 | ) |  | 19 |  |  | Interest expense |  | 25 |  |  | 110 |
Derivatives Not Designated as Hedging Instruments On May 8, 2018, in anticipation of the completion of the Cabot Transaction, Encore entered into a foreign exchange forward contract with a notional amount of £176.0 million, which was approximately the amount of the cash consideration for the Cabot Transaction. As of June 30, 2018, the fair value of the forward contract was a liability of approximately $6.6 million and was recognized as other expenses in the Company’s consolidated statements of operations during the three and six months ended June 30, 2018. The forward contract settled on August 3, 2018 at a total loss of $9.3 million. This loss was substantially offset by a decrease in the final purchase price in U.S. dollars for the Cabot Transaction. The Company enters into currency exchange forward contracts to reduce the effects of currency exchange rate fluctuations between the British Pound and Euro. These derivative contracts generally mature within one to three months and are not designated as hedge instruments for accounting purposes. The Company continues to monitor the level of exposure of the foreign currency exchange risk and may enter into additional short-term forward contracts on an ongoing basis. The gains or losses on these derivative contracts are recognized in other income or expense based on the changes in fair value. The Company also holds two interest rate cap contracts with an aggregate notional amount of £300.0 million (approximately $396.2 million) that are used to manage its risk related to interest rate fluctuations. The Company does not apply hedge accounting on the interest rate cap contracts. The following table summarizes the effects of derivatives in cash flow hedging relationships not designated as hedging instruments on the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017 (in thousands):
Derivatives Not Designated as Hedging Instruments |  | Location of Gain or (Loss) Recognized in Income on Derivative |  | Amount of Gain or (Loss) Recognized in Income on Derivative
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Foreign currency exchange contracts |  | Other (expense) income |  | $ | (6,174 | ) |  | $ | 2,875 |  |  | $ | (6,940 | ) |  | $ | 2,623 |
Interest rate cap contracts |  | Interest expense |  | (1,628 | ) |  | — |  |  | (1,716 | ) |  | — |
Interest rate swap agreements |  | Interest expense |  | — |  |  | 33 |  |  | — |  |  | 110 |

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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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