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Derivatives
 12 Months Ended
Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
10. Derivatives
Hedging Objectives—We are exposed to certain risks relating to ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange rate risk and interest rate risk. Forward contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk on operational expenditures' exposure denominated in foreign currencies. Interest rate swaps are entered into to manage interest rate risk associated with our floating-rate borrowings.
In accordance with authoritative guidance on accounting for derivatives and hedging, we designate foreign currency forward contracts as cash flow hedges on operational exposure and interest rate swaps as cash flow hedges of floating-rate borrowings.
Cash Flow Hedging Strategy—To protect against the reduction in value of forecasted foreign currency cash flows, we hedge portions of our revenues and expenses denominated in foreign currencies with forward contracts. For example, when the dollar strengthens significantly against the foreign currencies, the decline in present value of future foreign currency expense is offset by losses in the fair value of the forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value of future foreign currency expense is offset by gains in the fair value of the forward contracts. Due to the uncertainty driven by the COVID-19 pandemic on our foreign currency exposures, we have paused entering into new cash flow hedges of forecasted foreign currency cash flows until we have more clarity regarding the recovery trajectory and its impacts on net exposures.
We enter into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap agreements modify our exposure to interest rate risk by converting floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense and net earnings. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portions and ineffective portions of the gain or loss on the derivative instruments, and the hedge components excluded from the assessment of effectiveness, are reported as a component of other comprehensive income (loss) (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Derivatives not designated as hedging instruments are carried at fair value with changes in fair value reflected in Other, net in the consolidated statement of operations.
Forward Contracts—In order to hedge our operational expenditures' exposure to foreign currency movements, we have been a party to certain foreign currency forward contracts that extended until December 31, 2020. We have designated these instruments as cash flow hedges. No hedging ineffectiveness was recorded in earnings relating to the forward contracts in the years ended December 31, 2020 and 2019. As of December 31, 2020, we have no unsettled forward contracts and no material losses are expected to be reclassified from other comprehensive (loss) income to earnings over the next 12 months.
Interest Rate Swap Contracts—Interest rate swaps outstanding at December 31, 2020 and matured during the years ended December 31, 2020, 2019 and 2018 are as follows:
Notional Amount
Interest Rate
Received
Interest Rate PaidEffective DateMaturity Date
Designated as Hedging Instrument
$750 million
1 month LIBOR(1)
1.65%December 29, 2017December 31, 2018
$1,350 million
1 month LIBOR(1)
2.27%December 31, 2018December 31, 2019
$1,200 million
1 month LIBOR(1)
2.19%December 31, 2019December 31, 2020
$600 million
1 month LIBOR(1)
2.81%December 31, 2020December 31, 2021
____________________
(1) Subject to a 1% floor.
In connection with the 2017 Term Facility Amendment, we entered into forward starting interest rate swaps effective March 31, 2017 to hedge the interest payments associated with $750 million of the floating-rate 2017 Term Loan B. The total notional amount outstanding of $750 million became effective December 31, 2018 and extended through the full year 2019. In September 2017, we entered into forward starting interest rate swaps to hedge the interest payments associated with $750 million of the floating-rate Term Loan B. The total notional outstanding of $750 million became effective December 31, 2019 and extends through the full year 2020. In April 2018, we entered into forward starting interest rate swaps to hedge the interest payments associated with $600 million, $300 million and $450 million of the floating-rate Term Loan B related to years 2019, 2020 and 2021, respectively. In December 2018, we entered into forward starting interest rate swaps to hedge the interest payments associated with $150 million of the floating-rate Term Loan B for the years 2020 and 2021. We have designated these swaps as cash flow hedges.
The estimated fair values of our derivatives designated as hedging instruments as of December 31, 2020 and 2019 are as follows (in thousands):
 Derivative Assets (Liabilities)
  Fair Value as of December 31,
Derivatives Designated as Hedging InstrumentsConsolidated Balance Sheet Location20202019
Foreign exchange contractsPrepaid expenses and other current assets$— $1,953 
Interest rate swapsOther accrued liabilities(16,038)(7,020)
Interest rate swapsOther noncurrent liabilities— (7,918)
Total $(16,038)$(12,985)
The effects of derivative instruments, net of taxes, on OCI for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):
 
Amount of (Loss) Gain
Recognized in OCI on Derivative, Effective Portion
 Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships202020192018
Foreign exchange contracts$(4,652)$(360)$(8,250)
Interest rate swaps(15,869)(14,857)1,907 
Total $(20,521)$(15,217)$(6,343)

 
Amount of Loss (Gain) Reclassified from Accumulated
OCI into Income, Effective Portion
 Year Ended December 31,
Derivatives in Cash Flow Hedging RelationshipsIncome Statement Location202020192018
Foreign exchange contractsCost of revenue, excluding technology costs$2,992 $5,351 $(322)
Interest rate swapsInterest expense, net14,898 156 3,999 
Total$17,890 $5,507 $3,677