Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Derivatives and Hedging Activities

The Company uses derivatives to manage selected foreign currency exchange rate risk for its investments in foreign subsidiaries and interest rate risk related to its variable rate debt. The Company documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge.

Interest Rate Swap

On January 31, 2019, the Company executed two interest rate swaps for a total notional amount of $310.0 million to fix the LIBOR portion of its interest rate on its variable rate debt at 2.52% through January 31, 2022. There is no significant credit risk associated with the potential failure of any counterparty to perform under the terms of the interest rate swaps.

The interest rate swaps are measured at fair value within the accompanying condensed consolidated balance sheets either as an asset or a liability. As of March 31, 2020 and December 31, 2019, the fair value of the interest rate swaps was $12.9 million and $6.2 million, respectively, and was recorded in other non-current liabilities.

For the three months ended March 31, 2020, the Company recognized a loss of $4.9 million, net of taxes of $1.7 million, in comprehensive income. For the three months ended March 31, 2019, the Company recognized a loss of $2.2 million, net of taxes of $0.8 million, in comprehensive income.

Net Investment Hedge

On May 15, 2019, the Company terminated its foreign currency exchange rate contracts with total notional amounts of approximately $88.0 million. The Company recognized a gain of $2.5 million, net of taxes of $0.8 million, upon termination of the contracts, which was recorded in comprehensive income. On May 15, 2019, the Company entered into new foreign currency exchange rate contracts with total notional amounts of $81.3 million. As of March 31, 2020, the amount of notional foreign currency exchange rate contracts outstanding was approximately $81.3 million. There is no significant credit risk associated with the potential failure of any counterparty to perform under the terms of the foreign currency exchange rate contracts.

The net investment hedge is measured at fair value within the accompanying condensed consolidated balance sheets either as an asset or a liability. As of March 31, 2020, the fair value of the derivative instrument was $4.5 million and was recorded in other non-current assets. As of December 31, 2019, the fair value of the net investment hedge was $1.4 million and was recorded in other non-current liabilities.

For the three months ended March 31, 2020, the Company recognized a gain of $4.4 million, net of taxes of $1.5 million, related to the change in fair value of the net investment hedge, which was recorded in comprehensive income. For the three months ended March 31, 2019, the Company recognized a loss of $1.4 million, net of taxes of $0.5 million, related to the change in fair value of the net investment hedge, which was recorded in comprehensive income.

On January 1, 2019, the Company adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, and reclassified $0.2 million from retained earnings to other comprehensive income related to the cumulative ineffective portion of the net investment hedge.