Note 12—Derivative Instruments and Hedging Activities

Interest Rate Risks

The Company’s exposure to interest rate risk relates primarily to outstanding variable rate debt and adverse movements in the related short‑term market rates. The most significant component of the Company’s interest rate risk relates to amounts outstanding under the 2015 Credit Agreement, which totaled $111.6 million at December 31, 2018. The Company currently has a higher level of fixed rate debt than variable rate debt, which limits the exposure to adverse movements in interest rates.

Foreign Exchange Rate Risk Management

The Company generates a substantial portion of its revenues and expenses in international markets, principally Germany and other countries in the European Union and Switzerland, which subjects its operations to the exposure of exchange rate fluctuations. The impact of currency exchange rate movement can be positive or negative in any period. The Company periodically enters into foreign currency contracts in order to minimize the volatility that fluctuations in currency translation have on its monetary transactions. Under these arrangements, the Company typically agrees to purchase a fixed amount of a foreign currency in exchange for a fixed amount of U.S. Dollars or other currencies on specified dates with maturities of less than twelve months, with some agreements extending to longer periods. These transactions do not qualify for hedge accounting and, accordingly, the instrument is recorded at fair value with the corresponding gains and losses recorded in the consolidated statements of income and comprehensive income. The Company had the following notional amounts outstanding under foreign exchange contracts at December 31, (in millions):


	Notional			Notional
	Amount in Buy			Amount in		Fair Value of		Fair Value of
Buy	Currency	Sell	Maturity	U.S. Dollars		Assets		Liabilities
December 31, 2018:
Euro	25.4	U.S. Dollars	January 2019	$	31.1	$	—	$	2.1
U.S. Dollars	8.5	Euro	January 2019		8.6		—		0.1
Swiss Francs	11.1	U.S. Dollars	January 2019		11.3		—		—
U.S. Dollars	2.1	Swiss Francs	January 2019		2.1		—		—
Swiss Francs	10.4	Japanese Yen	April 2019		10.8		—		0.2
U.S. Dollars	1.5	Canadian Dollars	January 2019		1.5		—		—
Singapore Dollar	4.3	U.S. Dollars	January 2019		3.1		—		—
Chinese Renminbi	41.1	U.S. Dollars	January 2019		5.9		0.1		—
Great Britain Pound	15.4	Euro	January 2019		20.0		—		0.4
Euro	6.9	Great Britain Pound	May 2019 to October 2020		8.0		0.1		—
				$	102.4	$	0.2	$	2.8
December 31, 2017:
Euro	59.5	U.S. Dollars	January 2018	$	67.0	$	4.5	$	—
Swiss Francs	11.0	U.S. Dollars	January 2018		11.3		—		—
Singapore Dollar	4.9	U.S. Dollars	January 2018		3.6		—		—
Euro	1.8	Polish Zloty	January 2018		2.3		—		0.1
				$	84.2	$	4.5	$	0.1

In addition, the Company periodically enters into purchase and sales contracts denominated in currencies other than the functional currency of the parties to the transaction. The Company accounts for these transactions separately valuing the “embedded derivative” component of these contracts. The contracts, denominated in currencies other than the functional currency of the transacting parties, amounted to $113.5 million for the delivery of products and $6.0 million for the purchase of products at December 31, 2018 and $98.3 million for the delivery of products and $3.6 million for the purchase of products at December 31, 2017. The changes in the fair value of these embedded derivatives are recorded in interest and other income (expense), net in the consolidated statements of income and comprehensive income.

Commodity Price Risk Management

The Company has an arrangement with a customer under which it has a firm commitment to deliver copper based superconductors at a fixed price. In order to minimize the volatility that fluctuations in the price of copper have on the Company’s sales of these commodities, the Company enters into commodity hedge contracts. At December 31, 2018 and 2017, the Company has fixed price commodity contracts with notional amounts aggregating $6.8 million and $3.0 million, respectively. The changes in the fair value of these commodity contracts are recorded in interest and other income (expense), net in the consolidated statements of income and comprehensive income.

The fair value of the derivative instruments described above were recorded in the consolidated balance sheets for the years ended December 31, 2018 and 2017 as follows (in millions):


	Balance Sheet Location	2018		2017
Derivative assets:
Foreign exchange contracts	Other current assets	$	0.2	$	4.5
Embedded derivatives in purchase and delivery contracts	Other current assets		0.2		0.9
Fixed price commodity contracts	Other current assets		—		0.8
Embedded derivatives in purchase and delivery contracts	Other long-term assets		0.2		—
Derivative liabilities:
Foreign exchange contracts	Other current liabilities	$	2.8	$	0.1
Embedded derivatives in purchase and delivery contracts	Other current liabilities		0.9		1.5
Fixed price commodity contracts	Other current liabilities		0.5		—
Embedded derivatives in purchase and delivery contracts	Other long-term liabilities		—		1.4

The impact on net income of unrealized gains and losses resulting from changes in the fair value of derivative instruments for the years ending December 31 are as follows (in millions) and are recorded within interest and other income (expense), net in the consolidated statements of income and comprehensive income:


	2018		2017		2016
Foreign exchange contracts	$	(7.0)	$	5.8	$	(0.1)
Embedded derivatives in purchase and delivery contracts		1.5		(5.7)		3.7
Fixed price commodity contracts		(1.3)		0.6		0.6
Income (expense), net	$	(6.8)	$	0.7	$	4.2