Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2017

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

9.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 $210.0 million at June 30, 2017. The Company currently has approximately equal levels of fixed and floating 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. 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 (loss). The Company had the following notional amounts outstanding under foreign exchange contracts at June 30, 2017 and December 31, 2016 (in millions):

Buy	Notional Amount in Buy Currency	Sell	Maturity	Notional Amount in U.S. Dollars		Fair Value of Assets		Fair Value of Liabilities
June 30, 2017:
Euro	83.6	U.S. Dollars	July 2017 to January 2018	$	90.7	$	5.3	$	—
U.S. Dollars	4.3	Euro	July 2017	4.3		—		0.1
Swiss Francs	10.9	U.S. Dollars	July 2017	11.0		0.4		—
Euro	1.4	Polish Zloty	July 2017	1.6		—		—
				$	107.6	$	5.7	$	0.1
December 31, 2016:
Euro	21.1	U.S. Dollars	January 2017	$	23.3	$	—	$	1.1
Swiss Francs	7.9	U.S. Dollars	January 2017	8.0		—		0.3
U.S. Dollars	4.0	Israel Shekel	January 2017	4.0		—		—
Israel Shekel	15.3	U.S. Dollars	January 2017	4.0		—		—
Euro	1.4	Polish Zloty	January 2017	1.4		—		—
				$	40.7	$	—	$	1.4

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 $103.0 million for the delivery of products and $2.7 million for the purchase of products at June 30, 2017 and $120.7 million for the delivery of products and $2.3 million for the purchase of products at December 31, 2016. 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 (loss).

Commodity Price Risk Management

The Company has arrangements with certain customers under which it has a firm commitment to deliver copper based superconductor wire 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 June 30, 2017 and December 31, 2016, the Company had fixed price commodity contracts with notional amounts aggregating $6.3 million and $2.7 million, respectively. The changes in the fair value of these commodity contracts are recorded within interest and other income (expense), net in the unaudited condensed consolidated statements of income and comprehensive income.

The fair value of the derivative instruments described above is recorded in the unaudited condensed consolidated balance sheets for the periods as follows (in millions):

		June 30,		December 31,
	Balance Sheet Location	2017		2016
Derivative assets:
Foreign exchange contracts	Other current assets	$	5.7	$	—
Embedded derivatives in purchase and delivery contracts	Other current assets	0.8		2.7
Fixed price commodity contracts	Other current assets	0.4		0.2
Embedded derivatives in purchase and delivery contracts	Other long-term assets	—		1.3
Derivative liabilities:
Foreign exchange contracts	Other current liabilities	$	0.1	$	1.4
Embedded derivatives in purchase and delivery contracts	Other current liabilities	0.5		0.3
Embedded derivatives in purchase and delivery contracts	Other long-term liabilities	0.3		—

The impact on net income of unrealized gains and losses resulting from changes in the fair value of derivative instruments not designated as hedging instruments are as follows (in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Foreign exchange contracts	$	6.1		$	(1.6	)	$	7.0		$	0.6
Embedded derivatives in purchase and delivery contracts	(3.0		)	—			(3.7		)	(0.3		)
Fixed price commodity contracts	0.1			0.1			0.2			0.2
Net impact to interest and other income (expense)	$	3.2		$	(1.5	)	$	3.5		$	0.5

The amounts related to derivative instruments not designated as hedging instruments are recorded within interest and other income (expense), net in the unaudited condensed consolidated statements of income and comprehensive income.