Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

11.  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. Typically, the most significant component of the Company’s interest rate risk relates to amounts outstanding under the 2015 Credit Agreement.

Foreign Exchange Rate Risk Management

The Company generates a substantial portion of its revenues and expenses in international markets 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. The Company had the following notional amounts outstanding under foreign exchange contracts at September 30, 2019 and December 31, 2018 (in millions):

	Notional			Notional
	Amount in Buy			Amount in U.S.		Fair Value of		Fair Value of
Buy	Currency	Sell	Maturity	Dollars		Assets		Liabilities
September 30, 2019:
Euro	17.9	U.S. Dollars	October 2019	$	20.1	$	—	$	0.6
Great Britain Pound	8.1	Euro	October 2019		9.7		0.3		—
Swiss Francs	9.4	Japanese Yen	October 2019		9.6		—		0.1
Swiss Francs	7.7	U.S. Dollars	October 2019		7.9		—		0.2
Euro	6.5	Great Britain Pound	October 2019 to October 2020		7.2		—		0.1
Taiwan Dollar	204.0	U.S. Dollars	October 2019		6.6		—		0.1
Chinese Renminbi	72.3	U.S. Dollars	October 2019		10.5		—		0.4
Euro	2.9	Chinese Renminbo	October 2019		3.1		—		—
Singapore Dollar	4.2	U.S. Dollars	October 2019		3.1		—		—
Singapore Dollar	2.8	Euro	October 2019		2.0		—		—
Swedish Krona	26.7	Euro	October 2019		2.7		—		—
				$	82.5	$	0.3	$	1.5
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 Britian Pound	15.4	Euro	January 2019		20.0		—		0.4
Euro	6.9	Great Britian Pound	May 2019 to October 2020		8.0		0.1		—
				$	102.4	$	0.2	$	2.8

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 $81.3 million for the delivery of products and $7.6 million for the purchase of products at September 30, 2019 and $113.5 million for the delivery of products and $6.0 million for the purchase of products at December 31, 2018. 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 September 30, 2019 and December 31, 2018, the Company had fixed price commodity contracts with notional amounts aggregating $5.1 million and $6.8 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 (loss).

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

		September 30,		December 31,
	Balance Sheet Location	2019		2018
Derivative assets:
Foreign exchange contracts	Other current assets	$	0.3	$	0.2
Embedded derivatives in purchase and delivery contracts	Other current assets		0.2		0.2
Embedded derivatives in purchase and delivery contracts	Other long-term assets		0.1		0.2
Derivative liabilities:
Foreign exchange contracts	Other current liabilities	$	1.5	$	2.8
Embedded derivatives in purchase and delivery contracts	Other current liabilities		0.8		0.9
Fixed price commodity contracts	Other current liabilities		0.2		0.5

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 (dollars in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Foreign exchange contracts	$	(1.0)	$	1.4	$	1.3	$	(6.7)
Embedded derivatives in purchase and delivery contracts		(0.1)		—		—		1.3
Fixed price commodity contracts		—		(0.3)		0.3		(1.2)
Net impact to interest and other income (expense)	$	(1.1)	$	1.1	$	1.6	$	(6.6)

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 (loss).