Risk Management and Derivatives

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Foreign Currency Risk Management

The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions generated by its international subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. From time to time, the Company may elect to enter into foreign currency contracts to reduce the risk associated with foreign currency exchange rate fluctuations on intercompany transactions and projected inventory purchases for its international subsidiaries.

As of December 31, 2018, the aggregate notional value of the Company's outstanding foreign currency contracts was $671.2 million, which was primarily comprised of Canadian Dollar/U.S. Dollar, Pound Sterling/U.S. Dollar, Euro/U.S. Dollar, Mexican Peso/U.S. Dollar and Chinese Renminbi/U.S. Dollar currency pairs with contract maturities ranging from one to fourteen months. A portion of the Company's foreign currency contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are recorded in earnings. For foreign currency contracts designated as cash flow hedges, changes in fair value, excluding any ineffective portion, are recorded in other comprehensive income until net income is affected by the variability in cash flows of the hedged transaction. The effective portion is generally released to net income after the maturity of the related derivative and is classified in the same manner as the underlying exposure.

During the years ended December 31, 2018 and 2017, the Company reclassified $1.3 million and $0.4 million, respectively, from other comprehensive income to cost of goods sold related to foreign currency contracts designated as cash flow hedges. The fair value of the Company’s foreign currency contracts was an asset of $19.5 million as of December 31, 2018 and was included in other current assets on the consolidated balance sheet. The fair value of the Company's foreign currency contracts was a liability of $6.8 million as of December 31, 2017 and

was included in other current liabilities on the consolidated balance sheet. Refer to Note 9 for a discussion of the fair value measurements. Included in other expense, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency contracts:


(In thousands)	Year Ended December 31,
			2018		2017		2016
Unrealized foreign currency exchange rate gains (losses)	$	14,023	$	29,246	$	(12,627)
Realized foreign currency exchange rate gains (losses)	11,462		611		(6,906)
Unrealized derivative gains (losses)	(109)		(1,217)		729
Realized derivative gains (losses)	(14,712)		(26,537)		15,192

Interest Rate Risk Management

In order to maintain liquidity and fund business operations, the Company enters into long term debt arrangements with various lenders which bear a range of fixed and variable rates of interest. The nature and amount of the Company's long-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. The Company may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations. The Company utilizes interest rate swap contracts to convert a portion of variable rate debt to fixed rate debt. The contracts pay fixed and receive variable rates of interest. The interest rate swap contracts are accounted for as cash flow hedges and accordingly, the effective portion of the changes in their fair value are recorded in other comprehensive income and reclassified into interest expense over the life of the underlying debt obligation. Refer to Note 6 for a discussion of long term debt.

As of December 31, 2018, the notional value of the outstanding interest rate swap contracts was $118.1 million. During the years ended December 31, 2018 and 2017, the Company recorded a $0.4 million decrease and $0.9 million increase in interest expense, respectively, representing the effective portion of the contracts reclassified from accumulated other comprehensive income. The fair value of the interest rate swap contracts was an asset of $1.6 million and $1.1 million as of December 31, 2018 and 2017, respectively, and were included in other long term assets on the consolidated balance sheets. In January 2019, the Company settled its interest rate swap contract in connection with the prepayment of our term loan.

The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the derivative contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal.