XML 82 R13.htm IDEA: XBRL DOCUMENT v3.19.3
Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
The Company principally uses derivative financial instruments to reduce the impact of changes in foreign currency exchange rates and interest rate fluctuations. The principal derivative financial instruments the Company enters into are foreign exchange forward contracts and interest rate swaps. The Company does not enter into derivative financial instrument contracts for trading or speculative purposes.
Foreign Exchange Derivative Instruments
Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to hedge currency fluctuations related to inventory purchases not denominated in the functional currency of the non-U.S. subsidiary, thereby limiting currency risk that would otherwise result from changes in exchange rates. These instruments are considered cash flow hedges. The periods of the foreign exchange forward contracts correspond to the periods of the forecasted transactions, which do not exceed 24 months subsequent to the latest balance sheet date. The primary foreign exchange forward contracts pertain to the U.S. dollar, the Japanese yen, the British pound sterling, the Canadian dollar, the Korean won and the euro. The gross U.S. dollar equivalent notional amount outstanding of all foreign exchange forward contracts designated under hedge accounting as of September 30, 2019 and December 31, 2018 was $292.6 million and $312.8 million, respectively.
The Company also enters into foreign exchange forward contracts to mitigate the change in fair value of specific assets and liabilities which do not qualify as hedging instruments under U.S. GAAP. These undesignated instruments are recorded at fair value as a derivative asset or liability with the corresponding change in fair value recognized in selling, general and administrative expense. The gross U.S. dollar equivalent notional amount of all outstanding foreign exchange forward contracts not designated under hedge accounting was $1.5 million as of September 30, 2019. There were no outstanding foreign exchange forward contracts not designated under hedge accounting as of December 31, 2018.
Interest Rate Derivative Instruments
The Company enters into interest rate swap contracts to reduce the impact of variability in interest rates. Under the contracts, the Company pays fixed and receives variable rate interest, in effect converting a portion of its variable rate debt to fixed rate debt. The interest rate swap contracts are accounted for as cash flow hedges. As of September 30, 2019 and December 31, 2018, the notional value of the Company's outstanding interest rate swap contracts was $160.0 million and $185.0 million, respectively.
Impact on Financial Statements
The fair value of hedge instruments recognized on the unaudited condensed consolidated balance sheets was as follows:
(in thousands)
 
 
 
September 30,
 
December 31,
Balance Sheet Location
 
Hedge Instrument Type
 
2019
 
2018
Other current assets
 
Foreign exchange forward
 
$
4,940

 
$
6,116

Other noncurrent assets
 
Foreign exchange forward
 
396

 
1,015

Accrued expenses and other liabilities
 
Foreign exchange forward
 
657

 
578

 
 
Interest rate swap
 
1,357

 
526

Other noncurrent liabilities
 
Foreign exchange forward
 
374

 
161

 
 
Interest rate swap
 
1,912

 
925


The hedge instrument gain (loss) recognized in accumulated other comprehensive loss, net of tax was as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
(in thousands)
 
2019
 
2018
 
2019
 
2018
Type of hedge
 
 
 
 
 
 
 
 
Foreign exchange forward
 
$
2,440

 
$
3,175

 
$
4,634

 
$
5,303

Interest rate swap
 
(147
)
 
246

 
(2,388
)
 
(23
)
 
 
$
2,293


$
3,421


$
2,246

 
$
5,280


Gains and losses on derivative instruments designated as cash flow hedges are reclassified from accumulated other comprehensive loss, net of tax at the time the forecasted transaction impacts the statement of operations. Based on the current valuation, during the next 12 months the Company expects to reclassify a net gain of $5.2 million related to foreign exchange derivative instruments from accumulated other comprehensive loss, net of tax, into cost of goods sold and a net loss of $1.4 million related to interest rate derivative instruments from accumulated other comprehensive loss, net of tax into interest expense, net. For further information related to amounts recognized in accumulated other comprehensive loss, net of tax, see Note 12.
The hedge instrument gain (loss) recognized on the unaudited condensed consolidated statements of operations was as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
(in thousands)
 
2019
 
2018
 
2019
 
2018
Location of gain (loss) in statement of operations
 
 
 
 
 
 
 
 
Foreign exchange forward:
 
 
 
 
 
 
 
 
Cost of goods sold
 
$
1,677

 
$
(1,461
)
 
$
6,276

 
$
(3,289
)
Selling, general and administrative (1)
 
625

 
277

 
442

 
1,293

Total
 
$
2,302

 
$
(1,184
)
 
$
6,718

 
$
(1,996
)
 
 
 
 
 
 
 
 
 
Interest Rate Swap:
 
 
 
 
 
 
 
 
Interest expense, net
 
$
(250
)
 
$
(160
)
 
$
(573
)
 
$
(262
)
Total
 
$
(250
)
 
$
(160
)

$
(573
)
 
$
(262
)

_______________________________________________________________________________
(1) Relates to gains on foreign exchange forward contracts derived from previously designated cash flow hedges.
Credit Risk
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.