Financial Instruments

9 Months Ended

Sep. 30, 2019

Investments, All Other Investments [Abstract]

FINANCIAL INSTRUMENTS

Fair Value

Accounting guidance on fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy:


•	Level 1 — Quoted prices for identical instruments in active markets.


•	Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.


•	Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the London Interbank Offer Rate ("LIBOR") swap curve and forward interest and exchange rates at period end. Such instruments are classified as Level 2 based on the observability of significant inputs to the model. The Company does not have any instruments classified as Level 3, other than those included in pension asset trusts as discussed in Note 16 of our 2018 Form 10-K.

These valuations take into consideration the Company's credit risk and its counterparties’ credit risk. The estimated change in the fair value of these instruments due to such changes in its own credit risk (or instrument-specific credit risk) was immaterial as of September 30, 2019.

The carrying values and the estimated fair values of financial instruments at September 30, 2019 and December 31, 2018 consisted of the following:



	September 30, 2019				December 31, 2018
(DOLLARS IN THOUSANDS)	Carrying Value		Fair Value		Carrying Value		Fair Value
LEVEL 1
Cash and cash equivalents⁽¹⁾	$	494,897	$	494,897	$	634,897	$	634,897
LEVEL 2
Credit facilities and bank overdrafts⁽²⁾	4,515		4,515		4,695		4,695
Derivatives
Derivative assets	—		11,555		—		7,229
Derivative liabilities	—		1,149		—		6,907
Long-term debt:⁽³⁾
2020 Notes	299,167		303,360		298,499		300,356
2021 Euro Notes	325,993		331,248		337,704		341,094
2023 Notes	298,928		305,439		298,698		293,017
2024 Euro Notes	544,389		579,027		564,034		584,129
2026 Euro Notes	868,289		929,034		899,886		909,439
2028 Notes	396,611		442,000		396,377		401,231
2047 Notes	493,466		515,700		493,151		446,725
2048 Notes	785,943		907,008		785,788		783,925
Term Loan⁽²⁾	282,493		283,000		349,163		350,000
Amortizing Notes⁽⁴⁾	93,106		95,985		125,007		127,879

_______________________


(1)	The carrying amount approximates fair value due to the short maturity of those instruments.


(2)	The carrying amount approximates fair value as the interest rate is reset frequently based on current market rates as well as the short maturity of those instruments.


(3)	The fair value of the Company's long-term debt was calculated using discounted cash flows applying current interest rates and current credit spreads based on its own credit risk.


(4)	The fair value of the Amortizing Notes of the TEUs is based on the most recently quoted price for the outstanding securities, adjusted for any known significant deviation in value. The estimated fair value of these long-term obligations is not necessarily indicative of the amount that would be realized in a current market exchange.

Derivatives

The Company periodically enters into foreign currency forward contracts with the objective of reducing exposure to cash flow volatility associated with its intercompany loans, foreign currency receivables and payables, and anticipated purchases of certain raw materials used in operations. These contracts generally involve the exchange of one currency for a second currency at a future date, have maturities not exceeding twelve months and are with counterparties which are major international financial institutions.

In prior years, the Company entered into several forward currency contracts which qualified as cash flow hedges. The objective of these hedges is to protect against the currency risk associated with forecasted U.S. dollar ("USD") denominated raw material purchases made by Euro ("EUR") functional currency entities which result from changes in the EUR/USD exchange rate. The change in the value of the cash flow hedges is recorded in OCI as a component of gains/(losses) on derivatives qualifying as hedges in the accompanying Consolidated Statement of Income and Comprehensive (Loss) Income. Realized gains/(losses) in AOCI related to cash flow hedges of raw material purchases are recognized as a component of Cost of goods sold in the accompanying Consolidated Statement of Income and Comprehensive (Loss) Income in the same period as the related costs are recognized.

In prior years, the Company designated the 2021 Euro Notes, 2024 Euro Notes and 2026 Euro Notes as a hedge of a portion of its net investment in Euro functional currency subsidiaries. Accordingly, the change in the value of the debt that is attributable to foreign exchange movements is recorded in OCI as a component of Foreign currency translation adjustments in the accompanying Consolidated Statement of Income and Comprehensive (Loss) Income.

In prior years, the Company entered into interest rate swap agreements to hedge the anticipated issuance of fixed-rate debt, which are designated as cash flow hedges. The amount of gains and losses realized upon termination of these agreements is amortized over the life of the corresponding debt issuance.

In prior years, the Company entered into certain cross currency swaps which qualified as net investment hedges in order to mitigate a portion of its net European investments from foreign currency risk. Changes in fair value related to cross currency swaps are recorded in OCI as a component of the Foreign currency translation adjustments.

During the third quarter of 2019, the Company entered into a transaction to unwind the four cross currency swaps designated as net investment hedges issued in the fourth quarter of 2018 and received proceeds of $33.6 million, including interest income. The gain arising from the termination of the swaps has been included as a component of Accumulated other comprehensive loss. Following the termination of the existing swaps, the Company entered into four new EUR/USD cross currency swaps that mature through May 2023 covering the same notional amounts of debt. The new swaps qualified as net investment hedges in order to mitigate a portion of the Company's net European investments from foreign currency risk. As of September 30, 2019, these swaps were in a net asset position with an aggregate fair value of $5.7 million which was classified as other current assets. Changes in fair value related to cross currency swaps are recorded in OCI.

The following table shows the notional amount of the Company’s derivative instruments outstanding as of September 30, 2019 and December 31, 2018:



(DOLLARS IN THOUSANDS)	September 30, 2019		December 31, 2018
Foreign currency contracts	$	411,436	$	585,581
Cross currency swaps	600,000		600,000

The following tables show the Company’s derivative instruments measured at fair value (Level 2 of the fair value hierarchy), as reflected in the Consolidated Balance Sheet as of September 30, 2019 and December 31, 2018:



	September 30, 2019
(DOLLARS IN THOUSANDS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets^(a)
Foreign currency contracts	$	4,326	$	1,501	$	5,827
Cross currency swaps	5,728		—		5,728
	$	10,054	$	1,501	$	11,555
Derivative liabilities^(b)
Foreign currency contract	$	119	$	1,030	$	1,149



	December 31, 2018
(DOLLARS IN THOUSANDS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets^(a)
Foreign currency contracts	$	4,122	$	2,020	$	6,142
Cross currency swaps	1,087		—		1,087
	$	5,209	$	2,020	$	7,229
Derivative liabilities^(b)
Foreign currency contracts	$	205	$	6,702	$	6,907

_______________________


(a)	Derivative assets are recorded to Prepaid expenses and Other assets in the Consolidated Balance Sheet.


(b)	Derivative liabilities are recorded as Other current liabilities in the Consolidated Balance Sheet.

The following table shows the effect of the Company’s derivative instruments which were not designated as hedging instruments in the Consolidated Statement of Income and Comprehensive (Loss) Income for the three and nine months ended September 30, 2019 and 2018 (in thousands):



	Amount of Gain (Loss)					Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN THOUSANDS)	Three Months Ended September 30,
(DOLLARS IN THOUSANDS)	2019			2018
Foreign currency contracts⁽¹⁾	$	(4,392	)	$	8,277	Other (income) expense, net
Deal contingent swaps⁽²⁾
Foreign currency contracts	—			1,175		Other income, net
Interest rate swaps	—			25,289		Interest expense
Total	(4,392		)	34,741
	Amount of Gain (Loss)					Location of Gain (Loss) Recognized in Income on Derivative
	Nine Months Ended September 30,
(DOLLARS IN THOUSANDS)	2019			2018
Foreign currency contracts⁽¹⁾	$	(7,398	)	$	9,347	Other income, net
Deal contingent swaps⁽²⁾
Foreign currency contracts	—			12,154		Other income, net
Interest rate swaps	—			352		Interest expense
Total	$	(7,398	)	$	21,853

_______________________


(1)	The foreign currency contract net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.


(2)	In the second quarter of 2018, the Company entered into a foreign currency contract and two interest rate swap agreements, which were contingent upon the closing of the Frutarom acquisition.

The following table shows the effect of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedging instruments, net of tax, in the Consolidated Statement of Income and Comprehensive (Loss) Income for the three and nine months ended September 30, 2019 and 2018 (in thousands):



	Amount of Gain (Loss) Recognized in OCI on Derivative						Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended September 30,							Three Months Ended September 30,
	2019			2018				2019			2018
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	2,438		$	2,206		Cost of goods sold	$	1,924		$	1,815
Interest rate swaps ⁽¹⁾	216			216			Interest expense	(216		)	(216		)
Derivatives in Net Investment Hedging Relationships:
Foreign currency contracts	—			—			N/A	—			—
Cross currency swaps	17,803			—			N/A	—			—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	16,437			(7,104		)	N/A	—			—
2021 Euro Notes & 2026 Euro Notes	36,162			705			N/A	—			—
Total	$	73,056		$	(3,977	)		$	1,708		$	1,599

	Amount of (Loss) Gain Recognized in OCI on Derivative (Effective Portion)						Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)	Amount of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2019			2018				2019			2018
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	(265	)	$	11,704		Cost of goods sold	$	6,619		$	(7,371	)
Interest rate swaps ⁽¹⁾	644			648			Interest expense	(644		)	(648		)
Derivatives in Net Investment Hedging Relationships:
Foreign currency contracts	—			(518		)	N/A	—			—
Cross currency swaps	24,408			—			N/A	—			—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	15,820			5,601			N/A	—			—
2021 Euro Notes & 2026 Euro Notes	34,804			705			N/A	—			—
Total	$	75,411		$	18,140			$	5,975		$	(8,019	)

_______________________


(1)	Interest rate swaps were entered into as pre-issuance hedges for bond offerings.

The ineffective portion of the above noted cash flow hedges were not material during the three and nine months ended September 30, 2018.

The Company expects that $4.3 million (net of tax) of derivative gain included in AOCI at September 30, 2019, based on current market rates, will be reclassified into earnings within the next 12 months. The majority of this amount will vary due to fluctuations in foreign currency exchange rates.