Derivatives

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

DerivativesThe Company selectively uses financial instruments to manage market risk associated with exposure to fluctuations in interest rates and foreign currency rates. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.

Interest Rate Hedging

The Company’s interest rate exposure is most sensitive to fluctuations in interest rates in the United States and Europe, which impact interest paid on its debt. The Company has debt with variable rates of interest based generally on LIBOR. From time to time, the Company enters into interest rate swap agreements to manage interest rate risk. These instruments are designated as cash flow hedges and are recorded at fair value (see Note 8, "Fair Value Measurements" for additional information).

In November 2018, the Company entered into a five-year interest rate swap agreement with a bank which converts the interest on a notional $139.0 million of the Company's borrowings under its 2018 Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount reduces quarterly by fluctuating amounts through August 2023. In April 2017, the Company entered into a three-year interest rate swap agreement with a bank which converts the interest on a notional $60.0 million of the Company's borrowings from a variable rate, plus the borrowing spread, to a fixed rate of 1.58% plus the borrowing spread. The notional amount reduced quarterly by $5.0 million through March 31, 2020 and is now settled. Prior to May 11, 2020, these interest rate swap agreements were accounted for as cash flow hedges. Effectiveness of the remaining derivative agreement was assessed quarterly, or more frequently, if necessary, by ensuring that the critical terms of the swap continued to match the critical terms of the hedged debt in order to report gains or losses on the derivative instrument in other comprehensive income.

On May 11, 2020, the Company amended its 2018 Credit Agreement, see Note 6, "Long-term Debt and Financing Arrangements". The amendment included, among other modifications, the establishment of a floor on the base and Eurocurrency rate of 1%. As a result, the Company determined that the critical terms of the swap no longer matched the critical terms of the hedged debt and performed an assessment of the effectiveness of the interest rate swap agreement. The Company concluded the interest rate swap agreement is no longer effective. The Company also concluded that the hedged forecasted transaction (the occurrence of variable interest rate payments on the hedged debt) continues to be probable of occurring. Therefore, as of May 11, 2020, the Company discontinued hedge accounting. After May 11, 2020 any fair value gains or losses on the derivative agreement is recorded as interest expense in the Company's Consolidated Statement of Operations. The cumulative loss on the discontinued hedge relationship through May 11, 2020, which was recorded in Accumulated Other Comprehensive Income, will be amortized into (losses) earnings through August 31, 2023, the maturity date of the hedged debt. The loss included in Accumulated Other Comprehensive Income related to the discontinued hedging relationship at June 30, 2020 was $6.9 million. The amount reclassified out of other comprehensive income into interest expense on our Condensed Consolidated Statement of Operations for both the three and six months ended June 30, 2020 was $0.5 million. The Company expects $3.3 million to be reclassified from Accumulated Other Comprehensive Income over the next twelve months.

Net Investment Hedges

The Company’s operations are subject to certain risks, including foreign currency exchange rate fluctuations. From time to time, the Company enters into cross-currency swaps designated as hedges, recorded at fair value (see Note 8, "Fair Value Measurements"), to protect the Company's net investments in subsidiaries denominated in currencies other than the US dollar.

In November 2019, the Company entered into three fixed-to-fixed cross-currency swaps with banking institutions with aggregate notional amounts totaling €67.8 million ($75 million U.S. dollar equivalent). These swaps hedge a portion of the Company's net investment in a Euro functional currency denominated subsidiary against the variability of exchange rate translation impacts between the U.S. dollar and Euro. These contracts require monthly cash interest exchanges over the life of the contracts with the Company recognizing a reduction to interest expense due to the favorable interest rate differential between the U.S. dollar and Euro. Also, settlement of the notional €22.6 million ($25 million U.S. dollar equivalent) cross-currency swaps occur at maturity dates of August 2021, August 2022 and August 2023. The Company assesses hedge effectiveness of the cross-currency swaps quarterly by ensuring the critical terms of the swaps continue to match the critical terms of the designated net investment. The Company elected to assess effectiveness using the spot method, and as a result, records the interest rate differential monthly in the Company's Statement of Operations.

Derivative instruments are recognized as either assets or liabilities on the balance sheet in either current or non-current other assets or other accrued liabilities or other long-term liabilities depending upon maturity and commitment. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the hedge transaction affects earnings. Any ineffective portion, or amounts related to contracts that are not designated as hedges, are recorded directly to earnings. The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. The Company does not use derivatives for speculative or trading purposes.

The following table sets forth the fair value amounts of derivative instruments held by the Company presented in the Condensed Consolidated Balance Sheets as Other current assets and Other accrued liabilities:

	June 30, 2020				December 31, 2019
In thousands	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Interest rate contracts	$	—	$	6,896	$	2	$	4,538
Cross-currency swaps	177		—		—		1,817
Total derivatives	$	177	$	6,896	$	2	$	6,355

The following table sets forth the (loss) income recorded in accumulated other comprehensive (loss) income, net of tax, for the three and six-month periods ended June 30, 2020 and 2019 for derivatives held by the Company and designated as hedging instruments:

	For the Three Months Ended   June 30,				For the Six Months Ended   June 30,
In thousands	2020		2019		2020		2019
Cash flow hedges:
Interest rate contracts	$	11	$	(1,351)	$	(2,162)	$	(2,026)
Cross-currency swaps	(1,093)		—		1,526		—
Total derivatives	$	(1,082)	$	(1,351)	$	(636)	$	(2,026)