Derivative Instruments

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives Designated as Hedging Instruments

In October 2018, the Company entered into cross-currency swap agreements to hedge its net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. By doing so, the Company synthetically converted a portion of its U.S. dollar-based long-term debt into Euro-denominated long-term debt. The agreements have a five year tenor at notional amounts declining from $125.0 million to $75.0 million over the contract period. Under the terms of the swap agreements, the Company is to receive net interest payments at a fixed rate of approximately 2.9% of the notional amount. At inception, the cross-currency swaps were designated as net investment hedges.

In October 2018, immediately prior to entering into these cross-currency swap agreements, the Company terminated its existing cross-currency swap agreements, de-designating the swaps as net investment hedges and receiving approximately $1.1 million of cash. The cross-currency swap agreements were entered into in October 2017 and hedged the Company's net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. The agreements had a five year tenor at notional amounts declining from $150.0 million to $75.0 million over the contract period. Under the terms of the swap agreements, the Company was to receive net interest payments at a fixed rate of approximately 2.1% of the notional amount.

As of September 30, 2019 and December 31, 2018, the fair value carrying amount of the Company's derivative instruments are recorded as follows (dollars in thousands):



		Asset / (Liability) Derivatives
Derivatives designated as hedging instruments	Balance Sheet Caption	September 30, 2019		December 31, 2018
Net Investment Hedges
Cross-currency swaps	Other assets	$	7,680	$	130

The following table summarizes the income recognized in AOCI on derivative contracts designated as hedging instruments as of September 30, 2019 and December 31, 2018, and the amounts reclassified from AOCI into earnings for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands):



	Amount of Income Recognized in AOCI on Derivative (Effective Portion, net of tax)					Amount of Income (Loss) Reclassified from AOCI into Earnings
						Three months ended September 30,				Nine months ended September 30,
	As of September 30, 2019		As of December 31, 2018		Location of Income (Loss) Reclassified from AOCI into Earnings (Effective Portion)	2019		2018		2019		2018
Net Investment Hedges
Cross-currency swaps	$	6,680	$	940	Other income (expense), net	$	—	$	—	$	—	$	—

Over the next 12 months, the Company does not expect to reclassify any pre-tax deferred amounts from AOCI into earnings.

Derivatives Not Designated as Hedging Instruments

As of September 30, 2019, the Company was party to foreign currency exchange forward contracts to economically hedge changes in foreign currency rates with notional amounts of approximately $102.9 million. The Company uses foreign exchange contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain of its receivables, payables and intercompany transactions denominated in foreign currencies. The foreign exchange contracts primarily mitigate currency exposures between the U.S. dollar and the Euro, British pound and the Chinese yuan, and have various settlement dates through March 2020. These contracts are not designated as hedge instruments; therefore, gains and losses on these contracts are recognized each period directly into the consolidated statement of income.

The following table summarizes the effects of derivatives not designated as hedging instruments on the Company's consolidated statement of income (dollars in thousands):



		Amount of Income Recognized in Earnings on Derivatives
		Three months ended September 30,				Nine months ended September 30,
	Location of Income Recognized in Earnings on Derivatives	2019		2018		2019		2018
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other income (expense), net	$	1,170	$	—	$	1,390	$	—

Fair Value of Derivatives

The fair value of the Company's derivatives are estimated using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of the Company's cross-currency swaps and foreign exchange contracts use observable inputs such as interest rate yield curves and forward currency exchange rates. Fair value measurements and the fair value hierarchy level for the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 are shown below (dollars in thousands):



Description	Frequency	Asset / (Liability)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Cross-currency swaps	Recurring	$	7,680	$	—	$	7,680	$	—
Foreign exchange contracts	Recurring	$	1,300	$	—	$	1,300	$	—
December 31, 2018
Cross-currency swaps	Recurring	$	130	$	—	$	130	$	—