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Financial Instruments

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [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 included in Note 16. These valuations take into consideration the Company's credit risk and its counterparties’ credit risk.

The carrying value and the estimated fair values of financial instruments at December 31 consisted of the following:


	2020				2019
(DOLLARS IN THOUSANDS)	Carrying Value		Fair Value		Carrying Value		Fair Value
LEVEL 1
Cash and cash equivalents(1)	$	649,541	$	649,541	$	606,823	$	606,823
LEVEL 2
Credit facilities and bank overdrafts(2)	1,560		1,560		3,131		3,131
Derivatives
Derivative assets(3)	1,321		1,321		3,575		3,575
Derivative liabilities(3)	29,203		29,203		7,415		7,415

Long-term debt:(4)
2020 Notes	—		—		299,381		302,700
2021 Euro Notes	368,234		369,825		334,561		338,244
2023 Notes	299,311		315,570		299,004		305,580
2024 Euro Notes	613,564		647,902		558,124		586,825
2026 Euro Notes	978,134		1,060,816		890,183		945,306
2028 Notes	397,006		472,194		396,688		441,500
2047 Notes	493,992		607,975		493,571		526,106
2048 Notes	786,216		1,059,131		785,996		919,040
2018 Term Loan Facility(2)	239,817		240,000		239,621		240,000
2022 Term Loan Facility(2)	199,377		200,000		—		—
Amortizing Notes(5)	36,250		36,609		82,079		84,430

_______________________

(1)The carrying amount of cash and cash equivalents 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 carrying amount approximates fair value as the instruments are marked-to-market and held at fair value on the Consolidated Balance Sheet.

(4)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.

(5)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. See Note 8 for additional information on the TEUs.

Derivatives

Forward Currency Forward Contracts

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.

Cash Flow Hedges

During the year ended December 31, 2017, 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 effective portions of cash flow hedges are recorded in OCI as a component of Gains/(Losses) on derivatives qualifying as hedges in the accompanying Consolidated Statement of Income and Comprehensive 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 Income in the same period as the related costs are recognized.

Hedges Related to Issuances of Debt

Subsequent to the issuance of the 2021 Euro Notes and 2026 Euro Notes during the third quarter of 2018, the Company designated the debt as a hedge of a portion of its net European investments. 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 Income.

Subsequent to the issuance of the 2024 Euro Notes during the first quarter of 2016, the Company designated the debt as a hedge of a portion of its net European investments. 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 Income.

During the first quarter of 2016, the Company entered into and terminated two Euro interest rate swap agreements to hedge the anticipated issuance of fixed-rate debt. These swaps were designated as cash flow hedges. The effective portions of cash flow hedges are recorded in OCI as a component of Losses on derivatives qualifying as hedges in the accompanying Consolidated Statement of Income and Comprehensive Income. The Company incurred a loss of €2.9 million ($3.2 million) due to the termination of these swaps. The loss is being amortized as interest expense over the life of the 2024 Euro Notes as discussed in Note 9.

During the fourth quarter of 2016 and the first quarter of 2017, 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 various hedge instruments were settled upon issuance of the debt on May 18, 2017 and resulted in a loss of approximately $5.3 million. As discussed in Note 9, the loss is being amortized as interest expense over the life of the 2047 Notes.

Cross Currency Swaps

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 $7.7 of 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, (during the third quarter of 2019,) the Company entered into four new EUR/USD cross currency swaps that mature through May 2023. The swaps all qualified as net investment hedges in order to mitigate a portion of the Company's net European investments from foreign currency risk. During the third quarter of 2020, the Company entered into a transaction to unwind two of the swaps issued in the third quarter of 2019 and paid proceeds of $14.6 million, net of accrued interest receivable of $2.2 million. The loss arising from the termination of the swaps has been included as a component of accumulated other comprehensive loss. As of December 31, 2020, the two remaining swaps were in a net liability position with an aggregate fair value of $23.4 million which was classified as other current liabilities. 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 December 31, 2020 and December 31, 2019:


	December 31,
(DOLLARS IN THOUSANDS)	2020		2019
Foreign currency contracts	$	220,804	$	473,600
Cross currency swaps	300,000		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 December 31, 2020 and December 31, 2019:


	December 31, 2020
(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	$	391	$	930	$	1,321



Derivative liabilities(b)
Foreign currency contracts	5,411		383		5,794
Cross currency swaps	23,409		—		23,409
Total derivative liabilities	$	28,820	$	383	$	29,203


	December 31, 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	$	1,310	$	2,265	$	3,575


Derivative liabilities(b)
Foreign currency contracts	$	797	$	2,431	$	3,228
Interest rate swaps	4,187		—		4,187
Total derivative liabilities	$	4,984	$	2,431	$	7,415

_______________________

(a)Derivative assets are recorded to Prepaid expenses and other current 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 Income for the years ended December 31, 2020 and December 31, 2019:


(DOLLARS IN THOUSANDS)	Amount of Gain (Loss) For the year ended December 31,				Location of Gain (Loss) Recognized in Income on Derivative
	2020		2019
Foreign currency contracts	$	9,319	$	557	Other (income) expense, net

These net gains (losses) mostly offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.

The following table shows the effect of the Company’s derivative instruments designated as cash flow and net investment hedging instruments, net of tax, in the Consolidated Statement of Income and Comprehensive Income for the years ended December 31, 2020 and December 31, 2019 (in thousands):


	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	For the years ended December 31,					For the years ended December 31,
	2020		2019			2020		2019
Derivatives in Cash Flow Hedging Relationships:

Foreign currency contracts	$	(9,796)	$	(3,535)	Cost of goods sold	$	4,720	$	8,504
Interest rate swaps (1)	858		857		Interest expense	(858)		(857)
Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	(13,450)		—		N/A	—		—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	(41,806)		5,440		N/A	—		—
2021 Euro Notes & 2026 Euro Notes	(91,974)		11,969		N/A	—		—
Total	$	(156,168)	$	14,731		$	3,862	$	7,647

_______________________

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

The ineffective portion of the above noted cash flow hedges and net investment hedges was not material for the years ended December 31, 2020 and 2019.

The Company expects approximately $4.1 million (net of tax), of derivative gains included in AOCI at December 31, 2020, based on current market rates, will be reclassified into earnings within the next twelve months. The majority of this amount will vary due to fluctuations in foreign currency exchange rates.