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DERIVATIVES

12 Months Ended

Dec. 31, 2020

NOTE 15 – DERIVATIVES

The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial for each of the three years in the period ended December 31, 2020.

The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at December 31, 2020. The Company does not expect any counterparties to fail to meet their obligations.

Cash flow hedges

Certain foreign currency forward contracts are qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was $69,051 at December 31, 2020 and $59,982 at December 31, 2019.

During March and April 2020, in anticipation of future debt issuance associated with the Notes referenced in Note 12, the Company entered into interest rate forward starting swap agreements to hedge the variability of future changes in interest rates. The forward starting swap agreements were qualified and designated as a cash flow hedge. The changes in fair value are recorded as part of AOCI, and upon completion of debt issuance and termination of the swaps, are amortized to interest expense over the life of the underlying debt. The dollar equivalent gross notional amount of the long-term contracts was $100,000 at December 31, 2020 and have a termination date of August 2025.

Fair value hedges

Certain interest rate swap agreements are qualified and designated as fair value hedges. At December 31, 2019, the Company had interest rate swap agreements outstanding that effectively convert notional amounts of $50,000 of debt from a fixed interest rate to a variable interest rate based on three-month LIBOR plus a spread of between 0.5% and 0.6%. The variable rates reset every three months, at which time payment or receipt of interest will be settled. The Company terminated the interest rate swaps in the year ended December 31, 2020, which resulted in a gain of $6,629 that is amortized to interest expense over the remaining life of the underlying debt.

Net investment hedges

The Company has cross currency swaps that are qualified and designated as net investment hedges. The dollar equivalent gross notional amount of these contracts is $50,000 as of December 31, 2020.

Derivatives not designated as hedging instruments

The Company has certain foreign exchange forward contracts which are not designated as hedges. These derivatives are held as hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was $391,112 at December 31, 2020 and $363,820 at December 31, 2019.

Fair values of derivative instruments in the Company’s Consolidated Balance Sheets follow:


	December 31, 2020								December 31, 2019
	Other		Other						Other		Other
	Current		Current		Other		Other		Current		Current		Other		Other
Derivatives by hedge designation	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	2,451	$	1,124	$	—	$	—	$	1,288	$	522	$	—	$	—
Interest rate swap agreements		—		—		—		—		—		—		2,964		—
Forward starting swap agreements		—		—		4,876		—		—		—		—		—
Cross currency swap agreements		—		—		—		4,308		—		—		—		653
Not designated as hedging instruments:
Foreign exchange contracts		1,398		3,485		—		—		2,397		973		—		—
Total derivatives	$	3,849	$	4,609	$	4,876	$	4,308	$	3,685	$	1,495	$	2,964	$	653

The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:


		Year Ended December 31,
Derivatives by hedge designation	Classification of gain (loss)	2020		2019
Foreign exchange contracts	Selling, general & administrative expenses	$	3,160	$	13,154

The effects of designated cash flow hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:


Total gain (loss) recognized in AOCI, net of tax	December 31, 2020		December 31, 2019
Foreign exchange contracts	$	660	$	620
Forward starting swap agreements		3,649		—
Net investment contracts		(1,822)		1,006

The Company expects a gain of $660 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.


		Year Ended December 31,
	Gain (loss) recognized in the
Derivative type	Consolidated Statements of Income:	2020		2019
Foreign exchange contracts	Sales	$	(2,015)	$	975
	Cost of goods sold		(158)		454