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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES We maintain a foreign exchange risk management policy designed to establish a framework to protect the value of our non-functional currency denominated transactions from adverse changes in exchange rates. Sales of our products can be denominated in a currency different from the currency in which the related costs to produce the product are denominated. Changes in exchange rates on such inter-country sales or intercompany loans can impact our results of operations. Our policy is not to engage in speculative foreign currency hedging activities, but to minimize our net foreign currency transaction exposure, defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency. We may use foreign currency forward exchange contracts, options and cross currency swaps to economically hedge these risks. For derivative instruments designated as hedges, we formally document the nature and relationships between the hedging instruments and the hedged items, as well as the risk management objectives, strategies for undertaking the various hedge transactions, and the method of assessing hedge effectiveness at inception. Quarterly thereafter, we formally assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of the hedged item. Additionally, in order to designate any derivative instrument as a hedge of an anticipated transaction, the significant characteristics and expected terms of any anticipated transaction must be specifically identified, and it must be probable that the anticipated transaction will occur. All derivative financial instruments used as hedges are recorded at fair value in the Condensed Consolidated Balance Sheets (See Note 11 - Fair Value). Cash Flow Hedge For derivative instruments that are designated and qualify as cash flow hedges, the changes in fair values are recorded in accumulated other comprehensive loss and included in changes in derivative gain/loss. The changes in the fair values of derivatives designated as cash flow hedges are reclassified from accumulated other comprehensive loss to net income when the underlying hedged item is recognized in earnings. Cash flows from the settlement of derivative contracts designated as cash flow hedges offset cash flows from the underlying hedged items and are included in operating activities in the Condensed Consolidated Statements of Cash Flows. During 2017, our wholly-owned UK subsidiary borrowed $280 million in term loan borrowings under our prior credit facility. In order to mitigate the currency risk of U.S. dollar debt on a euro functional currency entity and to mitigate the risk of variability in interest rates, we entered into a EUR/USD floating-to-fixed cross currency interest rate swap in the notional amount of $280 million to effectively hedge the foreign exchange and interest rate exposure on the $280 million term loan. This EUR/USD swap agreement fixed our U.S. dollar floating-rate debt to 1.36% euro fixed-rate debt. Related to this hedge, approximately $0.3 million of loss is included in accumulated other comprehensive loss at September 30, 2021. The amount expected to be recognized into earnings during the next 10 months related to the interest component of our cross currency swap based on prevailing foreign exchange and interest rates at September 30, 2021 is a gain of $8 thousand. The amount expected to be recognized into earnings during the next 10 months related to the foreign exchange component of our cross currency swap is dependent on fluctuations in currency exchange rates. As of September 30, 2021, the fair value of the cross currency swap was a $0.7 million liability. The swap contract expires on July 20, 2022. Hedge of Net Investments in Foreign Operations A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our foreign subsidiaries. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive effect. In some cases, we maintain debt in these subsidiaries to offset the net asset exposure. We do not otherwise actively manage this risk using derivative financial instruments. In the event we plan on a full or partial liquidation of any of our foreign subsidiaries where our net investment is likely to be monetized, we will consider hedging the currency exposure associated with such a transaction. Other As of September 30, 2021, we have recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other and $0.2 million in accounts payable, accrued and other liabilities on the balance sheet. All forward exchange contracts outstanding as of September 30, 2021 had an aggregate notional contract amount of $47.5 million.
Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020
|  |  | September 30, 2021 |  | December 31, 2020
| Balance Sheet Location |  | Derivatives Designated as Hedging Instruments |  | Derivatives not Designated as Hedging Instruments |  | Derivatives Designated as Hedging Instruments |  | Derivatives not Designated as Hedging Instruments
Derivative Assets |  |  |  |  |  |  |  |  |
Foreign Exchange Contracts | Prepaid and other |  | $ | — |  |  | $ | 254 |  |  | $ | — |  |  | $ | 322 |
|  |  | $ | — |  |  | $ | 254 |  |  | $ | — |  |  | $ | 322 |
Derivative Liabilities |  |  |  |  |  |  |  |  |
Foreign Exchange Contracts | Accounts payable, accrued and other liabilities |  | $ | — |  |  | $ | 226 |  |  | $ | — |  |  | $ | 146 |
Cross Currency Swap Contract (1) | Accounts payable, accrued and other liabilities |  | 738 |  |  | — |  |  | 8,309 |  |  | — |
|  |  | $ | 738 |  |  | $ | 226 |  |  | $ | 8,309 |  |  | $ | 146 |
__________________________ (1)This cross currency swap contract is composed of both an interest component and a foreign exchange component.
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the Three Months Ended September 30, 2021 and 2020
Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |  | Location of (Loss) Gain Recognized in Income on Derivatives |  | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income on Derivative |  | Total Amount of Affected Income Statement Line Item
| 2021 |  | 2020 |  |  |  | 2021 |  | 2020 |  |
Cross currency swap contract: |  |  |  |  |  |  |  |  |  |  |
Interest component | $ | 228 |  |  | $ | (1) |  |  | Interest expense |  | $ | (2) |  |  | $ | 146 |  |  | $ | (8,011) |
Foreign exchange component | 3,052 |  |  | (6,099) |  |  | Miscellaneous, net |  | 3,052 |  |  | (6,099) |  |  | 13 |
| $ | 3,280 |  |  | $ | (6,100) |  |  |  |  | $ | 3,050 |  |  | $ | (5,953) |  |  |
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the Nine Months Ended September 30, 2021 and 2020
Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |  | Location of (Loss) Gain Recognized in Income on Derivatives |  | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income on Derivative |  | Total Amount of Affected Income Statement Line Item
| 2021 |  | 2020 |  |  |  | 2021 |  | 2020 |  |
Cross currency swap contract: |  |  |  |  |  |  |  |  |  |  |
Interest component | $ | 1,055 |  |  | $ | 2,037 |  |  | Interest expense |  | $ | 16 |  |  | $ | 1,434 |  |  | $ | (22,601) |
Foreign exchange component | 6,291 |  |  | (6,379) |  |  | Miscellaneous, net |  | 6,291 |  |  | (6,379) |  |  | (2,978) |
| $ | 7,346 |  |  | $ | (4,342) |  |  |  |  | $ | 6,307 |  |  | $ | (4,945) |  |  |
The Effect of Derivatives Not Designated as Hedging Instruments on the Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2021 and 2020
Derivatives Not Designated as Hedging Instruments | Location of (Loss) Gain Recognized in Income on Derivatives |  | Amount of (Loss) Gain Recognized in Income on Derivatives
|  |  | 2021 |  | 2020
Foreign Exchange Contracts | Other (Expense) Income: Miscellaneous, net |  | $ | 1,518 |  |  | $ | (994) |
|  |  | $ | 1,518 |  |  | $ | (994) |
The Effect of Derivatives Not Designated as Hedging Instruments on the Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2021 and 2020
Derivatives Not Designated as Hedging Instruments | Location of (Loss) Gain Recognized in Income on Derivatives |  | Amount of (Loss) Gain Recognized in Income on Derivatives
|  |  | 2021 |  | 2020
Foreign Exchange Contracts | Other (Expense) Income: Miscellaneous, net |  | $ | (171) |  |  | $ | (187) |
|  |  | $ | (171) |  |  | $ | (187) |
|  |  | Gross Amounts Offset in the Statement of Financial Position |  | Net Amounts Presented in the Statement of Financial Position |  | Gross Amounts not Offset in the Statement of Financial Position |  |
| Gross Amount |  |  |  | Financial Instruments |  | Cash Collateral Received |  | Net Amount
September 30, 2021
Derivative Assets | $ | 254 |  |  | — |  |  | $ | 254 |  |  | — |  |  | — |  |  | $ | 254 |
Total Assets | $ | 254 |  |  | — |  |  | $ | 254 |  |  | — |  |  | — |  |  | $ | 254 |
Derivative Liabilities | $ | 964 |  |  | — |  |  | $ | 964 |  |  | — |  |  | — |  |  | $ | 964 |
Total Liabilities | $ | 964 |  |  | — |  |  | $ | 964 |  |  | — |  |  | — |  |  | $ | 964 |
December 31, 2020
Derivative Assets | $ | 322 |  |  | — |  |  | $ | 322 |  |  | — |  |  | — |  |  | $ | 322 |
Total Assets | $ | 322 |  |  | — |  |  | $ | 322 |  |  | — |  |  | — |  |  | $ | 322 |
Derivative Liabilities | $ | 8,455 |  |  | — |  |  | $ | 8,455 |  |  | — |  |  | — |  |  | $ | 8,455 |
Total Liabilities | $ | 8,455 |  |  | — |  |  | $ | 8,455 |  |  | — |  |  | — |  |  | $ | 8,455 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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