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Derivatives | 3 Months Ended
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Mar. 31, 2020
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivatives |
7) | Derivatives
The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. The Company operates internationally and, in the normal course of business, is exposed to fluctuations in interest rates and foreign exchange rates. These fluctuations can increase the costs of financing, investing and operating the business. The Company has used derivative instruments, such as forward foreign currency exchange contracts, to manage certain foreign currency exposure, and interest rate swaps to manage interest rate exposure. By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions, for which no collateral is required. The Company has policies to monitor the credit risk of these counterparties. While there can be no assurance, the Company does not anticipate any material non-performance by any of these counterparties. Interest Rate Swap Agreements On September 30, 2016, the Company entered into an interest rate swap agreement, which has a maturity date of September 30, 2020, to fix the rate on approximately 50% of its then-outstanding balance under the 2016 Term Loan Facility, as described further in Note 11. This hedge fixes the interest rate paid on the hedged debt at 1.198% per annum plus the applicable credit spread, which was 1.75% as of March 31, 2020. At March 31, 2020, the notional amount of this transaction was $250.0 and it had a fair value liability of $0.5. At December 31, 2019, the notional amount of this transaction was $250.0 and it had a fair value asset of $0.8. On April 3, 2019, the Company entered into an interest rate swap agreement, which has a maturity date of March 31, 2023, to fix the rate on $300.0 of the then-outstanding balance of the 2019 Incremental Term Loan Facility, as described further in Note 11. The rate was fixed at 2.309% per annum plus the applicable credit spread, which was 1.75% at March 31, 2020. At March 31, 2020, the notional amount of this transaction was $300.0 and had a fair value liability of $15.3. At December 31, 2019, the notional amount of this transaction was $300.0 and had a fair value liability of $6.5. The interest rate swaps are recorded at fair value on the balance sheet and changes in the fair value are recognized in other comprehensive income (loss) (“OCI”). To the extent that these arrangements are no longer an effective hedge, any ineffectiveness measured in the hedging relationships is recorded in earnings in the period it occurs. Foreign Exchange Contracts The Company hedges a portion of its forecasted foreign currency-denominated intercompany sales of inventory, over a maximum period of eighteen months, using forward foreign exchange contracts accounted for as cash-flow hedges. To the extent these derivatives are effective in off-setting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria, changes in the derivatives’ fair value are not included in current earnings but are included in OCI in stockholders’ equity. These changes in fair value will subsequently be reclassified into earnings, as applicable, when the forecasted transaction occurs. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs. The cash flows resulting from forward exchange contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. The Company does not enter into derivative instruments for trading or speculative purposes. As of March 31, 2020 and December 31, 2019, the Company had outstanding forward foreign exchange contracts with gross notional values of $104.4 and $154.7, respectively. The following tables provide a summary of the primary net hedging positions and corresponding fair values held as of March 31, 2020 and December 31, 2019:
|  | March 31, 2020 |
Currency Hedged (Buy/Sell) |  | Gross Notional Value |  |  | Fair Value |
U.S. Dollar/Japanese Yen |  | $ | 34.4 |  |  | $ | (0.2 | )
U.S. Dollar/South Korean Won |  |  | 32.5 |  |  |  | 1.8 |
U.S. Dollar/Euro |  |  | 10.1 |  |  |  | 0.4 |
U.S. Dollar/U.K. Pound Sterling |  |  | 5.3 |  |  |  | 0.3 |
U.S. Dollar/Taiwan Dollar |  |  | 22.1 |  |  |  | (0.1 | )
Total |  | $ | 104.4 |  |  | $ | 2.2 |
|  | December 31, 2019 |
Currency Hedged (Buy/Sell) |  | Gross Notional Value |  |  | Fair Value |
U.S. Dollar/Japanese Yen |  | $ | 45.9 |  |  | $ | 0.1 |
U.S. Dollar/South Korean Won |  |  | 51.7 |  |  |  | 0.2 |
U.S. Dollar/Euro |  |  | 15.7 |  |  |  | 0.2 |
U.S. Dollar/U.K. Pound Sterling |  |  | 8.3 |  |  |  | (0.2 | )
U.S. Dollar/Taiwan Dollar |  |  | 33.1 |  |  |  | (0.5 | )
Total |  | $ | 154.7 |  |  | $ | (0.2 | )
The following table provides a summary of the fair value amounts of the Company’s derivative instruments:
Derivatives Designated as Hedging Instruments |  | March 31, 2020 |  |  | December 31, 2019 |
Derivative assets: |  |  |  |  |  |  |  |
Foreign exchange contracts(1) |  | $ | 2.7 |  |  | $ | 1.1 |
Foreign currency interest rate hedge(2) |  |  | — |  |  |  | 0.8 |
Derivative liabilities: |  |  |  |  |  |  |  |
Foreign exchange contracts(1) |  |  | (0.5 | ) |  |  | (1.3 | )
Foreign currency interest rate hedge(2) |  |  | (15.8 | ) |  |  | (6.5 | )
Total net derivative liability designated as hedging instruments |  | $ | (13.6 | ) |  | $ | (5.9 | )
| (1) | The derivative asset of $2.7 and derivative liability of $0.5 related to the forward foreign exchange contracts are classified in other current assets and other current liabilities in the consolidated balance sheet as of March 31, 2020. The derivative asset of $1.1 and derivative liability of $1.3 related to the forward foreign exchange contracts are classified in other current assets and other current liabilities in the consolidated balance sheet as of December 31, 2019. These
|  | forward foreign exchange contracts are subject to a master netting agreement with one financial institution. However, the Company has elected to record these contracts on a gross basis in the balance sheet.
| (2) | The foreign currency interest rate hedge liability of $0.5 is classified in other current liabilities in the consolidated balance sheet as of March 31, 2020. The foreign currency interest rate hedge asset of $0.8 is classified in other current assets in the consolidated balance sheet as of December 31, 2019. The foreign currency interest rate hedge liability of $15.3 is classified in other non-current liabilities in the consolidated balance sheet as of March 31, 2020. The foreign currency interest rate hedge liability of $6.5 is classified in other non-current liabilities in the consolidated balance sheet as of December 31, 2019.
The net amount of existing gains as of March 31, 2020 that is expected to be reclassified from OCI into earnings within the next 12 months is immaterial. The following table provides a summary of the (losses) gains on derivatives designated as cash flow hedging instruments:
|  | Three Months Ended March 31, |
Derivatives Designated as Cash Flow Hedging Instruments |  | 2020 |  |  | 2019 |
Forward exchange contracts: |  |  |  |  |  |  |  |
Net gain (loss) recognized in accumulated OCI(1) |  | $ | (6.0 | ) |  | $ | 0.1 |
Net gain (loss) reclassified from accumulated OCI into income(2) |  | $ | 0.7 |  |  | $ | 0.9 |
| (1) | Net change in the fair value of the effective portion classified in accumulated OCI.
| (2) | Effective portion classified in cost of products for the three months ended March 31, 2020 and 2019. The tax effect of the gains or losses reclassified from accumulated OCI into income is immaterial.
The following table provides a summary of the gain on derivatives not designated as hedging instruments:
|  | Three Months Ended March 31, |
Derivatives Not Designated as Hedging Instruments |  | 2020 |  |  | 2019 |
Forward exchange contracts: |  |  |  |  |  |  |  |
Net gain recognized in income(1) |  | $ | 0.2 |  |  | $ | 0.1 |
| (1) | The Company enters into foreign exchange contracts to hedge against changes in the balance sheet for certain subsidiaries to mitigate the risk associated with certain foreign currency transactions in the ordinary course of business. These derivatives are not designated as hedging instruments and gains or losses from these derivatives are recorded immediately in other (expense) income.

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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 + Details
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