XML 24 R14.htm IDEA: XBRL DOCUMENT
v3.21.2

Derivative Financial Instruments | 9 Months Ended
--- | ---
Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments As part of our risk management strategy, we use derivative instruments to hedge certain foreign currency and interest rate exposures. Refer to Note 13: Shareholders' Equity and Note 14: Fair Value of Financial Instruments for additional disclosures on our derivative instruments. The fair values of our derivative instruments are determined using the income approach and significant other observable inputs (and are classified as "Level 2" in the fair value hierarchy). We have used observable market inputs based on the type of derivative and the nature of the underlying instrument. The key inputs include interest rate yield curves (swap rates and futures) and foreign exchange spot and forward rates, all of which are available in an active market. We have utilized the mid-market pricing convention for these inputs. We include, as a discount to the derivative asset, the effect of our counterparty credit risk based on current published credit default swap rates when the net fair value of our derivative instruments is in a net asset position. We consider our own nonperformance risk when the net fair value of our derivative instruments is in a net liability position by discounting our derivative liabilities to reflect the potential credit risk to our counterparty through applying a current market indicative credit spread to all cash flows. The fair values of our derivative instruments were as follows:
|  | Fair Value
Derivatives Assets | Balance Sheet Location | September 30, 2021 |  | December 31, 2020
Derivatives designated as hedging instruments under ASC 815-20 | In thousands
Foreign exchange options | Other current assets | $ | 329 |  |  | $ | — |
Derivatives not designated as hedging instruments under ASC 815-20 |  |  |
Foreign exchange forward contracts | Other current assets | 49 |  |  | 52 |
Total asset derivatives |  | $ | 378 |  |  | $ | 52 |
Derivatives Liabilities |  |  |  |
Derivatives designated as hedging instruments under ASC 815-20 |  |  |
Interest rate swap contracts | Other current liabilities | $ | — |  |  | $ | 1,025 |
Interest rate swap contracts | Other long-term obligations | — |  |  | 957 |
Cross currency swap contract | Other current liabilities | — |  |  | 526 |
Derivatives not designated as hedging instruments under ASC 815-20 |  |  |
Foreign exchange forward contracts | Other current liabilities | 166 |  |  | 128 |
Total liability derivatives |  | $ | 166 |  |  | $ | 2,636 |
The changes in accumulated other comprehensive income (loss) (AOCI), net of tax, for our derivative and nonderivative hedging instruments designated as hedging instruments, net of tax, were as follows:
In thousands | 2021 |  | 2020
Net unrealized loss on hedging instruments at January 1, | $ | (16,001) |  |  | $ | (15,103) |
Unrealized gain (loss) on derivative instruments | 1,085 |  |  | (4,727) |
Realized (gains) losses reclassified into net income (loss) | 733 |  |  | 2,570 |
Net unrealized loss on hedging instruments at September 30, | $ | (14,183) |  |  | $ | (17,260) |
Reclassification of amounts related to hedging instruments are included in interest expense in the Consolidated Statements of Operations. Included in the net unrealized gain (loss) on hedging instruments at September 30, 2021 and 2020 is a loss of $14.4 million, net of tax, related to our nonderivative net investment hedge, which terminated in 2011. This loss on our net investment hedge will remain in AOCI until earnings are impacted by a sale or liquidation of the associated foreign operation. A summary of the effect of netting arrangements on our financial position related to the offsetting of our recognized derivative assets and liabilities under master netting arrangements or similar agreements is as follows:
Offsetting of Derivative Assets | Gross Amounts of Recognized Assets Presented in the Consolidated Balance Sheets |  | Gross Amounts Not Offset in the Consolidated Balance Sheets |  |
In thousands |  | Derivative Financial Instruments |  | Cash Collateral Received |  | Net Amount
September 30, 2021 | $ | 378 |  |  | $ | (28) |  |  | $ | — |  |  | $ | 350 |
December 31, 2020 | 52 |  |  | (52) |  |  | — |  |  | — |
Offsetting of Derivative Liabilities | Gross Amounts of Recognized Liabilities Presented in the Consolidated Balance Sheets |  | Gross Amounts Not Offset in the Consolidated Balance Sheets |  |
In thousands |  | Derivative Financial Instruments |  | Cash Collateral Pledged |  | Net Amount
September 30, 2021 | $ | 166 |  |  | $ | (28) |  |  | $ | — |  |  | $ | 138 |
December 31, 2020 | 2,636 |  |  | (52) |  |  | — |  |  | 2,584 |
Our derivative assets and liabilities subject to netting arrangements include foreign exchange forward and interest rate contracts with four counterparties at September 30, 2021 and six counterparties at December 31, 2020. No derivative asset or liability balance with any of our counterparties was individually significant at September 30, 2021 or December 31, 2020. Our derivative contracts with each of these counterparties exist under agreements that provide for the net settlement of all contracts through a single payment in a single currency in the event of default. We have no pledges of cash collateral against our obligations, and we have not received pledges of cash collateral from our counterparties under the associated derivative contracts. Cash Flow Hedges As a result of our floating rate debt under our current credit facility, we are exposed to variability in our cash flows from changes in the applicable interest rate index. We enter into interest rate caps and swaps to reduce the variability of cash flows from increases in the LIBOR-based borrowing rates on our floating rate credit facility. These instruments do not protect us from changes to the applicable margin under our credit facility. On August 12, 2021, the term loan under the credit facility was fully repaid. At September 30, 2021, we have no LIBOR-based debt. In October 2015, we entered into one interest rate swap, which was effective from August 31, 2016 and expired on June 23, 2020, to convert $214 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 1.42% (excluding the applicable margin on the debt). The notional balance amortized to maturity at the same rate as required minimum payments on the outstanding term loan. This cash flow hedge was expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk through the term of the hedge. Consequently, effective changes in the fair value of the interest rate swap were recognized as a component of other comprehensive income (loss) (OCI) and recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge were recognized as adjustment to interest expense. In March 2020, we entered into one interest rate swap, which was effective from June 30, 2020 to June 30, 2023, and converted $240 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 0.617% (excluding the applicable margin). The notional balance amortized to maturity at the same rate of originally required amortizations on our outstanding term loan. Changes in the fair value of the interest rate swap were recognized as a component of OCI and recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge was recognized as an adjustment to interest expense along with the earnings effect of the hedged item. On March 17, 2021 following the paydown of the term loan within the 2018 credit facility, we terminated the interest rate swap, and paid a fee of $1.7 million to settle it, since the likelihood of LIBOR-based interest payments was no longer probable of occurring. In April 2018, we entered into one cross-currency swap, which converted $56.0 million of floating LIBOR-based U.S. dollar- denominated debt into 1.38% fixed rate euro-denominated debt. This cross-currency swap matured on April 30, 2021 and mitigated the risk associated with fluctuations in currency rates impacting cash flows related to U.S. dollar-denominated debt in a euro functional currency entity. Changes in the fair value of the cross-currency swap were recognized as a component of OCI and were recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge were recognized as an adjustment to interest expense along with the earnings effect of the hedged item. As a result of our forecasted inventory purchases in a non-functional currency, we are exposed to foreign exchange risk. We hedge portions of these purchases. During February 2021, we entered into foreign exchange option contracts for a total notional amount of $77 million at a cost of $1.1 million. The contracts mature ratably through the year with final maturity in October 2021. Changes in the fair values of the option contracts are recognized as a component of OCI and are recognized in product cost of revenues when the hedged item affects earnings. The before-tax effects of our accounting for derivative instruments designated as hedges on AOCI were as follows:
Derivatives in ASC 815-20 Cash Flow Hedging Relationships | Amount of Gain (Loss) Recognized in OCI on Derivative |  | Gain (Loss) Reclassified from AOCI into Income
Location |  | Amount
In thousands | 2021 |  | 2020 |  |  |  | 2021 |  | 2020
Three Months Ended September 30, |  |  |  |  |  |  |  |  |
Interest rate swap contracts | $ | — |  |  | $ | (302) |  |  | Interest expense |  | $ | — |  |  | $ | (274) |
Foreign exchange options | 478 |  |  | (252) |  |  | Product cost of revenues |  | (32) |  |  | (450) |
Cross currency swap contract | — |  |  | (2,326) |  |  | Interest expense |  | — |  |  | 88 |
Cross currency swap contract | — |  |  | — |  |  | Other income (expense), net |  | — |  |  | (2,242) |
Nine Months Ended September 30, |  |  |  |  |  |  |  |  |
Interest rate swap contract | $ | 73 |  |  | $ | (2,818) |  |  | Interest expense |  | $ | (229) |  |  | $ | (467) |
Interest rate swap contract | — |  |  | — |  |  | Other income (expense), net |  | (1,681) |  |  | — |
Interest rate cap contracts | — |  |  | 782 |  |  | Interest expense |  | — |  |  | 392 |
Foreign exchange options | 367 |  |  | (1,221) |  |  | Product cost of revenues |  | (40) |  |  | (612) |
Cross currency swap contract | 669 |  |  | (1,969) |  |  | Interest expense |  | 94 |  |  | 537 |
Cross currency swap contract | — |  |  | — |  |  | Other income (expense), net |  | 656 |  |  | (2,438) |
Derivatives Not Designated as Hedging Relationships We are also exposed to foreign exchange risk when we enter into non-functional currency transactions, both intercompany and third party. At each period-end, non-functional currency monetary assets and liabilities are revalued with the change recognized within other income (expense) in our Consolidated Statements of Operations. We enter into monthly foreign exchange forward contracts, which are not designated for hedge accounting, with the intent to reduce earnings volatility associated with currency exposures. As of September 30, 2021, a total of 37 contracts were offsetting our exposures from the euro, pound sterling, Indonesian rupiah, Canadian dollar, Australian dollar and various other currencies, with notional amounts ranging from $150,000 to $56.4 million. The effect of our derivative instruments not designated as hedges on the Consolidated Statements of Operations was as follows:
Derivatives Not Designated as Hedging Instrument under ASC 815-20 | Location |  | Gain (Loss) Recognized on Derivatives in Other Income (Expense)
In thousands |  |  | 2021 |  | 2020
Three Months Ended September 30, |  |  |
Foreign exchange forward contracts | Other income (expense), net |  | $ | 673 |  |  | $ | (1,646) |
Nine Months Ended September 30, |  |  |  |  |
Foreign exchange forward contracts | Other income (expense), net |  | $ | 210 |  |  | $ | (1,056) |
We will continue to monitor and assess our interest rate and foreign exchange risk and may institute additional derivative instruments to manage such risk in the future. Convertible Note Hedge Transactions We paid an aggregate amount of $84.1 million for the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes, approximately 3.7 million shares of our common stock, the same number of shares initially underlying the Convertible Notes, at a strike price of approximately $126.00, subject to customary adjustments. The Convertible Note Hedge Transactions will expire upon the maturity of the Convertible Notes, subject to earlier exercise or termination. The Convertible Note Hedge Transactions are expected generally to reduce the potential dilutive effect of the conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of the converted notes, as the case may be, in the event that the market price per share of our common stock, as measured under the terms of the Convertible Note Hedge Transactions, is greater than the strike price of those Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions meet the criteria in ASC 815-40 to be classified within Stockholders' Equity, and therefore the transactions are not revalued after their issuance. We made a tax election to integrate the Convertible Notes and the call options. We are retaining the identification statements in our books and records, together with a schedule providing the accruals on the synthetic debt instruments. The accounting impact of this tax election makes the call options deductible as original issue discount for tax purposes over the term of the Convertible Note, and results in a $20.6 million deferred tax asset recognized through equity. Warrant Transactions In addition, concurrently with entering into the Convertible Note Hedge Transactions, we separately entered into privately-negotiated Warrant Transactions (the Warrant Transactions), whereby we sold to the Counterparties warrants to acquire, collectively, subject to anti-dilution adjustments, 3.7 million shares of our common stock at an initial strike price of $180.00 per share, which represents a premium of 100% over the public offering price in the common stock issuance. We received aggregate proceeds of $45.3 million from the Warrant Transactions with the Counterparties, with such proceeds partially offsetting the costs of entering into the Convertible Note Hedge Transactions. The warrants expire in June 2026. If the market value per share of our common stock, as measured under the Warrants Transactions, exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share, unless we elect, subject to certain conditions, to settle the warrants in cash. The warrants meet the criteria in ASC 815-40 to be classified within Stockholders' Equity, therefore the warrants are not revalued after issuance.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration