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Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2021
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Note 6 — Derivative Financial Instruments Interest Rate Swap and Interest Lock Agreements Prior to January 2020, we had interest rate swaps that swap the EURIBOR on our European term loan for a fixed rate. We terminated these swaps in January 2020 when we repaid the European term loan. These interest rate swaps were designated as cash flow hedges to floating rate bank loans. The Euro swaps had final maturities dates between June 2023 and June 2024, in annual installments. The fair value of interest rate swap agreements was recorded in other assets or as a liability with a corresponding amount to other comprehensive (loss) income. At March 31, 2021, we had no interest rate swap agreements outstanding. The Company had treasury lock agreements to protect against unfavorable movements in the benchmark treasury rate related to the issuance of our 3.95% Senior Unsecured Notes. These hedges were designated as cash flow hedges for hedge accounting purposes thus any change in fair value was recorded as a component of other comprehensive (loss) income. As part of the issuance of our 3.95% Senior Unsecured Notes, we net settled these derivatives for $10 million in cash. As a result of settling these derivatives the previously deferred gains recorded in other comprehensive (loss) income will be released to interest expense over the life of the 3.95% Senior Unsecured Notes. The effect of these treasury locks reduced the effective interest rate on these notes by approximately 0.25%. Cross Currency and Interest Rate Swap Agreements In November 2020 we entered into a cross currency and interest rate swap, which is designated as a cash flow hedge of a €270 million, 5-year amortizing, intercompany loan between one of our European subsidiaries and the US parent company. Changes in the spot exchange are recorded to the general ledger and offset the fair value re-measurement of the hedged item. The net difference in the interest rates coupons is recorded as a credit to interest expense. The derivative swaps €270 million bearing interest at a fixed rate of 0.30% for $319.9 million plus fixed rate interest of 1.115%. The interest coupons settle semi-annually. The principal will amortize each year on November 15, as follows: for years 1 through 4, beginning November 15, 2021, €50 million versus $59.2 million, and a final settlement on November 15, 2025 of €70 million versus $82.9 million. The carrying value of the derivative at March 31, 2021 is a current asset of $2.9 million and a long-term liability of $1.2 million. Foreign Currency Forward Exchange Contracts A number of our European subsidiaries are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries’ functional currencies, being either the Euro or the British pound sterling. We entered into contracts to exchange U.S. dollars for Euros and British pound sterling through September 2023. The aggregate notional amount of these contracts was $232.1 million and $250.3 million at March 31, 2021 and December 31, 2020, respectively. The purpose of these contracts is to hedge a portion of the forecasted transactions of our European subsidiaries under long-term sales contracts with certain customers. These contracts are expected to provide us with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing our exposure to fluctuations in currency exchange rates. The effective portion of the hedges, losses of $5.5 million were recorded in other comprehensive (loss) income for the three months ended March 31, 2021 and losses of $17.3 million for the three months ended March 31, 2020. We classified $9.5 million of the carrying amount of these contracts as assets ($7.4 million of which was recorded in prepaid expenses and other current assets) and $2.7 million as liabilities ($0.5 million of which is recorded in non-current liabilities), on the Condensed Consolidated Balance Sheets at March 31, 2021, and $16.0 million of the carrying amount of these contracts was classified in assets ($10.7 million of which was recorded in prepaid expenses and other current assets) and $2.5 million as liabilities (less than $0.1 million of which is in other non-current liabilities) at December 31, 2020. We recognized net gains of $1.4 million in gross margin during the three months ended March 31, 2021 and net losses of $4.4 million for the three months ended March 31, 2020. In addition, we enter into foreign exchange forward contracts which are not designated as hedges. These are used to provide an offset to transactional gains or losses arising from the remeasurement of non-functional monetary assets and liabilities such as accounts receivable. The change in the fair value of the derivatives is recorded in the statement of operations. There are no credit contingency features in these derivatives. During the quarters ended March 31, 2021 and 2020, we recognized net foreign exchange losses of $1.6 million and $1.0 million, respectively, in the Condensed Consolidated Statements of Operations. The net foreign exchange impact recognized from these hedges offset the translation exposure of these transactions. The carrying amount of the contracts for derivatives not designated as hedging instruments was $0.4 million classified in current liabilities at March 31, 2021, and $0.1 million classified in current liabilities on our Condensed Consolidated Balance Sheet at December 31, 2020. The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive (loss) income for the quarters ended March 31, 2021 and March 31, 2020 was as follows:
|  | Quarter Ended March 31, |
(In millions) |  | 2021 |  |  | 2020 |
Unrealized gains (losses) at beginning of period, net of tax |  | $ | 10.6 |  |  | $ | (8.4 | )
Losses reclassified to net sales |  |  | (1.1 | ) |  |  | 3.3 |
Decrease in fair value |  |  | (3.9 | ) |  |  | (13.6 | )
Unrealized gains (losses) at end of period, net of tax |  | $ | 5.6 |  |  | $ | (18.7 | )
Unrealized gains of $5.2 million recorded in accumulated other comprehensive loss, less taxes of $1.1 million, as of March 31, 2021, are expected to be reclassified into earnings over the next twelve months as the hedged sales are recorded. Commodity Swap Agreements On occasion we enter into commodity swap agreements to hedge against price fluctuations of raw materials, including propylene (the principal component of acrylonitrile). As of March 31, 2021 we had commodity swap agreements with a notional value of $6.8 million. The swaps mature monthly through March 2022. The swaps are accounted for as a cash flow hedge of our forward raw material purchases. To ensure the swaps are highly effective, all of the critical terms of the swap matched the terms of the hedged items. The fair value of the commodity swap agreements was an asset of $2.1 million ($2.0 million of which is in prepaid and other non-current assets) at March 31, 2021, and an asset of $2.2 million ($1.5 million of which was recorded in prepaid expenses and other current assets) and a liability of $1.1 million at December 31, 2020.

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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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