Derivative Financial Instruments

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company principally uses derivative financial instruments to reduce the impact of changes in foreign currency exchange rates and interest rate fluctuations. The principal derivative financial instruments the Company enters into are foreign exchange forward contracts and interest rate swaps. The Company does not enter into derivative financial instrument contracts for trading or speculative purposes.

Foreign Exchange Derivative Instruments

Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to reduce the impact of currency fluctuations related to inventory purchases not denominated in the functional currency of the non-U.S. subsidiary, thereby limiting currency risk that would otherwise result from changes in exchange rates. These instruments are designated as cash flow hedges. The periods of the foreign exchange forward contracts correspond to the periods of the forecasted transactions, which do not exceed 24 months subsequent to the latest balance sheet date. The primary foreign exchange forward contracts pertain to the U.S. dollar, the Japanese yen, the British pound sterling, the Canadian dollar, the Korean won and the euro. The gross U.S. dollar equivalent notional amount outstanding of all foreign exchange forward contracts designated under hedge accounting as of December 31, 2019 and 2018 was $287.9 million and $312.8 million, respectively.

The Company also enters into foreign exchange forward contracts to mitigate the change in fair value of specific assets and liabilities which do not qualify as hedging instruments under U.S. GAAP. These undesignated instruments are recorded at fair value as a derivative asset or liability with the corresponding change in fair value recognized in selling, general and administrative expense. There were no outstanding foreign exchange forward contracts not designated under hedge accounting as of December 31, 2019 and 2018.

Interest Rate Derivative Instruments

The Company enters into interest rate swap contracts to reduce the impact of variability in interest rates. Under the contracts, the Company pays fixed and receives variable rate interest, in effect converting a portion of its variable rate debt to fixed rate debt. The interest rate swap contracts are accounted for as cash flow hedges. As of December 31, 2019 and 2018, the notional value of the Company's outstanding interest rate swap contracts was $160.0 million and $185.0 million, respectively.

Impact on Financial Statements

The fair value of hedge instruments recognized on the consolidated balance sheets was as follows:



(in thousands)		December 31, 2019		December 31, 2018
Balance Sheet Location	Hedge Instrument Type	December 31, 2019		December 31, 2018
Other current assets	Foreign exchange forward	$	4,549	$	6,116
Other noncurrent assets	Foreign exchange forward	1,109		1,015
Accrued expenses and other liabilities	Foreign exchange forward	2,561		578
	Interest rate swap	1,862		526
Other noncurrent liabilities	Foreign exchange forward	115		161
	Interest rate swap	789		925

The hedge instrument gain (loss) recognized in accumulated other comprehensive loss, net of tax was as follows:



	Gain (Loss) Recognized in Other Comprehensive Loss
	Year ended December 31,
(in thousands)	2019			2018			2017
Type of hedge
Foreign exchange forward	$	5,490		$	8,148		$	(15,558	)
Interest rate swap	(2,185		)	(1,926		)	—
	$	3,305		$	6,222		$	(15,558	)

Gains and losses on derivative instruments designated as cash flow hedges are reclassified from accumulated other comprehensive loss, net of tax, at the time the forecasted transaction impacts the statement of operations. Based on the current valuation, during the next 12 months the Company expects to reclassify a net gain of $3.0 million related to foreign exchange derivative instruments from accumulated other comprehensive loss, net of tax into cost of goods sold and a net loss of $1.9 million related to interest rate derivative instruments from accumulated other comprehensive loss, net of tax into interest expense, net. For further information related to amounts recognized in accumulated other comprehensive loss, net of tax, see Note 17.

The hedge instrument gain (loss) recognized on the consolidated statements of operations was as follows:



	Year ended December 31,
(in thousands)	2019			2018			2017
Location of gain (loss) in statement of operations
Foreign exchange forward:
Cost of goods sold	$	8,465		$	(1,410	)	$	1,329
Selling, general and administrative ⁽¹⁾	204			1,665			(2,732		)
Total	$	8,669		$	255		$	(1,403	)

Interest Rate Swap:
Interest expense, net	$	(989	)	$	(476	)	$	—
Total	$	(989	)	$	(476	)	$	—

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⁽¹⁾ Relates to gains (losses) on foreign exchange forward contracts derived from previously designated cash flow hedges.

Credit Risk

The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the derivative contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal.