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DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS The Company operates internationally, with manufacturing and sales facilities in various locations around the world. In the normal course of business, the Company primarily uses cash flow derivatives to manage foreign currency and price risk exposures on third-party and intercompany forecasted transactions. For a derivative to qualify for hedge accounting treatment at inception and throughout the hedge period, the Company formally documents the nature and relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions, and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it is deemed probable the forecasted transaction will not occur, then the gain or loss would be recognized in current earnings. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged. The Company does not engage in trading or other speculative use of financial instruments. The Company records all derivative contracts at fair value on a recurring basis. The Company’s derivative financial instruments are categorized under the ASC 820 hierarchy; see Note A - “Basis of Presentation” for an explanation of the hierarchy. Foreign Exchange Contracts The Company enters into foreign exchange contracts to manage variability of future cash flows associated with changing currency exchange rates. Primary currencies to which the Company is exposed are the Euro, British Pound and Australian Dollar. Foreign currency exchange contracts designated as cash flow hedges are used to manage variability of future cash flows associated with recognized assets or liabilities and forecasted transactions. Certain foreign exchange contracts not designated as hedging instruments are used to mitigate its exposure to changes in foreign currency exchange rates on recognized assets and liabilities. Fair values of these contracts are derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities. Foreign exchange contracts outstanding at September 30, 2020 mature on or before December 31, 2020. At September 30, 2020 and December 31, 2019, the Company had $5.3 million and $233.0 million notional amount, respectively, of foreign exchange contracts outstanding that were designated as cash flow hedge contracts. For effective hedging instruments, unrealized gains and losses associated with foreign exchange contracts are deferred as a component of Accumulated other comprehensive income (loss) (“AOCI”) until the underlying hedged transactions settle and are reclassified to Cost of goods sold (“COGS”) in the Company’s Condensed Consolidated Statement of Comprehensive Income (Loss). The Company had $54.7 million and $121.2 million notional amount of foreign exchange contracts outstanding that were not designated as hedging instruments at September 30, 2020 and December 31, 2019, respectively. The majority of gains and losses recognized from foreign exchange contracts not designated as hedging instruments were offset by changes in the underlying hedged items, resulting in no material net impact on earnings. Changes in the fair value of these derivative financial instruments were recognized as gains or losses in COGS and Other income (expense) – net in the Condensed Consolidated Statement of Comprehensive Income (Loss). Other Other derivatives designated as cash flow hedging instruments include interest rate caps and commodity swaps with outstanding notional amounts of $300.0 million and $17.3 million at September 30, 2020. Commodity swaps outstanding at September 30, 2020 mature on or before August 31, 2021. There were no interest rate caps or cross currency swaps designated as cash flow hedging instruments outstanding at December 31, 2019. The outstanding notional amount of commodity swaps was $7.0 million at December 31, 2019. The Company uses interest rate caps to mitigate its exposure to changes in interest rates related to variable rate debt, cross currency swaps to mitigate its exposure to changes in foreign currency exchange rates and commodity swaps to mitigate price risk for hot rolled coil steel. Fair values of interest rate caps and cross currency swaps are based on the present value of future cash payments and receipts. Fair values of commodity swaps are based on observable market data for similar assets and liabilities. Changes in the fair value of interest rate caps, cross currency swaps and commodity swaps are deferred in AOCI. Gains or losses on interest rate caps are reclassified to Interest expense in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the underlying hedged transactions occur. Gains or losses on cross currency swaps are reclassified to Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the underlying hedged item is re-measured. Gains or losses on commodity swaps are reclassified to COGS in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the hedged transaction affects earnings. Other derivatives designated as net investment hedging instruments include cross currency swaps with outstanding notional amounts of $117.2 million at September 30, 2020. There were no cross currency swaps designated as net investment hedging instruments outstanding at December 31, 2019. The Company uses these cross currency swaps to mitigate its exposure to changes in foreign currency exchange rates related to a net investment in a Euro-denominated functional currency subsidiary. Fair values of cross currency swaps are based on the present value of future cash payments and receipts. Changes in the fair value of cross currency swaps are deferred in AOCI. Gains or losses on cross currency swaps are reclassified to Selling, general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the net investment is liquidated. Other derivatives not designated as hedging instruments include a debt conversion feature on a convertible promissory note held by the Company for which changes in fair value are recorded in Other income (expense) - net in the Condensed Consolidated Statement of Comprehensive Income (Loss). The following table provides the location and fair value amounts of derivative instruments designated and not designated as hedging instruments that are reported in the Condensed Consolidated Balance Sheet (in millions):
|  | September 30, 2020 |  | December 31, 2019
Instrument (1) | Balance Sheet Account | Derivatives designated as hedges | Derivatives not designated as hedges |  | Derivatives designated as hedges | Derivatives not designated as hedges
Foreign exchange contracts | Other current assets | $ | 0.1 |  | $ | — |  |  | $ | 4.1 |  | $ | — |
Commodity swaps | Other current assets | 0.4 |  | — |  |  | — |  | — |
Foreign exchange contracts | Other current liabilities | — |  | (0.1) |  |  | (3.9) |  | — |
Cross currency swaps - net investment hedge | Other current liabilities | (1.1) |  | — |  |  | — |  | — |
Interest rate caps | Other current liabilities | (1.2) |  | — |  |  | — |  | — |
Cross currency swaps - net investment hedge | Other non-current liabilities | (6.3) |  | — |  |  | — |  | — |
Interest rate caps | Other non-current liabilities | (3.0) |  | — |  |  | — |  | — |
Net derivative asset (liability) | $ | (11.1) |  | $ | (0.1) |  |  | $ | 0.2 |  | $ | — |
(1) Categorized as Level 2 under the ASC 820 Fair Value Hierarchy. The following tables provide the effect of derivative instruments that are designated as hedges in AOCI (in millions):
| Gain (Loss) Recognized on Derivatives in OCI, net of tax |  | Gain (Loss) Reclassified from AOCI into Income (Loss)
Instrument | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | Income Statement Account | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020
Foreign exchange contracts | $ | 0.2 |  | $ | (0.5) |  | Cost of goods sold | $ | 0.3 |  | $ | (2.1) |
Commodity swaps | 1.1 |  | 0.3 |  | Cost of goods sold | (0.1) |  | (1.9) |
Cross currency swaps - net investment hedge | (3.6) |  | (5.8) |  | Selling, general and administrative expenses | — |  | — |
Interest rate caps | (0.5) |  | (3.1) |  | Interest expense | (0.3) |  | (0.1) |
Total | $ | (2.8) |  | $ | (9.1) |  | Total | $ | (0.1) |  | $ | (4.1) |
| Gain (Loss) Recognized on Derivatives in OCI, net of tax |  | Gain (Loss) Reclassified from AOCI into Income (Loss)
Instrument | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Income Statement Account | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019
Foreign exchange contracts | $ | (1.9) |  | $ | (1.4) |  | Cost of goods sold | $ | (2.8) |  | $ | (5.2) |
Commodity swaps | 0.2 |  | (0.1) |  | Cost of goods sold | (1.5) |  | (2.5) |
Cross currency swaps - cash flow hedge | 0.2 |  | 0.9 |  | Other income (expense) - net | 1.9 |  | 2.3 |
Total | $ | (1.5) |  | $ | (0.6) |  | Total | $ | (2.4) |  | $ | (5.4) |
The following tables provide the effect of derivative instruments that are designated as hedges in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
| Classification and amount of Gain (Loss) Recognized in Income (Loss)
| Cost of goods sold |  |  |  | Interest Expense
| Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 |  |  |  |  | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020
Income Statement Accounts in which effects of cash flow hedges are recorded | $ | (619.3) |  | $ | (1,899.6) |  |  |  |  |  | $ | (15.8) |  | $ | (50.0) |
Gain (loss) reclassified from AOCI into Income (loss): |  |  |  |  |  |  |  |
Foreign exchange contracts | 0.3 |  | (2.1) |  |  |  |  |  | — |  | — |
Commodity swaps | (0.1) |  | (1.9) |  |  |  |  |  | — |  | — |
Interest rate caps | — |  | — |  |  |  |  |  | (0.3) |  | (0.1) |
Amount excluded from effectiveness testing recognized in Income (loss) based on amortization approach: |  |  |  |  |  |  |  |
Cross currency swaps - net investment hedge | — |  | — |  |  |  |  |  | 0.2 |  | 0.3 |
Total | $ | 0.2 |  | $ | (4.0) |  |  |  |  |  | $ | (0.1) |  | $ | 0.2 |
| Classification and amount of Gain (Loss) Recognized in Income (Loss)
| Cost of goods sold |  | Other income (expense) - net
| Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 |  | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019
Income Statement Accounts in which effects of cash flow hedges are recorded | $ | (815.0) |  | $ | (2,748.9) |  |  | $ | 1.6 |  | $ | (2.9) |
Gain (loss) reclassified from AOCI into Income (loss): |  |  |
Foreign exchange contracts | (2.8) |  | (5.2) |  |  | — |  | — |
Commodity swaps | (1.5) |  | (2.5) |  |  | — |  | — |
Cross currency swaps - cash flow hedge | — |  | — |  |  | 1.9 |  | 2.3 |
Total | $ | (4.3) |  | $ | (7.7) |  |  | $ | 1.9 |  | $ | 2.3 |
Derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. The following table provides the effect of non-designated derivatives outstanding at the end of the period in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):
|  | Gain (Loss) Recognized in Income (Loss)
Instrument | Income Statement Account | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 |  | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019
Foreign exchange contracts | Cost of goods sold | $ | 0.1 |  | $ | (0.2) |  |  | $ | — |  | $ | — |
Foreign exchange contracts | Other income (expense) – net | (0.4) |  | (0.2) |  |  | (0.4) |  | (0.7) |
Debt conversion feature | Other income (expense) – net | (0.1) |  | — |  |  | (0.1) |  | (0.4) |
| Total | $ | (0.4) |  | $ | (0.4) |  |  | $ | (0.5) |  | $ | (1.1) |
In the Condensed Consolidated Statement of Comprehensive Income (Loss), the Company records hedging activity related to foreign exchange contracts, interest rate caps, cross currency swaps and commodity swaps, and the debt conversion feature in the accounts for which the hedged items are recorded. On the Condensed Consolidated Statement of Cash Flows, the Company presents cash flows from hedging activities in the same manner as it records the underlying item being hedged. Counterparties to the Company’s derivative financial instruments are major financial institutions and commodity trading companies with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management continues to monitor counterparty risk and believes the risk of incurring losses on derivative contracts related to credit risk is unlikely and any losses would be immaterial.
See Note N - “Stockholders’ Equity” for unrealized net gains (losses), net of tax, included in AOCI. Within unrealized net gains (losses) included in AOCI as of September 30, 2020, it is estimated that $2.7 million of losses are expected to be reclassified into earnings in the next twelve months.

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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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