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Hedging Transactions and Derivative Instruments (Tables) | 12 Months Ended
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Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Fair Value of Derivative Instruments | The fair values of derivative instruments held by the Company are as follows (in millions):
|  |  | Derivative Assets (Liabilities)
Hedge Type | Contract Type | Balance Sheet Line | December 31, 2018 |  | December 31, 2017
Derivatives designated as hedging instruments |  |  |
Cash flow hedges | Foreign exchange contracts | Prepaid and other current assets | $ | 0.2 |  |  | $ | 0.6 |
Cash flow hedges | Foreign exchange contracts | Other accrued expenses | (0.6 | ) |  | — |
Derivatives not designated as hedging instruments |  |  |
Economic hedges | Foreign exchange contracts | Prepaid and other current assets | 0.2 |  |  | — |
Schedule of Cash Flow Hedging Instruments, Statements of Financial Performance | 10. Hedging Transactions and Derivative Instruments The Company is affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as "market risks." The Company uses derivatives as a risk management tool to mitigate the potential impact of certain market risks, which are primarily foreign currency risk and interest rate risk related to ongoing business operations. Cash Flow Hedging The Company uses cash flow hedges to minimize the variability in cash flows of assets, liabilities, or forecasted transactions caused by fluctuations in foreign currency exchange rates or market interest rates. These derivatives, which are designated cash flow hedges, are carried at fair value. The changes in their fair values are recorded to Accumulated Other Comprehensive Income (Loss) ("AOCI") and reclassified in current earnings when the hedge contract matures or becomes ineffective. To manage its exposure to foreign currency exchange rates, the Company has entered into currency deliverable forward contracts. These derivative instruments allow the Company to hedge portions of its forecasted intercompany sales, which are expected to occur within the next twelve months and are denominated in non-functional currencies. The Company maintains a foreign currency cash flow hedging program primarily to reduce the risk that the net U.S. dollar cash inflows from non-U.S. dollar sales and non-U.S. dollar net cash outflows from procurement activities will be adversely affected by changes in foreign currency exchange rates. At December 31, 2018 and 2017, the notional value of the derivatives related to currency forward contracts, principally the Chinese yuan, Malaysian ringgit, and Philippine peso, was $41.6 million and $17.9 million, respectively. To manage its exposure to market risk for changes in interest rates, the Company entered into an interest rate swap on November 12, 2014 to convert variable interest rate payments into a fixed rate on a notional amount of $100.0 million of debt for monthly interest payments that began in January 2016. The Company designated the swap as a cash flow hedge with re-measurement gains and losses recorded through AOCI. In December 2017, the Company entered into a partial termination of the interest rate swap and reduced the notional amount to $50.0 million. The interest rate swap ended in July 2018. Economic (Non-Designated) Hedging In addition to derivative instruments that are designated and qualify for hedge accounting, the Company also uses certain derivatives as economic hedges of foreign currency risk. Although these derivatives were not designated and/or did not qualify for hedge accounting, they are effectively economic hedges. The changes in fair value of these economic hedges are immediately recognized in earnings. The Company uses foreign currency economic hedges to offset the earnings impact that fluctuations in foreign currency exchange rates have on certain monetary assets and liabilities denominated in non-functional currencies. The Company does not enter into these hedges for speculative reasons. These derivatives are carried at fair value with changes in fair value immediately recognized in earnings within Other expense (income), net. In addition, these derivative instruments minimize the impact of exchange rate movements on the Company’s balance sheet, as the gains or losses on these derivatives are intended to offset gains and losses from the reduction of the hedged assets and liabilities. At December 31, 2018 and 2017, the notional value of the derivatives related to economic hedging was $19.8 million and $6.4 million, respectively. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates, or other financial indices. The Company does not view the fair values of its derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying hedged transactions or other exposures. Virtually all of our derivatives are straightforward over-the-counter instruments with liquid markets. Fair Value Measurements All derivatives are carried at fair value on the Company’s Consolidated Balance Sheets. ASC 820, Fair Value Measurement, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value as follows: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities. Level 3 - Unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company determines the fair values of its derivatives based on standard valuation models or observable market inputs such as quoted market prices, foreign currency exchange rates, or interest rates; therefore, the Company classifies the derivatives within Level 2 of the valuation hierarchy. The Company early adopted ASU 2017-12 as of January 1, 2018. The standard requires adoption of the amended presentation and disclosure requirements on a prospective basis. With respect to presentation requirements, the Company began presenting the impact of foreign exchange contracts qualifying as cash flow hedges within the Cost of goods sold line on the Consolidated Statements of Earnings as of January 1, 2018. These amounts were classified in the Other expense (income), net line in prior periods. This change aligns the presentation of the impact of these hedges with the same line on the Consolidated Statements of Earnings that is used to present the earnings effect of the hedged item. With respect to disclosure requirements, the Company has enhanced the tabular disclosures below to align with the standard. See Note 1. Summary of Significant Accounting Policies for additional information on the adoption of this standard. The fair values of derivative instruments held by the Company are as follows (in millions):
|  |  | Derivative Assets (Liabilities)
Hedge Type | Contract Type | Balance Sheet Line | December 31, 2018 |  | December 31, 2017
Derivatives designated as hedging instruments |  |  |
Cash flow hedges | Foreign exchange contracts | Prepaid and other current assets | $ | 0.2 |  |  | $ | 0.6 |
Cash flow hedges | Foreign exchange contracts | Other accrued expenses | (0.6 | ) |  | — |
Derivatives not designated as hedging instruments |  |  |
Economic hedges | Foreign exchange contracts | Prepaid and other current assets | 0.2 |  |  | — |
The pre-tax amount of unrealized (loss) gain recognized in accumulated other comprehensive loss on derivatives designated as hedging instruments is as follows (in millions):
|  |  | Years Ended December 31,
Hedge Type | Contract Type |  | 2018 |  | 2017 |  | 2016
Cash flow hedges | Foreign exchange contracts |  | $ | (2.5 | ) |  | $ | 3.6 |  |  | $ | (2.5 | )
Cash flow hedges | Interest rate contracts |  | 0.1 |  |  | 0.3 |  |  | (0.7 | )
The table above excludes a tax benefit of $0.4 million, tax expense of $0.5 million, and a tax benefit of $0.7 million for the years ended December 31, 2018, 2017, and 2016, respectively. The pre-tax impact of derivatives on the Consolidated Statements of Earnings is as follows (in millions):
|  |  | Years Ended December 31,
|  |  | 2018 |  | 2017 |  | 2016
Hedge Type | Contract Type |  | Cost of goods sold | Interest expense, net | Other expense (income), net |  | Interest expense, net | Other expense (income), net |  | Interest expense, net | Other expense (income), net
Total amounts per Consolidated Statements of Earnings |  | $ | 503.9 |  | $ | 16.0 |  | $ | 0.7 |  |  | $ | 20.6 |  | $ | (0.1 | ) |  | $ | 20.4 |  | $ | (3.5 | )
Effect of derivatives designated as hedging instruments |  |  |
Amount of loss (gain) reclassified from accumulated other comprehensive loss into earnings: |  |  |  |  |
Cash flow hedges | Foreign exchange contracts |  | 1.4 |  | — |  | — |  |  | — |  | (0.3 | ) |  | — |  | (0.3 | )
Cash flow hedges | Interest rate contracts |  | — |  | — |  | — |  |  | 0.8 |  | — |  |  | 1.3 |  | — |
Effect of derivatives not designated as hedging instruments |  |  |
Amount of loss (gain) recognized in earnings: |  |  |  |  |  |  |  |  |  |
Economic hedges | Foreign exchange contracts |  | — |  | — |  | 0.9 |  |  | — |  | (0.3 | ) |  | — |  | 2.0 |

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