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Derivatives and Hedging | 9 Months Ended
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Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging | Note 17. Derivatives and Hedging In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries as well as fluctuations in foreign currency exchange rates and changes in interest rates relating to its long-term debt. The Company uses designated cash flow hedges and non-designated hedges in the form of foreign currency forward contracts as part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates and to mitigate the impact of foreign currency translation on transactions that are denominated primarily in Japanese Yen, British Pounds, Euros, Canadian Dollars, Australian Dollars and Korean Won. The Company also uses cross-currency debt swap contracts and interest rate hedge contracts to mitigate the impact of variable rates on its long-term debt as well as changes in foreign currencies. The Company accounts for its foreign currency forward contracts, cross-currency debt swap contracts and interest rate hedge contracts in accordance with ASC Topic 815. ASC Topic 815 requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet, the measurement of those instruments at fair value and the recognition of changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as a designated cash flow hedge that offsets certain exposures. Certain criteria must be satisfied in order for derivative financial instruments to be classified and accounted for as a cash flow hedge. Gains and losses from the remeasurement of qualifying cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) and released into earnings as a component of cost of goods sold or net sales, other income (expense) and interest expense during the period in which the hedged transaction takes place. Remeasurement gains or losses of derivatives that are not elected for hedge accounting treatment are recorded in earnings immediately as a component of other income (expense). Foreign currency forward contracts, cross-currency debt swap contracts and interest rate hedge contracts are used only to meet the Company’s objectives of minimizing variability in the Company’s operating results arising from foreign exchange rate movements and changes in interest rates. The Company does not enter into foreign currency forward contracts, cross-currency debt swap contracts and interest rate hedge contracts for speculative purposes. The Company utilizes counterparties for its derivative instruments that it believes are credit-worthy at the time the transactions are entered into and the Company closely monitors the credit ratings of these counterparties. The following table summarizes the fair value of the Company's derivative instruments as well as the location of the asset and/or liability on the consolidated condensed balance sheets at September 30, 2020 and December 31, 2019 (in thousands):
| Balance Sheet Location |  | Fair Value of Asset Derivatives
| September 30, 2020 |  | December 31, 2019
Derivatives designated as cash flow hedging instruments: |  |  |  |  |
Foreign currency forward contracts | Other current assets |  | $ | 158 |  |  | $ | 53 |
Derivatives not designated as hedging instruments: |  |  |  |  |
Foreign currency forward contracts | Other current assets |  | 2,543 |  |  | 8 |
Total asset position |  | $ | 2,701 |  |  | $ | 61 |
| Balance Sheet Location |  | Fair Value of Liability Derivatives
| September 30, 2020 |  | December 31, 2019
Derivatives designated as cash flow hedging instruments: |  |  |  |  |
Foreign currency forward contracts | Accounts payable and accrued expenses |  | $ | 225 |  |  | $ | 24 |
Cross-currency debt swap agreements | Accounts payable and accrued expenses |  | — |  |  | 25 |
Interest rate hedge agreements | Accounts payable and accrued expenses |  | 4,757 |  |  | 1,865 |
| Other long-term liabilities |  | 14,748 |  |  | 7,030 |
|  |  | 19,730 |  |  | 8,944 |
Derivatives not designated as hedging instruments: |  |  |  |  |
Foreign currency forward contracts | Accounts payable and accrued expenses |  | 2,215 |  |  | 741 |
Total liability position |  | $ | 21,945 |  |  | $ | 9,685 |
The Company's derivative instruments are subject to a master netting agreement with each respective counterparty bank and are therefore net settled at their maturity date. Although the Company has the legal right of offset under the master netting agreements, the Company has elected not to present these contracts on a net settlement amount basis, and therefore present these contracts on a gross basis on the accompanying consolidated condensed balance sheets at September 30, 2020 and December 31, 2019. Cash Flow Hedging Instruments Foreign Currency Forward Contracts The Company uses foreign currency derivatives designated as qualifying cash flow hedging instruments, including foreign currency forward contracts to help mitigate the Company's foreign currency exposure on intercompany sales of inventory to its foreign subsidiaries. These contracts generally mature within 12 to 15 months from their inception. At September 30, 2020, the notional amounts of the Company's foreign currency forward contracts designated as cash flow hedge instruments were approximately $14,503,000. At December 31, 2019, the Company had no outstanding foreign currency forward contracts designated as cash flow hedge instruments. As of September 30, 2020, the Company recorded a net gain of $904,000 in accumulated other comprehensive loss related to foreign currency forward contracts. Of this amount, net gains of $486,000 and $894,000 for the three and nine months ended September 30, 2020, respectively, were removed from accumulated other comprehensive loss and recognized in cost of goods sold for the underlying intercompany sales that were recognized, and net gains of $135,000 and $599,000 for the three and nine months ended September 30, 2020, respectively, were removed from accumulated other comprehensive loss related to the amortization of forward points. There were no ineffective hedge gains or losses recognized during the three and nine months ended September 30, 2020. Based on the current valuation, the Company expects to reclassify net gains of $588,000 from accumulated other comprehensive loss into net earnings during the next 12 months. The Company recognized net gains of $413,000 and $222,000 in cost of goods sold for the three and nine months ended September 30, 2019, respectively. Cross-Currency Debt Swap and Interest Rate Hedge Contract In order to mitigate the risk of changes in interest rates associated with the Company's variable-rate Term Loan Facility and EUR denominated intercompany loan, the Company used a cross-currency debt swap and interest rate hedge, both designated as cash flow hedges (see Note 6) by converting a portion of the USD denominated Term Loan Facility, which has a higher variable interest rate, to a EUR denominated synthetic note at a lower fixed rate. As of March 31, 2020, the Company unwound the cross currency swap, and as of June 30, 2020 determined that the forecasted transaction in connection with the underlying EUR denominated intercompany loan was no longer probable of occurring. As such, the Company discontinued the hedge and released net gains of $11,046,000 from accumulated other comprehensive income to other income during the second quarter of 2020. The Company maintained the interest rate hedge related to the USD denominated Term Loan Facility in order to continue mitigating the risk of changes in interest rates. Over the life of the facility, the Company will receive variable interest payments from the counterparty lenders in exchange for the Company making fixed rate payments, without exchange of the underlying notional amount. As of September 30, 2020, the notional amount outstanding under the interest rate hedge contract was $196,851,000. As of December 31, 2019, the notional amount outstanding under the cross-currency debt swap and interest rate hedge contract was $198,353,000. In connection with the cross-currency swap contract, during the nine months ended September 30, 2020, the Company recorded a remeasurement net gain of $15,081,000 in accumulated other comprehensive loss. There were no remeasurement gains or losses recorded during the three months ended September 30, 2020. During the three and nine months ended September 30, 2020, net gains of $0 and $18,510,000, respectively, were relieved from accumulated other comprehensive loss. The recognition of these net gains into earnings is summarized as follows:
• | Net gains of $0 and $11,046,000 related to the discontinuation of the cross-currency swap contract were recognized in other income (expense) in the three and nine months ended September 30, 2020.
• | Net gains related to foreign currency of $5,735,000 were recognized in other income (expense) in the nine months ended September 30, 2020. There were no net foreign currency gains or losses recognized in the three months ended September 30, 2020.
• | Net gains of $0 and $1,730,000 were recognized in interest income during the three and nine months ended September 30, 2020, respectively.
During the three and nine months ended September 30, 2019, net gains of $9,868,000 and $12,119,000 were relieved from accumulated other comprehensive loss in connection with the cross currency swap, respectively. The recognition of these net gains and losses into earnings is summarized as follows:
• | Net gains of $1,579,000 and $3,865,000 were recognized in interest income in the three and nine months ended September 30, 2019, respectively.
• | Net gains related to foreign currency of $8,289,000 and $8,254,000 were recognized in other income (expense) in the three and nine months ended September 30, 2019, respectively.
During the three and nine months ended September 30, 2020, the Company recorded net losses of $100,000 and $13,261,000, respectively, related to the remeasurement of the interest rate hedge contract in accumulated other comprehensive loss. Of these amounts, net losses of $1,198,000 and $2,644,000 were relieved from accumulated other comprehensive loss and recognized in interest expense during the three and nine months ended September 30, 2020, respectively. Based on the current valuation, the Company expects to reclassify a net loss of $4,766,000 related to the interest rate hedge contract from accumulated other comprehensive loss into earnings during the next 12 months. The following tables summarize the net effect of all cash flow hedges on the consolidated condensed financial statements for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|  | Gain/(Loss) Recognized in Other Comprehensive Income (Effective Portion)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives designated as cash flow hedging instruments |  | 2020 |  | 2019 |  | 2020 |  | 2019
Foreign currency forward contracts |  | $ | (1,070 | ) |  | $ | 464 |  |  | $ | 904 |  |  | $ | 1,037 |
Cross-currency debt swap agreements |  | — |  |  | 13,133 |  |  | 15,081 |  |  | 14,297 |
Interest rate hedge agreements |  | (100 | ) |  | (2,662 | ) |  | (13,261 | ) |  | (10,559 | )
|  | $ | (1,170 | ) |  | $ | 10,935 |  |  | $ | 2,724 |  |  | $ | 4,775 |
|  | Gain/(Loss) Reclassified from Other Comprehensive Income into Earnings (Effective Portion)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives designated as cash flow hedging instruments |  | 2020 |  | 2019 |  | 2020 |  | 2019
Foreign currency forward contracts |  | $ | 621 |  |  | $ | 556 |  |  | $ | 1,493 |  |  | $ | 930 |
Cross-currency debt swap agreements |  | — |  |  | 9,868 |  |  | 18,510 |  |  | 12,119 |
Interest rate hedge agreements |  | (1,198 | ) |  | (150 | ) |  | (2,644 | ) |  | (194 | )
|  | $ | (577 | ) |  | $ | 10,274 |  |  | $ | 17,359 |  |  | $ | 12,855 |
Foreign Currency Forward Contracts Not Designated as Hedging Instruments The Company uses foreign currency forward contracts that are not designated as qualifying cash flow hedging instruments to mitigate certain balance sheet exposures (payables and receivables denominated in foreign currencies), as well as gains and losses resulting from the translation of the operating results of the Company’s international subsidiaries into U.S. dollars for financial reporting purposes. These contracts generally mature within 12 months from their inception. At September 30, 2020 and December 31, 2019, the notional amounts of the Company’s foreign currency forward contracts used to mitigate the exposures discussed above were approximately $106,474,000 and $72,119,000, respectively. The Company estimates the fair values of foreign currency forward contracts based on pricing models using current market rates, and records all derivatives on the balance sheet at fair value with changes in fair value recorded in the consolidated condensed statements of operations. The foreign currency contracts are classified under Level 2 of the fair value hierarchy (see Note 16). The following table summarizes the location of net gains and losses in the consolidated condensed statements of operations that were recognized during the three and nine months ended September 30, 2020 and 2019, respectively, in addition to the derivative contract type (in thousands):
|  | Location of Net Gain/(Loss) Recognized in Income on Derivative Instruments |  | Amount of Net Gain/(Loss) Recognized in Income on Derivative Instruments
Derivatives not designated as hedging instruments |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Foreign currency forward contracts |  | Other expense, net |  | $ | (4,639 | ) |  | $ | 4,035 |  |  | $ | 622 |  |  | $ | 5,476 |
In addition, for the three months ended September 30, 2020 and 2019, the Company recognized net foreign currency transaction gains of $10,098,000 and losses of $10,051,000, respectively, and net foreign currency transaction gains of $7,857,000 and losses of $12,660,000, respectively, for the nine months ended September 30, 2020 and 2019, related to transactions with its foreign subsidiaries, respectively.

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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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