Derivatives and Hedging

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 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 and interest rate hedge contracts in accordance with ASC Topic 815, “Derivatives and Hedging”, (“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 products or net revenue, other income 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.

Foreign currency forward 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 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 as of March 31, 2022 and December 31, 2021 (in millions):


	Balance Sheet Location	Fair Value of Asset Derivatives
		March 31, 2022		December 31, 2021
Derivatives designated as cash flow hedging instruments:
Foreign currency forward contracts	Other current assets	$	1.3	$	0.1




Interest rate hedge contracts	Other assets	1.0		—
Total		$	2.3	$	0.1

Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other current assets	6.6		0.2


Total asset position		$	8.9	$	0.3


	Balance Sheet Location	Fair Value of Liability Derivatives
		March 31, 2022		December 31, 2021
Derivatives designated as cash flow hedging instruments:
Foreign currency forward contracts	Accounts payable and accrued expenses	$	0.3	$	—




Interest rate hedge contracts	Accounts payable and accrued expenses	1.5		4.1
Interest rate hedge contracts	Other long-term liabilities	—		4.6
		1.8		8.7
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Accounts payable and accrued expenses	1.2		0.2




Total liability position		$	3.0	$	8.9

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 as of March 31, 2022 and December 31, 2021.

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 months to 15 months from their inception. As of March 31, 2022 and December 31, 2021, the notional amounts of the Company’s foreign currency forward contracts designated as cash flow hedge instruments were approximately $41.8 million and $3.3 million, respectively.

As of March 31, 2022, the Company recorded a net gain of $1.0 million in accumulated other comprehensive loss related to foreign currency forward contracts. Of this amount, net gain of $0.4 million for the three months ended March 31, 2022, were removed from accumulated other comprehensive loss and recognized in cost of products for the underlying sales that were recognized, and net gains of $0.1 million for the three months ended March 31, 2022 related to the amortization of forward points were removed from accumulated other comprehensive loss and recognized in cost of products. There were no ineffective hedge gains or losses recognized during the three months ended March 31, 2022. Based on the current valuation, the Company expects to reclassify net gains of $1.0 million from accumulated other comprehensive loss into net earnings during the next 12 months.

The Company recognized net loss of $0.3 million in cost of products related to its forward contract in the three months ended March 31, 2021.

Interest Rate Hedge Contract

In order to mitigate the risk of changes in interest rates associated with the Company’s variable-rate Term Loan, the Company used an interest rate hedge designated as a cash flow hedge (see Note 6). The interest rate hedge related to the USD denominated Term Loan in order to continue mitigating the risk of changes in interest rates. Over the life of the Term Loan, 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. The notional amount outstanding under the interest rate hedge contract was $193.8 million and $194.3 million as of March 31, 2022 and December 31, 2021, respectively.

During the three months ended March 31, 2022, the Company recorded a net gain of $7.1 million, related to the remeasurement of the interest rate hedge contract in accumulated other comprehensive loss. Of these amounts, net losses of $1.2 million were realized from accumulated other comprehensive loss and recognized in interest expense during the three months ended March 31, 2022. Based on the current valuation, the Company expects to reclassify a net loss of $1.5 million related to the interest rate hedge contract from accumulated other comprehensive loss into net earnings during the next 12 months.

The Company recognized net gains of $1.2 million in interest expense during the three months ended March 31, 2021.

The following tables summarize the net effect of all cash flow hedges on the consolidated condensed financial statements for the three months ended March 31, 2022 and 2021 (in millions):


		Gain Recognized in Other Comprehensive Income
	Three Months Ended March 31,
Derivatives designated as cash flow hedging instruments		2022		2021
Foreign currency forward contracts		$	1.0	$	2.2
Interest rate hedge agreements		7.1		2.7
		$	8.1	$	4.9


		Gain/(Loss) Reclassified from Other Comprehensive Income into Earnings
	Three Months Ended March 31,
Derivatives designated as cash flow hedging instruments		2022		2021
Foreign currency forward contracts		$	0.4	$	(0.3)
Interest rate hedge agreements		(1.2)		(1.2)
		$	(0.8)	$	(1.5)

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. As of March 31, 2022 and December 31, 2021, the notional amounts of the Company’s foreign currency forward contracts used to mitigate the exposures discussed above were approximately $336.7 million and $67.8 million, 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 14).

The following table summarizes the location of net gains and losses in the consolidated condensed statements of operations that were recognized during the three months ended March 31, 2022 and 2021, respectively, in addition to the derivative contract type (in millions):


	Location of Net Gain Recognized in Income on Derivative Instruments		Amount of Net Gain Recognized in Income on Derivative Instruments
Derivatives not designated as hedging instruments		Three Months Ended March 31,
			2022		2021
Foreign currency forward contracts	Other income, net		$	13.2	$	10.6

In addition, for the three months ended March 31, 2022 and 2021, the Company recognized net foreign currency transaction losses of $5.7 million and $1.5 million on in its consolidated condensed statements of operations.