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Hedging Transactions and Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Hedging Transactions and Derivative Financial Instruments | Note 3 – Hedging Transactions and Derivative Financial Instruments We are exposed to certain risks related to our ongoing business operations. The primary risks being managed through our use of derivative instruments are foreign currency exchange rate risk and commodity pricing risk (primarily related to copper). During 2017, we entered into an interest rate swap to hedge interest rate risk. We do not use derivative financial instruments for trading or speculative purposes. The valuation of derivative contracts used to manage each of these risks is described below:
• | Foreign Currency - The fair value of any foreign currency option derivative is based upon valuation models applied to current market information such as strike price, spot rate, maturity date and volatility, and by reference to market values resulting from an over-the-counter market or obtaining market data for similar instruments with similar characteristics.
• | Commodity - The fair value of copper derivatives is computed using a combination of intrinsic and time value valuation models, which are collectively a function of five primary variables: price of the underlying instrument, time to expiration, strike price, interest rate and volatility. The intrinsic valuation model reflects the difference between the strike price of the underlying copper derivative instrument and the current prevailing copper prices in an over-the-counter market at period end. The time value valuation model incorporates changes in the price of the underlying copper derivative instrument, the time value of money, the underlying copper derivative instrument’s strike price and the remaining time to the underlying copper derivative instrument’s expiration date from the period end date.
• | Interest Rates - The fair value of interest rate swap instruments is derived by comparing the present value of the interest rate forward curve against the present value of the swap rate, relative to the notional amount of the swap. The net value represents the estimated amount we would receive or pay to terminate the agreements. Settlement amounts for an “in the money” swap would be adjusted down to compensate the counterparty for cost of funds, and the adjustment is directly related to the counterparties’ credit ratings.
The guidance for the accounting and disclosure of derivatives and hedging transactions requires companies to recognize all of their derivative instruments as either assets or liabilities at fair value in the statements of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies for hedge accounting treatment as defined under the applicable accounting guidance. For derivative instruments that are designated and qualify for hedge accounting treatment as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss). This gain or loss is reclassified into earnings in the same line item of the condensed consolidated statements of operations associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. As of September 30, 2019 and 2018, only our interest rate swap qualified for hedge accounting treatment as a cash flow hedge, and the hedge was highly effective. Foreign Currency During the three months ended September 30, 2019, we entered into Chinese Renminbi, Euro, Korean Won, and Japanese Yuan forward contracts. We entered into these foreign currency forward contracts to mitigate certain global transactional exposures. These contracts do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations in the period in which the adjustment occurred. As of September 30, 2019, the notional values of the remaining foreign currency forward contracts were:
Notional Values of Foreign Currency Derivatives
USD/CNY | $ | 6,506,000 |
KRW/USD | ₩ | 5,979,000,000 |
Commodity As of September 30, 2019, we had 27 outstanding contracts to hedge exposure related to the purchase of copper in our Power Electronics Solutions (PES) and Advanced Connectivity Solutions (ACS) operating segments. These contracts are held with financial institutions and are intended to offset rising copper prices and do not qualify for hedge accounting treatment. As a result, any fair value adjustments required on these contracts are recorded in “Other income (expense), net” in our condensed consolidated statements of operations in the period in which the adjustment occurred. As of September 30, 2019, the volume of our copper contracts outstanding was as follows:
Volume of Copper Derivatives
October 2019 - December 2019 | 195 metric tons per month
January 2020 - March 2020 | 202 metric tons per month
April 2020 - June 2020 | 202 metric tons per month
July 2020 - September 2020 | 201 metric tons per month
October 2020 - December 2020 | 201 metric tons per month
Interest Rates In March 2017, we entered into an interest rate swap to hedge the variable interest rate on $75.0 million of our $450.0 million revolving credit facility. This transaction has been designated as a cash flow hedge and qualifies for hedge accounting treatment. For additional information regarding our revolving credit facility, refer to “Note 10 – Debt.” Effects on Financial Statements
(Dollars in thousands) |  |  |  | The Effect of Current Derivative Instruments on the Financial Statements for the Period Ended September 30, 2019 |  | Fair Values of Derivative Instruments as of September 30, 2019
|  |  |  | Gain (Loss) |  | Other Assets/ (Other Liabilities)(1)
|  | Location |  | Three Months Ended |  | Nine Months Ended |  |
Foreign Currency Contracts |  |  |  |  |  |  |  |
Contracts not designated as hedging instruments |  | Other income (expense), net |  | $ | 181 |  |  | $ | (406 | ) |  | $ | 189 |
Copper Derivative Contracts |  |  |  |  |  |  |  |
Contracts not designated as hedging instruments |  | Other income (expense), net |  | $ | (543 | ) |  | $ | (1,008 | ) |  | $ | 518 |
Interest Rate Swap |  |  |  |  |  |  |  |
Contract designated as hedging instrument |  | Other comprehensive income (loss) |  | $ | (240 | ) |  | $ | (1,985 | ) |  | $ | (1,524 | )
(Dollars in thousands) |  |  |  | The Effect of Current Derivative Instruments on the Financial Statements for the Period Ended September 30, 2018 |  | Fair Values of Derivative Instruments as of September 30, 2018
|  |  |  | Gain (Loss) |  | Other Assets/(Other Liabilities)(1)
|  | Location |  | Three Months Ended |  | Nine Months Ended |  |
Foreign Currency Contracts |  |  |  |  |  |  |  |
Contracts not designated as hedging instruments |  | Other income (expense), net |  | $ | 29 |  |  | $ | (95 | ) |  | $ | 342 |
Copper Derivative Contracts |  |  |  |  |  |  |  |
Contracts not designated as hedging instruments |  | Other income (expense), net |  | $ | (453 | ) |  | $ | (1,637 | ) |  | $ | 631 |
Interest Rate Swap |  |  |  |  |  |  |  |
Contract designated as hedging instrument |  | Other comprehensive income (loss) |  | $ | 270 |  |  | $ | 1,669 |  |  | $ | 1,710 |
(1) All balances were recorded in the “Other current assets” or “Other accrued liabilities” line items in the consolidated statements of financial position, except the 2019 interest rate swap balance, which was recorded in the “Other long-term liabilities” line item in the condensed consolidated statements of financial position.

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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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