XML 24 R13.htm IDEA: XBRL DOCUMENT
v3.23.1

DERIVATIVE INSTRUMENTS | 3 Months Ended
--- | ---
Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS | DERIVATIVE INSTRUMENTS Interest Rate Hedging The Company’s interest rate risk relates to U.S. dollar denominated variable interest rate borrowings. The Company uses interest rate swap derivative instruments to manage earnings and cash flow exposure resulting from changes in interest rates. These interest rate swaps apply a fixed interest rate on a portion of the Company's expected SOFR-indexed borrowings. In connection with the March 2023 Amendment to the Senior Credit Facility, the Company amended its interest rate from LIBOR to SOFR-indexed interest. In March 2023, the Company entered into a basis swap where the Company receives Term SOFR and pays LIBOR to convert the portfolio of swaps from LIBOR to SOFR. The Company held the following interest rate swaps as of March 31, 2023 and December 31, 2022 (dollar amounts in thousands):
|  |  |  | March 31, 2023 |  |  |  |  |  |  |  |  |  |  |  | March 31, 2023 |  |
Hedged Item |  |  |  | Notional Amount |  | Designation Date |  | Effective Date |  | Termination Date |  | Fixed Interest Rate |  | Estimated Fair Value
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Asset (Liability)
1-month Term SOFR Loan |  |  |  | 150,000 |  |  |  |  | December 13, 2017 |  | July 1, 2019 |  | June 30, 2024 |  | 2.423 | % |  | 4,022 |  |  |
1-month Term SOFR Loan |  |  |  | 200,000 |  |  |  |  | December 13, 2017 |  | January 1, 2018 |  | December 31, 2024 |  | 2.313 | % |  | 6,738 |  |  |
1-month Term SOFR Loan |  |  |  | 75,000 |  |  |  |  | October 10, 2018 |  | July 1, 2020 |  | June 30, 2025 |  | 3.220 | % |  | 1,329 |  |  |
1-month Term SOFR Loan |  |  |  | 75,000 |  |  |  |  | October 10, 2018 |  | July 1, 2020 |  | June 30, 2025 |  | 3.199 | % |  | 1,539 |  |  |
1-month Term SOFR Loan |  |  |  | 75,000 |  |  |  |  | October 10, 2018 |  | July 1, 2020 |  | June 30, 2025 |  | 3.209 | % |  | 1,441 |  |  |
1-month Term SOFR Loan |  |  |  | 100,000 |  |  |  |  | December 18, 2018 |  | December 30, 2022 |  | December 31, 2027 |  | 2.885 | % |  | 2,770 |  |  |
1-month Term SOFR Loan |  |  |  | 100,000 |  |  |  |  | December 18, 2018 |  | December 30, 2022 |  | December 31, 2027 |  | 2.867 | % |  | 2,708 |  |  |
1-month Term SOFR Loan |  |  |  | 575,000 |  |  |  |  | December 15, 2020 |  | July 31, 2025 |  | December 31, 2027 |  | 1.415 | % |  | 19,406 |  |  |
1-month Term SOFR Loan |  |  |  | 125,000 |  |  |  |  | December 15, 2020 |  | July 1, 2025 |  | December 31, 2027 |  | 1.404 | % |  | 4,567 |  |  |
Basis Swap (1) |  |  |  | — |  |  |  | March 31, 2023 |  | March 24, 2023 |  | December 31, 2027 |  | N/A |  | (1,842) |  |  |
|  |  |  | $ | 1,475,000 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 42,678 |  |  |
(1) The notional of the basis swap amortizes to match the total notional of the interest rate swap portfolio over time |  |
|  |  |  |  |  | December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  | December 31, 2022
Hedged Item |  |  |  |  | Notional Amount |  | Designation Date |  | Effective Date |  | Termination Date |  | Fixed Interest Rate |  |  |  | Estimated Fair Value
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Asset (Liability)
1-month USD LIBOR Loan |  |  |  |  |  | 150,000 |  |  | December 13, 2017 |  | July 1, 2019 |  | June 30, 2024 |  | 2.423 | % |  |  |  | 5,012 |
1-month USD LIBOR Loan |  |  |  |  |  | 200,000 |  |  | December 13, 2017 |  | January 1, 2018 |  | December 31, 2024 |  | 2.313 | % |  |  |  | 8,380 |
1-month USD LIBOR Loan |  |  |  |  |  | 75,000 |  |  | October 10, 2018 |  | July 1, 2020 |  | June 30, 2025 |  | 3.220 | % |  |  |  | 1,831 |
1-month USD LIBOR Loan |  |  |  |  |  | 75,000 |  |  | October 10, 2018 |  | July 1, 2020 |  | June 30, 2025 |  | 3.199 | % |  |  |  | 1,905 |
1-month USD LIBOR Loan |  |  |  |  |  | 75,000 |  |  | October 10, 2018 |  | July 1, 2020 |  | June 30, 2025 |  | 3.209 | % |  |  |  | 1,970 |
1-month USD LIBOR Loan |  |  |  |  |  | 100,000 |  |  | December 18, 2018 |  | December 30, 2022 |  | December 31, 2027 |  | 2.885 | % |  |  |  | 4,252 |
1-month USD LIBOR Loan |  |  |  |  |  | 100,000 |  |  | December 18, 2018 |  | December 30, 2022 |  | December 31, 2027 |  | 2.867 | % |  |  |  | 4,153 |
1-month USD LIBOR Loan |  |  |  |  |  | 575,000 |  |  | December 15, 2020 |  | July 31, 2025 |  | December 31, 2027 |  | 1.415 | % |  |  |  | 23,742 |
1-month USD LIBOR Loan |  |  |  |  |  | 125,000 |  |  | December 15, 2020 |  | July 1, 2025 |  | December 31, 2027 |  | 1.404 | % |  |  |  | 5,467 |
|  |  |  |  |  | $ | 1,475,000 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 56,712 |
The Company has designated these derivative instruments as cash flow hedges. The Company assesses the effectiveness of these derivative instruments and has recorded the changes in the fair value of the derivative instrument designated as a cash flow hedge as unrealized gains or losses in accumulated other comprehensive loss (“AOCL”), net of tax, until the hedged item affected earnings, at which point any gain or loss was reclassified to earnings. If the hedged cash flow does not occur, or if it becomes probable that it will not occur, the Company will reclassify the remaining amount of any gain or loss on the related cash flow hedge recorded in AOCL to interest expense at that time. Foreign Currency Hedging From time to time, the Company enters into foreign currency hedge contracts intended to protect the U.S. dollar value of certain forecasted foreign currency denominated transactions. The Company assesses the effectiveness of the contracts that are designated as hedging instruments. The changes in fair value of foreign currency cash flow hedges are recorded in AOCL, net of tax. Those amounts are subsequently reclassified to earnings from AOCL as impacted by the hedged item when the hedged item affects earnings. If the hedged forecasted transaction does not occur or if it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. For contracts not designated as hedging instruments, the changes in fair value of the contracts are recognized in other income, net in the consolidated statements of operation, along with the offsetting foreign currency gain or loss on the underlying assets or liabilities. The success of the Company’s hedging anticipated currency exchange gains or losses to the extent that there are differences between forecasted and actual activities during periods of currency volatility. In addition, changes in currency exchange rates related to any unhedged transactions may affect earnings and cash flows. Cross-Currency Rate Swaps On September 26, 2022, the Company amended the CHF-denominated intercompany loan to extend the termination date to September 2023 and as a result, the Company early terminated the cross-currency swap designated as cash flow hedge of an intercompany loan with aggregate notional amount of 50.0 million. Simultaneously, the Company entered into a cross-currency swap agreement to convert a notional amount of CHF 48.5 million equivalent to 49.1 million of this amended intercompany loan into U.S. dollars. The loss recorded by the Company upon the settlement of the swap was not material for the period. On December 21, 2020, the Company entered into cross-currency swap agreements to convert a notional amount of $471.6 million equivalent to 420.1 million of a CHF-denominated intercompany loan into U.S. dollars. The CHF-denominated intercompany loan was the result of an intra-entity transfer of certain intellectual property rights to a subsidiary in Switzerland completed during the fourth quarter of 2020. The intercompany loan requires quarterly payments of CHF 5.8 million plus accrued interest. As a result, the aggregate notional amount of the related cross-currency swaps will decrease by a corresponding amount. The objective of these cross-currency swaps is to reduce volatility of earnings and cash flows associated with changes in the foreign currency exchange rate. Under the terms of these contracts, which have been designated as cash flow hedges, the Company will make interest payments in Swiss Francs and receive interest in U.S. dollars. Upon the maturity of these contracts, the Company will pay the principal amount of the loans in Swiss Francs and receive U.S. dollars from the counterparties. The Company held the following cross-currency rate swaps as of March 31, 2023 and December 31, 2022 (dollar amounts in thousands):
|  |  |  |  |  |  |  |  | March 31, 2023 | December 31, 2022 |  | March 31, 2023 |  | December 31, 2022
|  | Effective Date |  | Termination Date |  | Fixed Rate |  | Aggregate Notional Amount |  | Fair Value Asset (Liability)
Pay CHF |  | December 21, 2020 |  | December 22, 2025 |  | 3.00% |  | CHF | 373,227 |  | 397,137 |  |  | (3,033) |  |  | (4,241) |
Receive U.S.$ |  |  | 3.98% |  | $ | 418,980 |  | 445,821 |  |  |
Pay CHF |  | September 28, 2022 |  | September 29, 2023 |  | 1.95% |  | CHF | 48,533 |  | 48,532 |  |  | (4,011) |  |  | (3,528) |
Receive U.S.$ |  |  | 5.32% |  | $ | 49,142 |  | 49,142 |  |  |
Total |  |  |  |  |  |  |  |  |  |  |  | $ | (7,044) |  |  | $ | (7,769) |
The cross-currency swaps are carried on the consolidated balance sheet at fair value, and changes in the fair values are recorded as unrealized gains or losses in AOCL. For the three months ended March 31, 2023, and 2022, the Company recorded a loss of $4.9 million and a gain $6.5 million, respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the losses recognized on the intercompany loans. For the three months ended March 31, 2023, and 2022, the Company recorded a gain of $7.5 million and $7.9 million in AOCL, respectively, related to change in fair value of the cross-currency swaps. For the three months ended March 31, 2023, and 2022, the Company recorded a gain of $1.5 million and $1.8 million, respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps. The estimated gain that is expected to be reclassified to other income (expense), net from AOCL as of March 31, 2023 within the next twelve months is $0.1 million. As of March 31, 2023, the Company does not expect any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction will not occur. Net Investment Hedges The Company manages certain foreign exchange risks through a variety of strategies, including hedging. The Company is exposed to foreign exchange risk from its international operations through foreign currency purchases, net investments in foreign subsidiaries, and foreign currency assets and liabilities created in the normal course of business. On October 1, 2018 and December 16, 2020, the Company entered into cross-currency swap agreements designated as net investment hedges to partially offset the effects of foreign currency on foreign subsidiaries. The Company held the following cross-currency rate swaps designated as net investment hedges as of March 31, 2023 and December 31, 2022, respectively (dollar amounts in thousands):
|  |  |  |  |  |  |  |  | March 31, 2023 |  | December 31, 2022 |  | March 31, 2023 |  | December 31, 2022
|  | Effective Date |  | Termination Date |  | Fixed Rate |  | Aggregate Notional Amount |  | Fair Value Asset (Liability)
Pay EUR |  | October 3, 2018 |  | September 30, 2023 |  | —% |  | EUR | 51,760 |  |  | 51,760 |  |  | 3,989 |  |  | 4,713 |
Receive U.S.$ |  |  |  | 2.57% |  | $ | 60,000 |  |  | 60,000 |  |  |
Pay EUR |  | October 3, 2018 |  | September 30, 2025 |  | —% |  | EUR | 38,820 |  |  | 38,820 |  |  | 3,932 |  |  | 4,307 |
Receive U.S.$ |  |  |  | 2.19% |  | $ | 45,000 |  |  | 45,000 |  |  |
Pay CHF |  | May 26, 2022 |  | December 16, 2028 |  | —% |  | CHF | 288,210 |  |  | 288,210 |  |  | (14,711) |  |  | (14,663) |
Receive U.S.$ |  |  |  | 1.94% |  | $ | 300,000 |  |  | 300,000 |  |  |
Total |  |  |  |  |  |  |  |  |  |  |  |  | $ | (6,790) |  |  | $ | (5,643) |
The cross-currency swaps were carried on the consolidated balance sheet at fair value and changes in the fair values were recorded as unrealized gains or losses in AOCL. For the three months ended March 31, 2023 and 2022, the Company recorded a loss of $1.1 million and a gain $1.3 million, respectively, in AOCL related to the change in fair value of the cross-currency swaps. For the three months ended March 31, 2023, and 2022, the Company recorded gains of $2.1 million and $1.3 million, respectively, in interest income included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps. The estimated gain that is expected to be reclassified to interest income from AOCL as of March 31, 2023 within the next twelve months is $10.9 million. Foreign Currency Forward Contract The Company has entered into a hedge for forecasted intercompany purchases denominated in foreign currencies through the use of forward contracts designated as cash flow hedges. To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in accumulated comprehensive loss. These changes in fair value will be recognized into earnings as a component of cost of sales when the forecasted-transaction occurs. During the first quarter of 2023 the Company entered into Foreign Currency Forward Contracts with a notional amount of $10.8 million to mitigate the risk of foreign currency on intercompany purchases in CHF. During the three months ended March 31, 2023 the Company recorded an immaterial loss in AOCL related to the change in fair value of the Foreign Currency Forward Contracts. Counterparty Credit Risk The Company manages its concentration of counterparty credit risk on its derivative instruments by limiting acceptable counterparties to a group of major financial institutions with investment grade credit ratings, and by actively monitoring their credit ratings and outstanding positions on an ongoing basis. Therefore, the Company considers the credit risk of the counterparties to be low. Furthermore, none of the Company’s derivative transactions are subject to collateral or other security arrangements, and none contain provisions that depend upon the Company’s credit ratings from any credit rating agency. Fair Value of Derivative Instruments The Company has classified all of its derivative instruments within Level 2 of the fair value hierarchy because observable inputs are available for substantially the full term of the derivative instruments. The fair values of the interest rate swaps and cross-currency swaps were developed using a market approach based on publicly available market yield curves and the terms of the swap. The Company performs ongoing assessments of counterparty credit risk. The following table summarizes the fair value for derivatives designated as hedging instruments in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022:
|  | Fair Value as of |  |
Location on Balance Sheet (1): |  | March 31, 2023 |  | December 31, 2022 |  |  |  |
Dollars in thousands |  |
Derivatives designated as hedges — Assets: |  |  |  |  |  |  |  |
Prepaid expenses and other current assets |  |  |  |  |  |  |  |
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest rate swap(2) |  | $ | 15,659 |  |  | $ | 16,682 |  |  |  |  |
Cross-currency swap |  | 4,139 |  |  | 4,497 |  |  |  |  |
Net Investment Hedges |  |  |  |  |  |  |  |
Cross-currency swap |  | 10,942 |  |  | 11,653 |  |  |  |  |
Other assets |  |  |  |  |  |  |  |
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest rate swap(2) |  | 28,861 |  |  | 40,030 |  |  |  |  |
Cross-currency swap |  | — |  |  | — |  |  |  |  |
Net Investment Hedges |  |  |  |  |  |  |  |
Cross-currency swap |  | 2,940 |  |  | 3,311 |  |  |  |  |
Total derivatives designated as hedges — Assets |  | $ | 62,541 |  |  | $ | 76,173 |  |  |  |  |
Derivatives designated as hedges — Liabilities: |  |  |  |  |  |  |  |
Accrued expenses and other current liabilities |  |  |  |  |  |  |  |
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest rate swap(2) |  | $ | 762 |  |  | $ | — |  |  |  |  |
Cross-currency swap |  | 4,011 |  |  | 3,528 |  |  |  |  |
Foreign currency forward contracts |  | 69 |  |  |  |  |  |  |
Net Investment Hedges |  |  |  |  |  |  |  |
Cross-currency swap |  | — |  |  | — |  |  |  |  |
Other liabilities |  |  |  |  |  |  |  |
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest rate swap(2) |  | 1,080 |  |  | — |  |  |  |  |
Cross-currency swap |  | 7,172 |  |  | 8,738 |  |  |  |  |
Net Investment Hedges |  |  |  |  |  |  |  |
Cross-currency swap |  | 20,672 |  |  | 20,608 |  |  |  |  |
Total derivatives designated as hedges — Liabilities |  | $ | 33,766 |  |  | $ | 32,874 |  |  |  |  |
(1) The Company classifies derivative assets and liabilities as current based on the cash flows expected to be incurred within the following 12 months. (2) At March 31, 2023 and December 31, 2022, the total notional amounts related to the Company’s interest rate swaps were both $1.5 billion, respectively. The following presents the effect of derivative instruments designated as cash flow hedges and net investment hedges on the accompanying condensed consolidated statement of operations during the three months ended March 31, 2023 and 2022:
Dollars in thousands | Balance in AOCL Beginning of Quarter |  | Amount of Gain (Loss) Recognized in AOCL |  | Amount of Gain (Loss) Reclassified from AOCL into Earnings |  | Balance in AOCL End of Quarter |  | Location in Statements of Operations
Three Months Ended March 31, 2023 |  |  |  |  |  |  |  |  |
Cash Flow Hedges |  |  |  |  |  |  |  |  |
Interest rate swap | $ | 56,712 |  |  | $ | (10,534) |  |  | $ | 3,500 |  |  | $ | 42,678 |  |  | Interest expense
Cross-currency swap | (20,271) |  |  | 2,191 |  |  | (3,504) |  |  | (14,576) |  |  | Other income, net
Foreign Currency Forward Contract | — |  |  | (69) |  |  | — |  |  | (69) |  |  | Cost of Sales
Net Investment Hedges |  |  |  |  |  |  |  |  |
Cross-currency swap | (6,914) |  |  | 950 |  |  | 2,096 |  |  | (8,060) |  |  | Interest income
| $ | 29,527 |  |  | $ | (7,462) |  |  | $ | 2,092 |  |  | $ | 19,973 |  |  |
Three Months Ended March 31, 2022 |  |  |  |  |  |  |  |  |
Cash Flow Hedges |  |  |  |  |  |  |  |  |
Interest rate swap | $ | (43,956) |  |  | $ | 41,675 |  |  | $ | (5,213) |  |  | $ | 2,932 |  |  | Interest expense
Cross-currency swap | (9,688) |  |  | 316 |  |  | 8,331 |  |  | (17,703) |  |  | Other income, net
Net Investment Hedges |  |  |  |  |  |  |  |  |
Cross-currency swap | (2,312) |  |  | 1,309 |  |  | 1,320 |  |  | (2,323) |  |  | Interest income
| $ | (55,956) |  |  | $ | 43,300 |  |  | $ | 4,438 |  |  | $ | (17,094) |  |  |
Derivative Instruments not designated hedges: During the second quarter of 2021, the Company entered into a foreign currency swap, with a notional amount of $7.3 million to mitigate the risk from fluctuations in foreign currency exchange rates associated with an intercompany loan denominated in JPY. In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another currency at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount. The notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company subsequently paid down a portion of this swap, bringing the notional amount down to $6.4 million. The following table summarizes the gains (losses) of derivative instruments not designated as hedges on the condensed consolidated statements of income, which was included in other income:
Dollars in thousands |  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2023 |  | 2022
Foreign currency swaps |  |  |  |  |  | 55 |  |  | 360 |
Total |  |  |  |  |  | $ | 55 |  |  | $ | 360 |

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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 https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration