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Derivatives | 3 Months Ended
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Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives In the normal course of business, the Company is exposed to foreign currency exchange rate risk and interest rate risk on its variable-rate debt. To manage these risks, the Company utilizes a variety of practices including, where considered appropriate, derivative instruments. The Company has no derivative instruments for trading or speculative purposes or derivatives with credit risk-related contingent features. All derivative instruments used by the Company are either exchange traded or are entered into with major financial institutions in order to reduce credit risk and risk of nonperformance by third parties. The fair values of the Company’s derivative instruments are determined using observable inputs and are considered Level 2 assets or liabilities. The Company utilizes currency forward, swap and, to a lesser extent, option contracts to selectively hedge its exposure to foreign currency risk when it is practical and economical to do so. The use of these contracts minimizes transactional exposure to exchange rate changes. We designate certain of our foreign currency hedges as cash flow hedges. Changes in the fair value of cash flow hedges are reported as a component of Accumulated other comprehensive loss and reclassified into earnings when the forecasted transaction affects earnings. For foreign exchange contracts not designated as cash flow hedges, changes in the contracts’ fair values are recorded to net income each period. The Company selectively hedges its exposure to interest rate increases on variable-rate, long-term debt when it is practical and economical to do so. Changes in the fair value of interest rate contracts considered cash flow hedges are reported as a component of Accumulated other comprehensive loss and reclassified into earnings when the forecasted transaction affects earnings. The Company also uses cross currency swap contracts to selectively hedge its exposure to foreign currency related changes in our net investments in certain foreign operations. We designate these cross currency swap contracts as net investment hedges. Changes in the fair value of these hedges are deferred within the foreign currency translation component of Accumulated other comprehensive income and reclassified into earnings when the foreign investment is sold or substantially liquidated. On September 11, 2019, the Company entered into a pay-fixed, receive-variable interest rate swap with a maturity date of January 31, 2027. The instrument is a hedge on a portion of the Company’s debt facility through the Credit Agreement. Under the terms of the interest rate swap, SWM will pay a fixed amount of interest each period in an amount equal to 1.724% on a notional amount of $185 million and receive interest payments monthly in an amount equal to the One-Month USD-LIBOR rate on the notional amount. The notional amount will reduce throughout the term of the swap as follows: •September 13, 2019 - December 31, 2020 $185 million notional •December 31, 2020 - December 31, 2021 $150 million notional •December 31, 2021 - January 31, 2027 $100 million notional As with the previous interest rate swap, the terms of the swap mirror the terms of the underlying debt, including timing of the payments and interest rates. On October 24, 2018, the Company entered into a cross-currency swap with a major financial institution designated as a hedge of a portion of the Company's net investment in certain Euro-denominated subsidiaries. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $75 million swapped to €65.4 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of 6.875% per annum and pay to our swap counterparty Euro interest at a fixed rate of 3.6725% per annum. The cross-currency swap will mature on October 1, 2021. On January 29, 2019, the Company entered into a cross-currency swap with a major financial institution designated as a hedge of a portion of the Company's net investment in certain Euro-denominated subsidiaries. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $75 million swapped to €66.0 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of 6.875% per annum and pay to our swap counterparty Euro interest at a fixed rate of 4.0525% per annum. The cross-currency swap will mature on October 1, 2021. On September 11, 2019, the Company entered into a new pay-EUR, receive-USD cross-currency swap arrangement with a major financial institution having a maturity date of April 1, 2023. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $100 million swapped to €90.9 million at maturity. Under the terms of the new cross-currency swap, SWM will pay a fixed amount of Euro-denominated interest at a rate of 5.638% semiannually and receive USD denominated payments at a rate of 6.875% semiannually on the notional amount of the swap. On January 26, 2021, in anticipation of o ur announcement of our offer to acquire Scapa Group (as defined in and further described under Note 16. Subsequent Events, below), we entered into a currency forward contract with a major financial institution. The terms of the contract provide for an exchange of a notional amount of GBP 439 million for USD, calculated using the contract rate as applicable at the settlement date. An additional currency forward contract with a major financial institution provides for the exchange of a notional amount of GBP 9.6 million for USD, calculated using the contract rate on April 21, 2021. See Note 16. Subsequent Events for additional information on the settlement of these contracts. The following table presents the fair value of asset and liability derivatives and the respective condensed consolidated balance sheet locations at March 31, 2021 ($ in millions):
| Asset Derivatives |  | Liability Derivatives
| Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable, net |  | $ | 2.6 |  |  | Accrued expenses and other current liabilities |  | $ | 4.9 |
Foreign exchange contracts | Other assets |  | — |  |  | Other liabilities |  | 7.3 |
Interest rate contracts | Accounts receivable, net |  | — |  |  | Other liabilities |  | 3.6 |
Total derivatives designated as hedges |  |  | 2.6 |  |  |  |  | 15.8 |
Derivatives not designated as hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable, net |  | — |  |  | Accrued expenses and other current liabilities |  | 5.7 |
Total derivatives not designated as hedges |  |  | — |  |  |  |  | 5.7 |
Total derivatives |  |  | $ | 2.6 |  |  |  |  | $ | 21.5 |
The following table presents the fair value of asset and liability derivatives and the respective condensed consolidated balance sheet locations at December 31, 2020 ($ in millions):
| Asset Derivatives |  | Liability Derivatives
| Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable, net |  | $ | 0.9 |  |  | Accrued expenses |  | $ | 11.0 |
Foreign exchange contracts | Other assets |  | — |  |  | Other liabilities |  | 12.3 |
Interest rate contracts | Accounts receivable, net |  | 0.3 |  |  | Accrued expenses |  | — |
Interest rate contracts | Other assets |  | — |  |  | Other liabilities |  | 7.8 |
Total derivatives designated as hedges |  |  | $ | 1.2 |  |  |  |  | $ | 31.1 |
Derivatives not designated as hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable, net |  | — |  |  | Accounts payable |  | — |
Total derivatives not designated as hedges |  |  | $ | — |  |  |  |  | $ | — |
Total derivatives |  |  | $ | 1.2 |  |  |  |  | $ | 31.1 |
The following table provides the gross effect that derivative instruments designated in hedging relationships had on Accumulated other comprehensive loss and results of operations ($ in millions):
Derivatives Designated in Hedging Relationships |  | Unrealized (Loss) Gain Recognized in AOCI on Derivatives, Net of Tax |  | Location of (Loss) Gain Reclassified from AOCI |  | (Loss) Gain Reclassified from AOCI
|  | Three Months Ended |  |  |  |  |  | Three Months Ended |  |
|  | March 31, |  |  |  |  |  | March 31, |  |
|  | 2021 |  | 2020 |  |  |  |  |  |  |  | 2021 |  | 2020 |  |  |  |
Derivatives designated as cash flow hedge |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | (0.6) |  |  | $ | (5.0) |  |  |  |  |  |  | Net sales |  | $ | (0.6) |  |  | $ | (0.6) |  |  |  |  |
Foreign exchange contracts |  | 0.9 |  |  | 0.5 |  |  |  |  |  |  | Other income (expense), net |  | 0.7 |  |  | 0.6 |  |  |  |  |
Interest rate contracts |  | 4.1 |  |  | (8.2) |  |  |  |  |  |  | Interest expense |  | — |  |  | — |  |  |  |  |
Derivatives designated as net investment hedge |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | 7.0 |  |  | 12.0 |  |  |  |  |  |  | Other income (expense), net |  | — |  |  | — |  |  |  |  |
Total |  | $ | 11.4 |  |  | $ | (0.7) |  |  |  |  |  |  |  |  | $ | 0.1 |  |  | $ | — |  |  |  |  |
The Company's designated derivative instruments are highly effective. As such, related to the hedge ineffectiveness or amounts excluded from hedge effectiveness testing, there were no gains or losses recognized immediately in income for the three and three months ended March 31, 2021 or 2020, other than those related to the cross-currency swap, noted below. The Company’s cross currency swaps were designated with terms based on the spot rate of the EUR. Future changes in the components related to the spot change on the notional will be recorded in OCI and remain there until the hedged subsidiaries are substantially liquidated. All coupon payments are recorded in earnings and the initial value of excluded components currently recorded in Accumulated other comprehensive loss as an unrealized translation adjustment are amortized to interest expense over the remaining term of the swap. For the three months ended March 31, 2021 and 2020, respectively, $1.1 million and $2.0 million was recognized in income as derivative amounts excluded from effectiveness testing as Interest expense. The following table provides the effect that derivative instruments not designated as cash flow hedging instruments had on net income ($ in millions):
Derivatives Not Designated as Cash Flow Hedging Instruments |  | Location of Gain Recognized in Income |  | Amount of (Loss) Gain Recognized in Income
|  |  |  | Three Months Ended |  |
|  |  |  | March 31, 2021 |  | March 31, 2020 |  |  |  |
Foreign exchange contracts |  | Other income, net |  | $ | (6.6) |  |  | $ | 0.2 |  |  |  |  |

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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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