Derivatives

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 any 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 other comprehensive income (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 value 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 Other comprehensive income (loss) and reclassified into earnings when the forecasted transaction affects earnings.

On January 20, 2017, the Company entered into an interest rate swap transaction with a major financial institution for a three-year term on a notional amount of $315 million. The interest rate swap is intended to manage the Company's interest rate risk by fixing the interest rate on a portion of the Company's debt currently outstanding under its credit facility that was previously subject to a floating interest rate equal to 1-month LIBOR plus a credit spread. The swap provides for the Company to pay a fixed rate of 1.65% per annum in addition to the credit spread on such portion of its outstanding debt in exchange for receiving a variable interest rate based on 1-month LIBOR. On September 25, 2018, in conjunction with the debt refinancing discussed in Note 15. Debt, the Company settled a notional amount of $130 million which resulted in a gain of $1.8 million as of the settlement date. This gain will be amortized on a ratable basis from Accumulated other comprehensive income into income as interest expense over the remaining term of the interest rate swap. On September 11, 2019, the Company terminated this interest rate swap. Concurrently, 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 existing 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 January 20, 2017, the Company also entered into a three-year 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 $100 million swapped to €93.7 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of 1.65% per annum and pay to our swap counterparty Euro interest at a fixed rate of -0.18% per annum. On September 11, 2019, SWM entered into an offsetting swap with a major financial institution whose terms perfectly mirrored the January 20, 2017 swap and which economically offset the previous cross-currency swap. At the maturity date of the new swap and the previous swap, January 20, 2020, there will be no cash impact to the Company to settle these instruments as they will perfectly offset each other.

On October 24, 2018, the Company also entered into a three-year 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 cross-currency swap arrangement with a major financial institution designed as a hedge 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 U.S. dollar denominated payments at a rate of 6.875% semiannually on the notional amount of the swap.

The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at December 31, 2019 ($ 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	$	4.8	Accrued expenses	$	5.6
Foreign exchange contracts	Other assets	6.3		Other liabilities	5.5
Interest rate contracts	Accounts receivable	—		Accrued expenses	0.2
Interest rate contracts	Other assets	—		Other liabilities	—
Total derivatives designated as hedges		$	11.1		$	11.3

Derivatives not designated as hedges:
Foreign exchange contracts	Accounts receivable	$	0.1	Accounts payable	$	—
Total derivatives not designated as hedges		0.1			—
Total derivatives		$	11.2		$	11.3

The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at December 31, 2018 ($ 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	$	2.0	Accrued expenses	$	1.3
Foreign exchange contracts	Other assets	1.0		Other liabilities	8.8
Interest rate contracts	Other assets	1.8		Other liabilities	—
Total derivatives designated as hedges		$	4.8		$	10.1

Derivatives not designated as hedges:
Foreign exchange contracts	Accounts Receivable	0.1		Accounts Payable	—
Total derivatives not designated as hedges		0.1			—
Total derivatives		$	4.9		$	10.1

The following table provides the gross effect that derivative instruments in cash flow hedging relationships had on accumulated other comprehensive income (loss), or AOCI, and results of operations ($ in millions):



Derivatives Designated as Cash Flow Hedging Relationships	Unrealized Gain (Loss) Recognized in AOCI on Derivatives, Net of Tax for the Year Ended December 31,									Location of Loss (Gain) Reclassified from AOCI	Loss (Gain) Reclassified from AOCI, Net of Tax
	2019			2018			2017				2019			2018		2017
Foreign exchange contracts	$	(0.7	)	$	(1.7	)	$	2.2		Net sales	$	(1.2	)	$	0.8	$	0.4
Foreign exchange contracts	(2.3		)	0.1			(0.6		)	Other income, net	(1.9		)	0.1		0.5
Interest rate contracts	4.6			4.0			0.4			Interest expense	7.6			2.8		(1.2		)
Total	$	1.6		$	2.4		$	2.0			$	4.5		$	3.7	$	(0.3	)

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 years ended December 31, 2019, 2018 or 2017.

In January 2018, the Company early adopted the guidance in ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." Upon adoption of this standard, the Company elected to de-designate the original hedging relationship of its pay-EUR, receive-USD cross currency swap and re-designate the cross currency swap with the terms based on the spot rate of the EUR. Prospectively, 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. Starting with the adoption date, all coupon payments will be recorded in earnings and the initial value of excluded components currently recorded in AOCI as an unrealized translation adjustment will be amortized into interest expense over the remaining 25 months of the swap, resulting in a positive impact to Net income. As of December 31, 2019, the gain, net of taxes, recognized in Accumulated other comprehensive loss on the cross currency swap derivative was $0.5 million. For the year ended December 31, 2019, $0.8 million was reclassified from Accumulated other comprehensive loss into income as interest expense and $1.1 million was recognized in income as derivative amounts excluded from effectiveness testing as Interest expense.

The following table provides the effect derivative instruments not designated as hedging instruments had on net income ($ in millions):



Derivatives Not Designated as Cash Flow Hedging Instruments	Amount of Gain / (Loss) Recognized in Other Income / Expense
	2019		2018			2017
Foreign exchange contracts	$	1.1	$	(2.5	)	$	2.7
Total	$	1.1	$	(2.5	)	$	2.7