DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2020

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

14. DERIVATIVE INSTRUMENTS

The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in interest rates and foreign currency exchange rates.

The Company limits its exposure on derivatives by entering into contracts with institutions that are established dealers who maintain certain minimum credit criteria established by the Company. At March 31, 2020, the Company does not maintain any derivative instruments subject to master agreements that would require the Company to post collateral or that contain any credit-risk related contingent features.

The Company enters into foreign currency derivatives to reduce the volatility of the Company’s cash flows resulting from changes in foreign currency exchange rates associated with certain inventory transactions, some of which are designated as cash flow hedges. The Company generally hedges foreign currency exchange rate risks for periods of 12 months or less. As of March 31, 2020, the maximum term over which the Company is hedging its exposure to the variability of future cash flows associated with certain inventory transactions is 11 months.

Certain foreign currency exchange forward contracts are not designated as hedges as they do not meet the specific hedge accounting requirements of ASC 815, “Derivatives and Hedging.” Changes in the fair value of the derivative

instruments not designated as hedging instruments are recorded in the unaudited condensed consolidated statements of income as they occur. Gains and losses on derivatives not designated as hedging instruments are included in other operating activities in the unaudited condensed consolidated statements of cash flows for all periods presented.

The following tables present the fair values of the derivative instruments included within the Company’s unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019:

	March 31, 2020
	Notional
	Amount		Fair Value		Balance Sheet Location	Maturity
	(in millions)
Designated as hedging instruments:
Foreign currency exchange hedges	$	19.6	$	1.1	Other current assets	April 2020 to December 2020
Foreign currency exchange hedges	$	9.5	$	0.3	Other current liabilities	April 2020 to February 2021

	December 31, 2019
	Notional
	Amount		Fair Value		Balance Sheet Location	Maturity
	(in millions)
Designated as hedging instruments:
Foreign currency exchange hedges	$	5.5	$	0.2	Other current assets	January 2020 to February 2020
Foreign currency exchange hedges	$	7.8	$	0.3	Other current liabilities	February 2020 to July 2020

Derivatives Designated as Hedging Instruments

Gains of $0.3 million, net of tax, and losses of $0.1 million, net of tax, were recognized in other comprehensive income for the three months ended March 31, 2020 and 2019, respectively, related to foreign currency exchange hedges designated as effective.

Changes in the fair value of these hedges are recorded in other comprehensive income until the hedged transactions affect net income. Reclassifications from accumulated other comprehensive loss into net income (cost of operations) for each of the periods presented were not material. At March 31, 2020, $0.2 million is expected to be reclassified from accumulated other comprehensive income into net income in the coming 12 months.

Derivatives Not Designated as Hedging Instruments

As of March 31, 2020, the Company did not hold any derivatives not designated as hedging instruments, and there were no gains or losses related to derivatives not designated as hedging instruments for the three months ended March 31, 2020.

For the three months ended March 31, 2019, losses of $1.2 million related to foreign currency exchange forward contracts not designated as hedging instruments were recognized in general and administrative expense in the Company’s unaudited condensed consolidated statements of income.