The Company may manage changes in market conditions related to interest on debt obligations and foreign currency exposures by entering into derivative instruments, including interest rate and foreign currency swap agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet at fair value at the end of each period. The Company determines the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Company uses standard models with market-based inputs, which take into account the present value of estimated future cash flows and the ability of Altra or the financial counterparty to perform. For interest rate swaps, the significant inputs to these models are interest rate curves for discounting future cash flows that are adjusted for credit risk. For forward foreign currency contracts, the significant inputs are interest rate curves for discounting future cash flows, and exchange rate curves of the foreign currency for translating future cash flows. For designated hedging relationships, the Company formally documents the hedging relationship consistent with the requirements of ASC 815, Derivatives.

In December 2018, the Company entered into cross-currency swap agreements to hedge its net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. By doing so, the Company synthetically converted a portion of its U.S. dollar-based long-term debt into Euro-denominated long-term debt. The agreements originally had a five-year maturity at notional amounts declining from $600.0 million to $360.0 million over the contract period. The terms of the swap agreements provided for the Company to receive net interest payments at a fixed rate of 4.8255% and pay Euros at rates ranging from 2.19% to 2.315%. At inception, the cross-currency swaps were designated as net investment hedges.

For net investment hedges, changes in the fair value of the effective portion of the derivatives’ gains or losses are reported as foreign currency translation gains or losses in accumulated other comprehensive income (loss) (“AOCIL”). The gains or losses on the net investment hedges reported in AOCIL are reclassified to earnings in the period in which earnings are affected by the underlying item, such as a disposal or substantial liquidations of the entities being hedged.

During the first quarter of 2020, the global economy declined substantially due to the impact of COVID-19. This decline resulted in a significant increase in the value of the U.S. dollar. The appreciation of the U.S. dollar resulted in the Company’s cross currency interest rate swaps being substantially in-the-money. Given the increased cash value of the hedges and the Company’s overall desire to strengthen its cash position, the Company terminated the cross-currency interest rate swaps during the first quarter of 2020. The Company received the cash value of the cross-currency interest rate swaps of approximately $56.2 million upon termination. In addition, the Company paid the interest owed and received the interest due, resulting in the recognition of approximately $3.3 million in net interest income and paid termination fees of approximately $0.9 million. Through the date of the termination of the cross-currency interest rate swaps, the Company recorded a gain in AOCIL of approximately $31.3 million, net of $9.9 million of tax, compared to $19.8 million, net of $3.6 million of tax, during the year to date period ended June 30, 2020, and year to date period ended December 31, 2019, respectively.


	June 30, 2020		December 31, 2019
Description (in millions)	Gain/(Loss) Recognized in AOCI
Cross currency swap agreements, net of tax	$	31.3	$	19.8

In January 2017, the Company entered into an interest rate swap agreement to fix the variable interest rate payable on a portion of its outstanding borrowings. This interest rate swap matured on January 31, 2020.

In December 2018, the Company entered into an interest rate swap agreement to manage the cash flow risk caused by interest rate changes on the forecasted interest payments expected to occur related to a portion of its outstanding borrowings under the Altra Credit Agreement for a notional value of $600 million at 4.8255%.

The interest rate swap agreement was designed to manage exposure to interest rates on the Company’s variable rate indebtedness and was recognized on the balance sheet at fair value. The Company designated this interest rate swap agreement as a cash flow hedge and changes in the fair value of the swap were recognized in other comprehensive income until the hedged items were recognized in earnings.

During the second quarter of 2020, the Company terminated the interest rate swap agreement. The Company paid the cash value of the interest rate swaps of approximately $34.7 million upon termination. In addition, the Company paid the interest owed and received the interest due, resulting in the recognition of approximately $0.1 million in net interest expense and paid termination fees of approximately $0.1 million. Through the date of the termination of the interest rate swap, the Company recorded a loss in AOCIL of approximately $11.9 million, net of $3.8 million of tax benefit, compared to $9.8 million, net of $1.7 million of tax benefit, during the year to date period ended June 30, 2020, and year to date period ended December 31, 2019, respectively. The loss on the interest rate swap reported in AOCIL will be reclassified to earnings in future periods when the hedged transaction affects earnings or if it is determined that it is probable that the hedged transaction will not occur. The Company reclassified approximately $3.2 million and $0.5 million of AOCIL into interest expense for the quarters ended June 30, 2020 and June 30, 2019, respectively. The Company reclassified $4.8 million and $1.0 million of AOCIL into interest expense for the year to date periods ended June 30, 2020 and June 30, 2019, respectively. Approximately $2.2 million of the AOCIL reclassified to interest expense for the quarter and year to date period ended June 30, 2020 represents non-cash amortization due to the termination of the interest rate swap.

The following table summarizes the location and fair value, using Level 2 inputs (see Note 6 for a description of the fair value levels), of the Company's derivatives designated and not designated as hedging instruments in the unaudited condensed consolidated balance sheets (in millions).


	Balance Sheet Location	June 30, 2020		December 31, 2019
Designated as hedging instruments:
Cross currency swap agreements	Other long-term (assets)	$	—	$	(15.0	)
Interest rate swap agreement	Other long-term (assets)		—		(0.0	)
Interest rate swap agreement	Other long-term liabilities		—		19.0
		$	—	$	4.0