Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Hedges of Foreign Currency Risk

We are exposed to fluctuations in various foreign currencies against our functional currency, the U.S. dollar (the "USD"). We enter into forward contracts for certain of these foreign currencies to manage this exposure. We currently have outstanding foreign currency forward contracts that qualify as cash flow hedges intended to offset the effect of exchange rate fluctuations on forecasted sales and certain manufacturing costs. We also have outstanding foreign currency forward contracts that are intended to preserve the economic value of foreign currency denominated monetary assets and liabilities, which are not designated for hedge accounting treatment in accordance with FASB ASC Topic 815, Derivatives and Hedging.

For the three and six months ended June 30, 2019 and 2018 amounts excluded from the assessment of effectiveness of our foreign currency forward agreements that are designated as cash flow hedges were not material. As of June 30, 2019 we estimate that $17.9 million of net gains will be reclassified from accumulated other comprehensive loss to earnings during the twelve-month period ending June 30, 2020.

As of June 30, 2019 we had the following outstanding foreign currency forward contracts:



Notional (in millions)	Effective Date(s)	Maturity Date(s)	Index (Exchange Rates)	Weighted- Average Strike Rate	Hedge Designation ⁽¹⁾
16.0 EUR	June 26, 2019	July 31, 2019	Euro ("EUR") to USD	1.14 USD	Not designated
339.7 EUR	Various from July 2017 to June 2019	Various from July 2019 to May 2021	EUR to USD	1.20 USD	Cash flow hedge
330.0 CNY	June 25, 2019	July 31, 2019	USD to Chinese Renminbi ("CNY")	6.88 CNY	Not designated
542.3 CNY	January 10, 2019	Various from July to December 2019	USD to CNY	6.82 CNY	Cash flow hedge
545.0 JPY	June 26, 2019	July 31, 2019	USD to Japanese Yen ("JPY")	107.35 JPY	Not designated
24,313.6 KRW	Various from August 2017 to June 2019	Various from July 2019 to May 2021	USD to Korean Won ("KRW")	1,100.30 KRW	Cash flow hedge
23.0 MYR	June 25, 2019	July 31, 2019	USD to Malaysian Ringgit ("MYR")	4.12 MYR	Not designated
74.0 MXN	June 26, 2019	July 31, 2019	USD to Mexican Peso ("MXN")	19.29 MXN	Not designated
2,654.2 MXN	Various from August 2017 to June 2019	Various from July 2019 to May 2021	USD to MXN	20.87 MXN	Cash flow hedge
43.6 GBP	Various from August 2017 to June 2019	Various from July 2019 to May 2021	British Pound Sterling ("GBP") to USD	1.33 USD	Cash flow hedge

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⁽¹⁾	Derivative financial instruments not designated as hedges are used to manage our exposure to currency exchange rate risk. They are intended to preserve economic value, and they are not used for trading or speculative purposes.

Hedges of Commodity Risk

We enter into commodity forward contracts in order to limit our exposure to variability in raw material costs that is caused by movements in the price of underlying metals. The terms of these forward contracts fix the price at a future date for various notional amounts associated with these commodities. These instruments are not designated for hedge accounting treatment in accordance with FASB ASC Topic 815.

As of June 30, 2019 we had the following outstanding commodity forward contracts:



Commodity	Notional	Remaining Contracted Periods	Weighted-Average Strike Price Per Unit
Silver	848,995 troy oz.	July 2019-April 2021	$15.99
Gold	7,614 troy oz.	July 2019-April 2021	$1,316.24
Nickel	227,693 pounds	July 2019-April 2021	$5.83
Aluminum	3,926,212 pounds	July 2019-April 2021	$0.92
Copper	2,271,886 pounds	July 2019-April 2021	$3.04
Platinum	6,709 troy oz.	July 2019-April 2021	$883.35
Palladium	643 troy oz.	July 2019-April 2021	$1,108.43

Financial Instrument Presentation

The following table presents the fair values of our derivative financial instruments and their classification in the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018:



	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	June 30, 2019		December 31, 2018		Balance Sheet Location	June 30, 2019		December 31, 2018
Derivatives designated as hedging instruments
Foreign currency forward contracts	Prepaid expenses and other current assets	$	19,684	$	14,608	Accrued expenses and other current liabilities	$	2,228	$	3,615
Foreign currency forward contracts	Other assets	2,072		3,168		Other long-term liabilities	933		1,134
Total		$	21,756	$	17,776		$	3,161	$	4,749

Derivatives not designated as hedging instruments
Commodity forward contracts	Prepaid expenses and other current assets	$	1,084	$	524	Accrued expenses and other current liabilities	$	1,743	$	3,679
Commodity forward contracts	Other assets	313		307		Other long-term liabilities	170		458
Foreign currency forward contracts	Prepaid expenses and other current assets	5		95		Accrued expenses and other current liabilities	129		416
Total		$	1,402	$	926		$	2,042	$	4,553

These fair value measurements are all categorized within Level 2 of the fair value hierarchy.

The following tables present the effect of our derivative financial instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income for the three months ended June 30, 2019 and 2018:



Derivatives designated as hedging instruments	Amount of Deferred Gain/(Loss) Recognized in Other Comprehensive (Loss)/Income					Location of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income	Amount of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income
Derivatives designated as hedging instruments	2019		2018				2019		2018
Foreign currency forward contracts	$	1,209	$	33,641		Net revenue	$	6,493	$	(8,064	)
Foreign currency forward contracts	$	382	$	(8,813	)	Cost of revenue	$	941	$	2,662



Derivatives not designated as hedging instruments	Amount of (Loss)/Gain Recognized in Net Income						Location of (Loss)/Gain Recognized in Net Income
Derivatives not designated as hedging instruments	2019			2018			Location of (Loss)/Gain Recognized in Net Income
Commodity forward contracts	$	(102	)	$	(1,426	)	Other, net
Foreign currency forward contracts	$	1,039		$	5,776		Other, net



Derivatives designated as hedging instruments	Amount of Deferred Gain Recognized in Other Comprehensive Income				Location of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income	Amount of Net Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income
Derivatives designated as hedging instruments	2019		2018			2019		2018
Foreign currency forward contracts	$	10,327	$	15,803	Net revenue	$	9,712	$	(18,948	)
Foreign currency forward contracts	$	6,460	$	4,658	Cost of revenue	$	1,069	$	1,836
Foreign currency forward contracts	$	—	$	—	Other, net	$	—	$	(1,376	)



Derivatives not designated as hedging instruments	Amount of Gain/(Loss) Recognized in Net Income					Location of Gain/(Loss) Recognized in Net Income
Derivatives not designated as hedging instruments	2019		2018			Location of Gain/(Loss) Recognized in Net Income
Commodity forward contracts	$	1,021	$	(4,621	)	Other, net
Foreign currency forward contracts	$	1,517	$	826		Other, net

Credit Risk Related Contingent Features

We have agreements with certain of our derivative counterparties that contain a provision whereby if we default on our indebtedness and repayment of the indebtedness has been accelerated by the lender, then we could also be declared in default on our derivative obligations.

As of June 30, 2019 the termination value of outstanding derivatives in a liability position, excluding any adjustment for non-performance risk, was $5.2 million. As of June 30, 2019 we have not posted any cash collateral related to these agreements. If we breach any of the default provisions on any of our indebtedness as described above, we could be required to settle our obligations under the derivative agreements at their termination values.