Derivative Instruments

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates and foreign currency exchange rates. The Company allows for the use of derivative financial instruments to manage interest rate and foreign currency exchange rate exposure but does not allow derivatives to be used for speculative purposes.

All derivative instruments are recognized on the consolidated balance sheets at their fair value and are either (1) designated as a hedge of a forecasted transaction or (2) undesignated. Changes in the fair value of a derivative designated as a hedge are recorded in other comprehensive income until earnings are affected by the hedged transaction and are then reported in current earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current earnings.

Interest Rate Risk

The Company’s primary debt obligations utilize variable-rate LIBOR, exposing the Company to variability in interest payments due to changes in interest rates. The Company entered into interest rate swap agreements to reduce the volatility of financing costs, achieve a desired proportion of fixed-rate versus floating-rate debt and to hedge the variability in cash flows attributable to interest rate risks caused by changes in the LIBOR benchmark.

The Company designated the swaps as cash flow hedges and assesses their effectiveness using the hypothetical derivative method in conjunction with regression. Effective gains and losses deferred to AOCI are reclassified into earnings over the life of the associated hedge. Ineffective gains and losses are classified to earnings immediately. There was no hedge ineffectiveness during 2019 or 2018.

Foreign Currency Exchange Rate Risk

Foreign currency fluctuations affect investments in foreign subsidiaries and foreign currency cash flows related to third party purchases, product shipments, and foreign-denominated debt. The Company is also exposed to the translation of foreign currency earnings to the U.S. dollar. Management may use foreign currency forward contracts to selectively hedge its foreign currency cash flows exposure and manage risk associated with changes in currency exchange rates. The Company’s principal foreign currency exposure is to the Canadian dollar, and to a lesser extent, the euro.

The notional amounts and maturity dates of outstanding derivative instruments as of December 31, 2019 and 2018 are presented below.



	December 31, 2019		December 31, 2018
Interest rate swaps (a)	$	200,000	$	200,000
Foreign currency contracts (b)	$	343,665	$	388,930
Foreign cross-currency contracts (c)	$	83,126	$	125,979

(a) Maturity date of December 2020

(b) Various maturity dates through September 2020

The fair values of derivative instruments included in the consolidated balance sheet as of December 31, 2019 and 2018 are provided in the below table. See Note 13 — Fair Value Measurements for additional information related to the Company’s derivatives.



	Balance Sheet Location	December 31, 2019			December 31, 2018
Assets:
Derivatives designated as hedging instruments:
Interest rate swaps	Other current assets	$	—		$	1,194
Interest rate swaps	Other assets	—			937
Foreign exchange forward contracts	Other current assets	4,857			—
Foreign exchange forward contracts	Other assets	5			—
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets	246			7

Liabilities:
Derivatives designated as hedging instruments:
Interest rate swaps	Other current liabilities	(639		)	—
Foreign exchange forward contracts	Other current liabilities	(340		)	(16,408		)
Foreign exchange forward contracts	Other non-current liabilities	(759		)	(3,105		)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current liabilities	(16		)	(360		)
Total derivatives		$	3,354		$	(17,735	)

The effects of derivative instruments designated as cash flow hedges, the related changes in AOCI and the gains and losses in income for the years ended December 31, 2019 and 2018 were as follows:



Derivatives in Cash Flow Hedging Relationships	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)			Gain (Loss) Reclassified from AOCI into Income (Effective Portion)				Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	December 31, 2019
Interest rate swaps	$	(2,083	)	Interest expense	$	688			$	—
Foreign currency contracts	$	2,382		Other operating expense, net	$	854			—
Foreign currency contracts	$	10,006		Cost of sales	$	(10,006	)		—
Foreign currency contracts	$	2,517		Interest income and other, net	$	3,537			—
	December 31, 2018
Interest rate swaps	$	1,446		Interest expense	$	64			$	—
Foreign currency contracts	$	(23,603	)	Other operating expense, net	$	752			—
Foreign currency contracts	$	3,843		Cost of sales	$	(3,843	)		—
Foreign currency contracts	$	(4,672	)	Interest income and other, net	$	(3,599	)		—

The effects of derivative instruments not designated as hedging instruments on the statement of income for the years ended December 31, 2019 and 2018 were as follows:



Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	December 31, 2019		December 31, 2018
Foreign exchange contracts	Other operating expense, net	$	416	$	(3,009	)

The after-tax amounts of unrealized gains in AOCI related to hedge derivatives at December 31, 2019 and 2018 are presented below:



	December 31, 2019			December 31, 2018
Unrealized gains from interest rate cash flow hedges	$	(499	)	$	1,663
Unrealized gains from foreign currency cash flow hedges	$	1,789		$	(13,285	)

The amount of future reclassifications from AOCI will fluctuate with movements in the underlying markets.