XML 43 R17.htm IDEA: XBRL DOCUMENT v3.19.3
Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
In the normal course of business, including the purchasing of materials and selling of products, the Company is exposed to certain risks related to fluctuations in foreign currency exchange rates. The Company uses foreign currency forward contracts to manage risks from these market fluctuations. The Company is also exposed to certain risks related to fluctuations in interest rates and uses interest rate swaps to manage risk from these market fluctuations. The counterparties to these financial instruments are financial institutions with strong credit ratings. The Company maintains control over the size of positions entered into with any one counterparty and monitors the credit ratings of these institutions.
Foreign Currency Forward Contracts
The Company currently hedges its risk relative to fluctuations in the Canadian dollar, Euro and Japanese yen for forecasted cash outflows denominated in these currencies. The Company had foreign currency forward contracts denominated in these currencies outstanding with notional amounts totaling $11.5 million at September 30, 2019. There were no foreign currency forward contracts outstanding at December 31, 2018. As of September 30, 2019, all of the Company’s outstanding instruments mature within the next three months.
The Company’s derivative instruments discussed above are designated as cash flow hedges and the fair value of these derivative instruments was $0.1 million at September 30, 2019 and is included in other current liabilities in the Condensed Consolidated Balance Sheets.
The Company also enters into derivative instruments (forwards) to economically hedge the impact of fluctuations in the Indian rupee. During the nine months ended September 30, 2019, the Company recognized losses of $0.2 million related to the changes in fair value of these derivative instruments not designated as hedges. These gains and losses are recognized immediately within the Condensed Consolidated Statements of Operations and are classified within (gain) loss on currency translation. The fair value of these derivative instruments not designated as hedges was insignificant at September 30, 2019.
Interest Rate Swap Agreements
The Company is exposed to changes in interest rates on its variable rate debt. In order to manage this risk, on February 16, 2017, Milacron LLC, a wholly-owned subsidiary of the Company, entered into two interest rate swap transactions effective for a four-year period beginning January 31, 2018 with a total notional amount of $400.0 million. The interest rate swaps are intended to manage the Company's interest rate risk by fixing the interest rate on a portion of the Company's debt outstanding under the 2017 Term Loan Facility that was previously subject to a floating interest rate equal to 1-month LIBOR plus a credit spread. The interest rate swaps provide for the Company to pay a fixed rate of 2.062% per annum on such portion of the outstanding debt in exchange for receiving a variable interest rate based on 1-month LIBOR. The effect is a synthetically fixed rate of 2.062% plus the loan spread for the term and debt hedged.    
The Company designated these interest rate swaps as cash flow hedges of floating rate borrowings and expects the hedge to be highly effective in offsetting fluctuations in the designated interest payments resulting from changes in the benchmark interest rate. The gains and losses on the designated interest rate swaps will offset losses and gains on the transactions being hedged. The fair value of the interest rate swaps is calculated by taking into consideration current interest rates and the current creditworthiness of the counterparties or the Company, as applicable. The effective portion of changes in the fair value of the interest rate swaps is reflected as a component of accumulated other comprehensive loss and recognized as interest expense, net as payments are paid or accrued. The remaining gain or loss in excess of the cumulative change in the present value of the future cash flows of the hedge item, if any (i.e. the ineffective portion), is recognized as interest expense, net during the current period.
Cross-Currency Interest Rate Swap
In November 2018, the Company entered into a cross-currency interest rate swap agreement that will mature on September 28, 2023, with an aggregate notional amount of $85.8 million to manage foreign currency risk by effectively converting a portion of the Company's variable rate U.S. dollar-denominated debt, including the monthly interest rates thereunder, to fixed rate Euro-denominated debt of €75.0 million. This cross-currency interest rate swap agreement is designated as a hedge of a portion of our net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. Changes in the value of these items resulting from fluctuations in the underlying exchange rates to U.S. dollar exchange rates are recorded as foreign currency translation adjustments within accumulated other comprehensive loss.
The following table provides the effect of the Company’s foreign currency forward contracts, interest rate swaps and cross-currency interest rate swaps designated as cash flow hedges on the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2019 and 2018:
Type of instrument:
Gain (Loss)
Recognized in OCI
on Derivative
(Effective Portion)
 
Gain (Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion)
 
(in millions)
Three Months Ended September 30, 2019
 
 
 
Foreign exchange contracts
$
(0.3
)
 
$
—

Interest rate swaps
$
(1.3
)
 
$
0.2

Cross-currency interest rate swaps
$
4.2

 
$
0.4

Three Months Ended September 30, 2018
 
 
 
Foreign exchange contracts
$
0.6

 
$
—

Interest rate swaps
$
1.3

 
$
(0.4
)
 
 
 
 
Nine Months Ended September 30, 2019
 
 
 
Foreign exchange contracts
$
0.2

 
$
0.3

Interest rate swaps
$
(11.8
)
 
$
1.0

Cross-currency interest rate swaps
$
5.2

 
$
1.4

Nine Months Ended September 30, 2018
 
 
 
Foreign exchange contracts
$
(0.4
)
 
$
0.2

Interest rate swaps
$
9.7

 
$
(0.4
)

All gains (losses) that are reclassified from accumulated other comprehensive loss into income (effective portion) are classified in (gain) loss on currency translation or cost of sales within the Condensed Consolidated Statements of Operations. The gain (loss) recognized related to the ineffective portion of the foreign exchange contracts was immaterial for all periods presented.
Fair Value Measurements
The Company estimates the fair value of its financial instruments utilizing an established three-level hierarchy. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:
•
Level 1–Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.
•
Level 2–Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial statements.
•
Level 3–Valuation is based upon other unobservable inputs that are significant to the fair value measurements.
The classification of fair value measurements within the established three-level hierarchy is based upon the lowest level of input that is significant to that measurement. The fair values of the Company’s derivative instruments were measured using valuations based upon quoted prices for similar assets and liabilities in active markets (Level 2) and are valued by reference to similar financial instruments, adjusted for terms specific to the contracts. There were no transfers between the three levels of the fair value hierarchy during any period presented. The derivative assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 were as follows:
 
Balance Sheet Location
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(in millions)
September 30, 2019
 
 
 
 
 
 
 
 
Foreign currency forward contracts (liability position)
Other current liabilities
$
0.1

 
$
—

 
$
0.1

 
$
—

Interest rate swap agreements (liability position)
Other current liabilities
$
1.7

 
$
—

 
$
1.7

 
$
—

Interest rate swap agreements (liability position)
Other noncurrent accrued liabilities
$
4.0

 
$
—

 
$
4.0

 
$
—

Cross-currency interest rate swap agreements (asset position)
Prepaid and other current assets
$
2.4

 
$
—

 
$
2.4

 
$
—

Cross-currency interest rate swap agreements (asset position)
Other noncurrent assets
$
1.9

 
$
—

 
$
1.9

 
$
—

Cross-currency interest rate swap agreements (liability position)
Other current liabilities
$
0.8

 
$
—

 
$
0.8

 
$
—

Cross-currency interest rate swap agreements (liability position)
Other noncurrent accrued liabilities
$
1.3

 
$
—

 
$
1.3

 
$
—

December 31, 2018
 
 
 
 
 
 
 
 
Interest rate swap agreements (asset position)
Prepaid and other current assets
$
1.9

 
$
—

 
$
1.9

 
$
—

Cross-currency interest rate swap agreements (asset position)
Prepaid and other current assets
$
1.9

 
$
—

 
$
1.9

 
$
—

Interest rate swap agreements (asset position)
Other noncurrent assets
$
2.5

 
$
—

 
$
2.5

 
$
—

Cross-currency interest rate swap agreements (liability position)
Other current liabilities
$
0.3

 
$
—

 
$
0.3

 
$
—

Cross-currency interest rate swap agreements (liability position)
Other noncurrent accrued liabilities
$
2.1

 
$
—

 
$
2.1

 
$
—