Financial Instruments

12 Months Ended

Dec. 31, 2019

10. Financial Instruments

The following table presents financial instrument assets (liabilities) at the carrying amount, fair value and classification within the fair value hierarchy:



	December 31, 2019
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Cash and cash equivalents	$	96,202	$	96,202	$	96,202	$	—	$	—
Term loan facility - Amended Credit Facility ⁽¹⁾		(801,764)		(799,750)		—		(799,750)		—
Other long-term notes payable		(3,496)		(1,557)		—		(1,557)		—
Cross currency swaps		22,111		22,111		—		22,111		—
Interest rate swaps		(14,698)		(14,698)		—		(14,698)		—
Foreign currency forward contracts, net		601		601		—		601		—


	December 31, 2018
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
Cash and cash equivalents	$	96,101	$	96,101	$	96,101	$	—	$	—
Loans payable		(50)		(50)		—		(50)		—
Term loan facility - Credit Facility ⁽¹⁾		(809,022)		(796,796)		—		(796,796)		—
Other long-term notes payable		(4,098)		(1,772)		—		(1,772)		—
Cross currency swaps		17,104		17,104		—		17,104		—
Interest rate swaps		(5,244)		(5,244)		—		(5,244)		—
Foreign currency forward contracts, net		(270)		(270)		—		(270)		—

(1)The carrying values of the term loan facilities are net of unamortized debt issuance costs of $3.9 million and $4.8 million for the period ended December 31, 2019, and December 31, 2018, respectively.

The fair values of cash and cash equivalents are based on the fair values of identical assets. The fair values of loans payable are based on the present value of expected future cash flows and approximate their carrying amounts due to the short periods to maturity. The fair value of the term loan facility is based on market price information and is measured using the last available bid price of the instrument on a secondary market. The revolving credit facility and other long-term notes payable are based on the present value of expected future cash flows and interest rates that would be currently available to the Company for issuance of similar types of debt instruments with similar terms and remaining maturities adjusted for the Company's performance risk. The fair values of our interest rate swaps and cross currency swaps are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair values of the foreign currency forward contracts are based on market prices for comparable contracts.

Derivative Instruments

The Company may use derivative instruments to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, on net investment in certain foreign subsidiaries and on certain existing assets and liabilities. However, the Company may choose not to hedge in countries where it is not economically feasible to enter into hedging arrangements or where hedging inefficiencies exist, such as timing of transactions.

Derivatives Designated as Hedging Instruments

Cash Flow Hedges. For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is recorded as a component of AOCL and reclassified into earnings in the same period during which the hedged transaction affects earnings.

The Company utilizes interest rate swaps to limit exposure to market fluctuations on floating-rate debt. During the second quarter of 2017, the Company entered into interest rate swap agreements that converted $150 million and €90 million of our term loans from variable interest rates to fixed interest rates. These swaps qualified for, and were designated as, cash flow hedges. The interest rate swap agreements were terminated in the second quarter of 2018 in connection with the refinancing of the Credit Facility.

During the second quarter of 2018, the Company entered into variable to fixed interest rate swaps with a maturity date of February 14, 2024. The notional amount was $314.4 million at December 31, 2019. These swaps are hedging risk associated with the Tranche B-1 Loans. These interest rate swaps are designated as cash flow hedges. As of December 31, 2019, the Company expects it will reclassify net losses of approximately $3.7 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

The Company has converted a U.S. dollar denominated, variable rate debt obligation into a Euro fixed rate obligation using receive-float, pay-fixed cross currency swaps in the second quarter of 2018. These swaps are hedging currency and interest rate risk associated with the Tranche B-3 Loans. These cross currency swaps are designated as cash flow hedges. The notional amount was $226.0 million at December 31, 2019, with a maturity date of February 14, 2024. The spot to spot change is recorded in Foreign currency losses, net, to offset the gain or loss recognized on the foreign denominated debt. As of December 31, 2019, the Company expects it will reclassify net gains of approximately $3.9 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

The amount of gain (loss) recognized in AOCL and the amount of loss (gain) reclassified into earnings for the year ended December 31, 2019 and 2018, follow:


					Amount of Loss (Gain)
	Amount of Gain (Loss)				Reclassified from				Location of Gain (Loss)
	Recognized in AOCL				AOCL into Income				Reclassified from
	2019		2018		2019		2018		AOCL into Income
	(Dollars in thousands)
Interest rate swaps	$	(11,050)	$	(4,513)	$	(441)	$	(966)	Interest expense
Cross currency swaps		8,319		15,901		5,844		3,616	Interest expense
					$	5,403	$	2,650	Total Interest expense
Cross currency swaps						4,759		14,509	Foreign currency losses, net
					$	4,759	$	14,509	Total Foreign currency losses, net

The total amounts of expense and the respective line items in which the effect of cash flow hedges is presented in the condensed consolidated statement of operations for the year ended December 31, 2019 and 2018, are as follows:


	2019		2018
	(Dollars in thousands)
Interest expense	$	24,302	$	23,659
Foreign currency losses, net		9,166		6,335

During the fourth quarter of 2019, the company entered into foreign currency forward contracts to mitigate the impact of currency fluctuations on transactions arising from international trade. The gain or loss on the derivative is recorded as a component of AOCL and reclassified into earnings in the same period during which the hedged transaction affects earnings.

Net Investment Hedge. For derivatives that are designated and qualify as net investment hedges, the gain or loss on the derivative is reported as a component of the currency translation adjustment in AOCL. These cross currency swaps are designated as hedges of our net investment in European operations. Time value is excluded from the assessment of effectiveness and the amount of interest paid or received on the swaps will be recognized as an adjustment to interest expense in earnings over the life of the swaps.

In the second quarter of 2017, the Company designated a portion of its Euro denominated debt as a net investment hedge for accounting purposes. This net investment hedge was terminated in the second quarter of 2018.

In the second quarter of 2018, the Company entered into cross currency swap agreements where we pay variable rate interest in Euros and receive variable rate interest in U.S. dollars. The notional amount was €96.2 million at December 31, 2019, with a maturity date of February 14, 2024. These swaps are hedging risk associated with the net investment in Euro denominated operations due to fluctuating exchange rates and are designated as net investment hedges. The changes in the fair value of these designated cross-currency swaps will be recognized in AOCL.

The amount of gain (loss) on net investment hedges recognized in AOCL, the amount reclassified into earnings and the amount of gain recognized in income on derivative (amount excluded from effectiveness testing) for the year ended December 31, 2019 and 2018, follow:


					Amount of Gain				Amount of Gain Recognized in
	Amount of Gain				Reclassified from				Income on Derivative (Amount
	Recognized in AOCL				AOCL into Income				Excluded from Effectiveness Testing)				Location of Gain
	2019		2018		2019		2018		2019		2018		in Earnings
	(Dollars in thousands)
Cross currency swaps	$	6,330	$	7,243	$	—	$	—	$	3,688	$	2,261	Interest expense

Derivatives Not Designated as Hedging Instruments

Foreign currency forward contracts. We manage foreign currency risks principally by entering into forward contracts to mitigate the impact of currency fluctuations on transactions. These forward contracts are not formally designated as hedges. Gains and losses on these foreign currency forward contracts are netted with gains and losses from currency fluctuations on transactions arising from international trade, primarily intercompany transactions, and reported as Foreign currency losses, net in the consolidated statements of operations. We incurred net losses of $2.5 million in 2019, approximately zero in 2018, and $2.9 million in 2017, arising from the change in fair value of our financial instruments, which are netted against the related net gains and losses on international trade transactions. The fair values of these contracts are based on market prices for comparable contracts. The notional amount of foreign currency forward contracts was $625.9 million at December 31, 2019 and $387.2 million at December 31, 2018.

The following table presents the effect on our consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017, respectively, of foreign currency forward contracts:


	Amount of Loss
	Recognized in Earnings
	2019		2018		2017		Location of Loss in Earnings
	(Dollars in thousands)
Foreign currency forward contracts	$	(2,462)	$	(12)	$	(2,938)	Foreign currency losses, net

Location and Fair Value Amount of Derivative Instruments

The following table presents the fair values of our derivative instruments on our consolidated balance sheets at December 31, 2019 and 2018. All derivatives are reported on a gross basis.



	2019		2018		Balance Sheet Location
	(Dollars in thousands)
Asset derivatives:
Cross currency swaps	$	6,711	$	9,606	Other current assets
Cross currency swaps		15,400		7,498	Other non-current assets
Foreign currency forward contracts		1,474		626	Other current assets
Liability derivatives:
Interest rate swaps	$	(3,723)	$	(755)	Accrued expenses and other current liabilities
Interest rate swaps		(10,975)		(4,489)	Other non-current liabilities
Foreign currency forward contracts		(873)		(896)	Accrued expenses and other current liabilities