Financial Instruments

9 Months Ended

Sep. 30, 2020

9. Financial Instruments

The following financial instrument assets (liabilities) are presented at their respective carrying amount, fair value and classification within the fair value hierarchy:



	September 30, 2020
	Carrying		Fair Value
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	64,495	$	64,495	$	64,495	$	—	$	—
Term loan facility - Amended Credit Facility ⁽¹⁾		(795,483)		(781,721)		—		(781,721)		—
Revolving credit facility		(5,740)		(6,046)		—		(6,046)		—
Other long-term notes payable		(3,706)		(3,186)		—		(3,186)		—
Cross currency swaps		6,962		6,962		—		6,962		—
Interest rate swaps		(26,380)		(26,380)		—		(26,380)		—
Foreign currency forward contracts, net		128		128		—		128		—



	December 31, 2019
	Carrying		Fair Value
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
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		—

(1)The carrying value of the term loan facility is net of unamortized debt issuance costs of $4.0 million and $3.9 million for the period ended September 30, 2020, and December 31, 2019, respectively.

The fair value of cash and cash equivalents are based on the fair values of identical assets. The fair value of loans payable is 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 fair value of 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 value 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 investments 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 Accumulated other comprehensive loss (“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 2018, the Company entered into variable to fixed interest rate swaps with a maturity date of February 14, 2024. The notional amount is $312.0 million at September 30, 2020. These swaps are hedging risk associated with the Tranche B-1 Loans. These interest rate swaps are designated as cash flow hedges. As of September 30, 2020, the Company expects it will reclassify net losses of approximately $8.4 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 is $224.3 million at September 30, 2020, with a maturity date of February 14, 2024. As of September 30, 2020, the Company expects it will reclassify net gains of approximately $0.3 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 loss recognized in AOCL and the amount of loss (gain) reclassified into earnings for the three months ended September 30, 2020 and 2019, follow:



					Amount of Loss (Gain)
	Amount of Gain (Loss)				Reclassified from				Location of Gain (Loss)
	Recognized in AOCL				AOCL into Income				Reclassified from
(Dollars in thousands)	2020		2019		2020		2019		AOCL into Income
Interest rate swaps	$	(975)	$	(2,328)	$	(1,648)	$	(363)	Interest expense
Cross currency swaps		(10,286)		10,750		116		1,419	Interest expense
					$	(1,532)	$	1,056	Total Interest expense
Cross currency swaps						(9,825)		9,497	Foreign currency losses, net
					$	(9,825)	$	9,497	Total Foreign currency losses, net

The amount of gain (loss) recognized in AOCL and the amount of loss (gain) reclassified into earnings for the nine months ended September 30, 2020 and 2019, follow:



					Amount of Loss (Gain)
	Amount of Gain (Loss)				Reclassified from				Location of Gain (Loss)
	Recognized in AOCL				AOCL into Income				Reclassified from
(Dollars in thousands)	2020		2019		2020		2019		AOCL into Income
Interest rate swaps	$	(15,783)	$	(13,248)	$	(2,970)	$	(149)	Interest expense
Cross currency swaps		(8,930)		11,122		2,135		4,579	Interest expense
					$	(835)	$	4,430	Total Interest expense
Cross currency swap						(10,407)		11,275	Foreign currency losses, net
					$	(10,407)	$	11,275	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 three and nine months ended September 30, 2020 and 2019, are as follows:


	Three months ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2020		2019		2020		2019
Interest expense	$	4,767	$	6,002	$	16,474	$	18,578
Foreign currency losses, net		1,450		3,655		1,278		7,662

Net Investment Hedges. 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 2018, the Company entered into cross currency swap agreements under which we pay variable rate interest in Euros and receive variable rate interest in U.S. dollars. The notional amount is €95.5 million at September 30, 2020, 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 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 three months ended September 30, 2020 and 2019, follow:


									Amount of Gain
					Amount of Gain				Recognized in Income on
	Amount of Gain (Loss)				Reclassified from				Derivative (Amount Excluded				Location of Gain
	Recognized in AOCL				AOCL into Income				from Effectiveness Testing)				in Earnings
(Dollars in thousands)	2020		2019		2020		2019		2020		2019
Cross currency swaps	$	(4,285)	$	5,977	$	—	$	—	$	259	$	897	Interest expense

The amount of 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 nine months ended September 30, 2020 and 2019, follow:


									Amount of Gain
					Amount of Gain				Recognized in Income on
	Amount of Gain (Loss)				Reclassified from				Derivative (Amount Excluded				Location of Gain
	Recognized in AOCL				AOCL into Income				from Effectiveness Testing)				in Earnings
(Dollars in thousands)	2020		2019		2020		2019		2020		2019
Cross currency swaps	$	(3,195)	$	8,454	$	—	$	—	$	1,651	$	2,847	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 and reported as Foreign currency losses, net in the condensed consolidated statements of operations. We recognized net gains of $3.6 million and $4.0 million in the three and nine months ended September 30, 2020, respectively, and net losses of $1.6 million in the three and nine months ended September 30, 2019, respectively, arising from the change in fair value of our financial instruments, which partially offset the related net gains and losses on international trade transactions. The notional amount of foreign currency forward contracts was $554.6 million at September 30, 2020 and $625.9 million at December 31, 2019.

The following table presents the effect on our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019, respectively, of our foreign currency forward contracts:



	Amount of Gain (Loss)				Amount of Gain
	Recognized in Earnings				Recognized in Earnings
	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Location of Gain (Loss) in Earnings
(Dollars in thousands)	2020		2019		2020		2019
Foreign currency forward contracts	$	3,586	$	(1,642)	$	3,996	$	(1,615)	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 condensed consolidated balance sheets. All derivatives are reported on a gross basis.



	September 30,		December 31,
(Dollars in thousands)	2020		2019		Balance Sheet Location
Asset derivatives:
Cross currency swaps	$	1,331	$	6,711	Other current assets
Cross currency swaps		5,631		15,400	Other non-current assets
Foreign currency forward contracts		2,107		1,474	Other current assets
Liability derivatives:
Interest rate swaps	$	(8,369)	$	(3,723)	Accrued expenses and other current liabilities
Interest rate swaps		(18,011)		(10,975)	Other non-current liabilities
Foreign currency forward contracts		(1,979)		(873)	Accrued expenses and other current liabilities