Financial Instruments

6 Months Ended

Jun. 30, 2020

Investments, All Other Investments [Abstract]

FINANCIAL INSTRUMENTS

Fair Value

Accounting guidance on fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy:

•Level 1 — Quoted prices for identical instruments in active markets.

•Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the London Interbank Offer Rate ("LIBOR") swap curve and forward interest and exchange rates at period end. Such instruments are classified as Level 2 based on the observability of significant inputs to the model. The Company does not have any instruments classified as Level 3, other than those included in pension asset trusts as discussed in Note 16 of our 2019 Form 10-K.

These valuations take into consideration the Company's credit risk and its counterparties’ credit risk. The estimated change in the fair value of these instruments due to such changes in its own credit risk (or instrument-specific credit risk) was immaterial as of June 30, 2020.

The carrying values and the estimated fair values of financial instruments at June 30, 2020 and December 31, 2019 consisted of the following:


	June 30, 2020						December 31, 2019
(DOLLARS IN THOUSANDS)	Carrying Value		Fair Value		Carrying Value		Fair Value
LEVEL 1
Cash and cash equivalents⁽¹⁾	$	497,412	$	497,412	$	606,823	$	606,823
LEVEL 2
Credit facilities and bank overdrafts⁽²⁾	1,107		1,107		3,131		3,131
Derivatives
Derivative assets⁽³⁾	7,325		7,325		3,575		3,575
Derivative liabilities⁽³⁾	3,982		3,982		7,415		7,415

Long-term debt:⁽⁴⁾
2020 Notes	299,816		301,603		299,381		302,700
2021 Euro Notes	336,274		336,315		334,561		338,244
2023 Notes	299,156		312,150		299,004		305,580
2024 Euro Notes	560,644		575,264		558,124		586,825
2026 Euro Notes	893,879		903,554		890,183		945,306
2028 Notes	396,845		453,849		396,688		441,500
2047 Notes	493,782		537,466		493,571		526,106
2048 Notes	786,105		936,682		785,996		919,040
Term Loan⁽²⁾	239,723		240,000		239,621		240,000
Amortizing Notes⁽⁵⁾	59,513		60,372		82,079		84,430

_______________________

(1)The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those instruments.

(2)The carrying amount approximates fair value as the interest rate is reset frequently based on current market rates as well as the short maturity of those instruments.

(3)The carrying amount approximates fair value as the instruments are marked-to-market and held at fair value on the Consolidated Balance Sheet.

(4)The fair value of the Company's long-term debt was calculated using discounted cash flows applying current interest rates and current credit spreads based on its own credit risk.

(5)The fair value of the Amortizing Notes of the TEUs is based on the most recently quoted price for the outstanding securities, adjusted for any known significant deviation in value. The estimated fair value of these long-term obligations is not necessarily indicative of the amount that would be realized in a current market exchange.

Derivatives

Foreign Currency Forward Contracts

The Company periodically enters into foreign currency forward contracts with the objective of reducing exposure to cash flow volatility associated with its intercompany loans, foreign currency receivables and payables and anticipated purchases of certain raw materials used in operations. These contracts generally involve the exchange of one currency for a second currency at a future date, have maturities not exceeding twelve months and are with counterparties which are major international financial institutions.

Cash Flow Hedges

The Company maintains several forward currency contracts which qualified as cash flow hedges. The objective of these hedges is to protect against the currency risk associated with forecasted U.S. dollar ("USD") denominated raw material purchases made by Euro ("EUR") functional currency entities which result from changes in the EUR/USD exchange rate. The effective portions of cash flow hedges are recorded in OCI as a component of (Losses) gains on derivatives qualifying as hedges in the accompanying Consolidated Statement of Income and Comprehensive Income (Loss). Realized gains/(losses) in AOCI related to cash flow hedges of raw material purchases are recognized as a component of Cost of goods sold in the

accompanying Consolidated Statement of Income and Comprehensive Income (Loss) in the same period as the related costs are recognized.

Hedges Related to Issuances of Debt

Subsequent to the issuance of the 2021 Euro Notes and 2026 Euro Notes during the third quarter of 2018, the Company designated the debt as a hedge of a portion of its net European investments. Accordingly, the change in the value of the debt that is attributable to foreign exchange movements is recorded in OCI as a component of foreign currency translation adjustments in the accompanying Consolidated Statement of Income and Comprehensive Income (Loss).

Subsequent to the issuance of the 2024 Euro Notes during the first quarter of 2016, the Company designated the debt as a hedge of a portion of its net European investments. Accordingly, the change in the value of the debt that is attributable to foreign exchange movements is recorded in OCI as a component of foreign currency translation adjustments in the accompanying Consolidated Statement of Income and Comprehensive Income (Loss).

Cross Currency Swaps

During the third quarter of 2019, the Company entered into four new EUR/USD cross currency swaps that mature through May 2023 covering $600 million notional amount of debt. The new swaps qualified as net investment hedges in order to mitigate a portion of the Company's net European investments from foreign currency risk. As of June 30, 2020, these swaps were in a net asset position with an aggregate fair value of $2.4 million which was classified as other current assets. Changes in fair value related to cross currency swaps are recorded in OCI.

The following table shows the notional amount of the Company’s derivative instruments outstanding as of June 30, 2020 and December 31, 2019:


(DOLLARS IN THOUSANDS)	June 30, 2020		December 31, 2019
Foreign currency contracts	$	417,674	$	473,600
Cross currency swaps	600,000		600,000

The following tables show the Company’s derivative instruments measured at fair value (Level 2 of the fair value hierarchy), as reflected in the Consolidated Balance Sheet as of June 30, 2020 and December 31, 2019:


	June 30, 2020
(DOLLARS IN THOUSANDS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets^(a)
Foreign currency contracts	$	1,081	$	3,856	$	4,937
Cross currency swaps	2,388		—		2,388

	$	3,469	$	3,856	$	7,325
Derivative liabilities^(b)
Foreign currency contract	$	1,962	$	2,020	$	3,982


	December 31, 2019
(DOLLARS IN THOUSANDS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets^(a)
Foreign currency contracts	$	1,310	$	2,265	$	3,575



Derivative liabilities^(b)
Foreign currency contracts	$	797	$	2,431	$	3,228
Interest rate swaps	4,187		—		4,187
Total derivative liabilities	$	4,984	$	2,431	$	7,415

_______________________

(a)Derivative assets are recorded to Prepaid expenses and other current assets in the Consolidated Balance Sheet.

(b)Derivative liabilities are recorded as Other current liabilities in the Consolidated Balance Sheet.

The following table shows the effect of the Company’s derivative instruments which were not designated as hedging instruments in the Consolidated Statement of Income and Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Amount of Gain (Loss)							Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN THOUSANDS)	Three Months Ended June 30,
			2020			2019
Foreign currency contracts⁽¹⁾	$	4,308		$	(3,932)		Other income, net




	Amount of Gain (Loss)							Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN THOUSANDS)	Six Months Ended June 30,
			2020			2019
Foreign currency contracts⁽¹⁾	$	(3,354)		$	(3,006)		Other income, net

_______________________

(1)The foreign currency contract net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.

The following table shows the effect of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedging instruments, net of tax, in the Consolidated Statement of Income and Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Amount of Gain (Loss) Recognized in OCI on Derivative					Location of Gain (Loss) Reclassified from AOCI into Income			Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended June 30,										Three Months Ended June 30,
(DOLLARS IN THOUSANDS)	2020		2019					2020			2019
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	(3,315)	$	(2,539)	Cost of goods sold	$	1,251		$	2,322
Interest rate swaps ⁽¹⁾	214		216		Interest expense	(214)			(216)
Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	(19,508)		(3,904)		N/A	—			—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	(11,074)		(4,823)		N/A	—			—
2021 Euro Notes & 2026 Euro Notes	(24,363)		(10,611)		N/A	—			—
Total	$	(58,046)	$	(21,661)		$	1,037		$	2,106

	Amount of (Loss) Gain Recognized in OCI on Derivative (Effective Portion)					Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)			Amount of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
	Six Months Ended June 30,										Six Months Ended June 30,
	2020		2019					2020			2019
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	(2,083)	$	(2,850)	Cost of goods sold	$	3,320		$	4,695
Interest rate swaps ⁽¹⁾	429		432		Interest expense	(429)			(432)
Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	6,382		7,312		N/A	—			—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	(1,505)		(617)		N/A	—			—
2021 Euro Notes & 2026 Euro Notes	(3,311)		(1,358)		N/A	—			—
Total	$	(88)	$	2,919		$	2,891		$	4,263

_______________________

(1)Interest rate swaps were entered into as pre-issuance hedges for bond offerings.

The ineffective portion of the above noted cash flow hedges were not material during the three and six months ended June 30, 2019.

The Company expects that $4.5 million (net of tax) of derivative gain included in AOCI at June 30, 2020, based on current market rates, will be reclassified into earnings within the next 12 months. The majority of this amount will vary due to fluctuations in foreign currency exchange rates.