DERIVATIVES

6 Months Ended

Jun. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company selectively uses financial instruments to manage market risk associated with exposure to fluctuations in interest rates and foreign currency rates. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.

Interest Rate Hedging

The Company’s interest rate exposure is most sensitive to fluctuations in interest rates in the United States and in certain countries throughout Europe, which impacts interest paid on its debt. The Company has debt with variable rates of interest based generally on LIBOR. From time to time, the Company enters into interest rate swap agreements to manage interest rate risk. These instruments are recorded at fair value. See Note 9, "Fair Value Measurements", in these Notes to Condensed Consolidated Financial Statements for additional information.

In November 2018, the Company entered into a five-year interest rate swap agreement with a bank to convert the interest on a notional $139.0 million of the Company's borrowings under its 2018 Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount decreases quarterly by fluctuating amounts through August 2023. Prior to May 11, 2020, the Company's interest rate swap agreements were accounted for as cash flow hedges. Effectiveness of the remaining derivative agreement was assessed quarterly, or more frequently, if necessary, by ensuring that the critical terms of the swap continued to match the critical terms of the hedged debt in order to report gains or losses on the derivative instrument in Other Comprehensive Income. An amendment to the Company's 2018 Amended Credit Agreement on May 11, 2020 included, among other modifications, the establishment of a floor on the Base Rate and the Eurocurrency Rate of 1%. As a result, the Company determined that the critical terms of the swap no longer matched the critical terms of the hedged debt and performed an assessment of the effectiveness of the interest rate swap agreement. The Company concluded the interest rate swap agreement was no longer effective. The Company also concluded that the hedged forecasted transaction (the occurrence of variable interest rate payments on the hedged debt) continues to be probable of occurring. Therefore, as of May 11, 2020, the Company discontinued hedge accounting. After May 11, 2020, any fair value gains or losses on the derivative agreement are recorded as interest expense on the Company's Condensed Consolidated Statement of Operations. The cumulative loss on the discontinued hedge relationship through May 11, 2020, which was recorded in Accumulated Other Comprehensive Income, is being amortized into earnings (loss) through August 31, 2023, the maturity date of the derivative instrument. The loss included in Accumulated Other Comprehensive Income related to the discontinued hedging relationship at June 30, 2021 was $2.6 million, net of tax. The amount reclassified out of other comprehensive income into Interest expense on the Company's Condensed Consolidated Statement of Operations for the three and six-month periods ended June 30, 2021 was $0.6 million and $1.2 million, net of tax, respectively. The Company expects $1.8 million, net of tax, to be reclassified from Accumulated Other Comprehensive Income over the next twelve months.

Net Investment Hedges

The Company’s operations are subject to certain risks, including foreign currency exchange rate fluctuations. From time to time, the Company enters into cross-currency swaps designated as hedges, which are recorded at fair value (see Note 9, "Fair Value Measurements", in these Notes to Condensed Consolidated Financial Statements), to protect the Company's net investments in subsidiaries denominated in currencies other than the U.S. dollar.

In November 2019, the Company entered into three fixed-to-fixed cross-currency swaps with banking institutions with aggregate notional amounts totaling €67.8 million ($75.0 million U.S. dollar equivalent). These swaps hedge a portion of the Company's net investment in a Euro functional currency denominated subsidiary against the variability of exchange rate translation impacts between the U.S. dollar and Euro. These contracts require monthly cash interest exchanges over the life of the contracts with the Company recognizing a reduction to interest expense due to the favorable interest rate differential. Also, settlement of the notional €22.6 million ($25.0 million U.S. dollar equivalent) cross-currency swaps occur at maturity dates of August 2021, August 2022, and August 2023. The Company assesses hedge effectiveness of the cross-currency swaps quarterly by ensuring the critical terms of the swaps continue to match the critical terms of the designated net investment. The Company elected to assess effectiveness using the spot method, and as a result, records the interest rate differential monthly on the Company's Condensed Consolidated Statements of Operations.

Derivative instruments are recorded at fair value and recognized as either assets or liabilities. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the hedge transaction affects earnings. Any ineffective portion, or amounts related to contracts that are not designated as hedges, are recorded directly to earnings. The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. The Company does not use derivatives for speculative or trading purposes.

The following table sets forth the fair value amounts of derivative instruments held by the Company presented on the Condensed Consolidated Balance Sheets as Derivative liabilities:


	At June 30, 2021				At December 31, 2020
In thousands	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Interest rate contracts	$	—	$	3,430	$	—	$	5,063
Cross-currency swaps	—		4,717		—		6,933
Total derivatives	$	—	$	8,147	$	—	$	11,996

The following table sets forth the activity recorded in accumulated other comprehensive income (loss), net of tax, for the three and six-month periods ended June 30, 2021 and 2020 for derivatives held by the Company and designated as hedging instruments:


	For the Three Months Ended				For the Six Months Ended
In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Cash flow hedges:
Interest rate contracts	$	571	$	11	$	1,189	$	(2,162)
Cross-currency swaps	(696)		(1,093)		1,704		1,526
Total derivatives	$	(125)	$	(1,082)	$	2,893	$	(636)