Derivative Financial Instruments (Notes)

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivatives and Hedging Activities

Hedge Accounting and Hedging Program

The purpose of our hedging program is to manage the foreign currency exchange rate risk on forecasted expenses denominated in currencies other than the functional currency of the operating unit. We do not issue derivatives for trading or speculative purposes.

To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The par forward contract is designated and qualifies as a cash flow hedge. Our derivative instruments are recorded at fair value on the condensed consolidated balance sheets and are classified based on the instrument's maturity date. We record changes in the intrinsic value of the effective portion of the gain or loss on the derivative instrument as a component of Other Comprehensive Income and we reclassify that gain or loss into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.

In March 2020, we entered into a one-year cross-currency par forward contract that extends our current hedge of a portion of our Mexico forecasted expenses denominated in Pesos ("MXN"). The total notional amount of this outstanding derivative as of March 31, 2020 was approximately 473.2 million MXN. The term of the one-year contract is November 3, 2020 to December 1, 2021. The derivative instrument matures in equal monthly amounts at a fixed forward rate of 24.26 MXN/USD.

In November 2018, we entered into a one-year cross-currency par forward contract that hedges of a portion of our Mexico forecasted expenses denominated in MXN. The total notional amount of this outstanding derivative as of March 31, 2020 was approximately 265.3 million MXN. The term of the one-year hedge is November 1, 2019 to November 3, 2020. The derivative instrument matures in equal monthly amounts at a fixed forward rate of 22.109 MXN/USD.

The following table presents the fair values of our derivative instruments included within the Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (in thousands):

	Derivatives
	Condensed Consolidated Balance Sheet Location	March 31, 2020			December 31, 2019
Derivatives designated as cash flow hedging instruments
Foreign exchange forward contract:
	Prepaid expenses and other current assets	$	—		$	2,366
	Accrued liabilities	(1,006		)	—
	Other long-term liabilities	(512		)	—
Total derivatives designated as cash flow hedging instruments		$	(1,518	)	$	2,366

The following table presents the amounts affecting the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (in thousands):

	Line Item in the Condensed Consolidated Statements of Operations	Three months ended March 31,
		2020		2019
Derivatives designated as cash flow hedging instruments
Foreign exchange forward contracts	Cost of goods sold	$	692	$	155

We recognized the following (losses) gains on our foreign exchange contracts designated as a cash flow hedge (in thousands):

	Amount of (Loss) Gain Recognized in Other Comprehensive Income on Derivatives					Amount of Gain Reclassified From Accumulated Other Comprehensive Income into Income
	Three months ended March 31,						Three months ended March 31,
	2020			2019		Location of Gain Reclassified From Accumulated Other Comprehensive Income into Income	2020		2019
Derivatives designated as cash flow hedges:
Foreign exchange forward contract	$	(3,192	)	$	1,010	Cost of goods sold	$	692	$	155
Total derivatives designated as cash flow hedging instruments	$	(3,192	)	$	1,010		$	692	$	155

As of March 31, 2020, we expect approximately $1.0 million of the deferred losses on the outstanding derivatives in accumulated other comprehensive income to be reclassified to net income during the next twelve months concurrent with the underlying hedged transactions also being reported in net income.