Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2014

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Note 12 Derivatives and Hedging Activities

We report all derivative instruments on our consolidated balance sheets at fair value and establish criteria for designation and effectiveness of transactions entered into for hedging purposes.

As a large global organization, we face exposure to market risks, such as fluctuations in foreign currency exchange rates and interest rates. To manage the volatility relating to these exposures, we enter into various derivative instruments from time to time under our risk management policies. We designate derivative instruments as hedges on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. We assess the initial and ongoing effectiveness of our hedging relationships in accordance with our policy. We do not purchase, hold or sell derivative financial instruments for trading purposes. Our practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if we determine the underlying forecasted transaction is no longer probable of occurring.

Foreign Currency Forward Contracts Designated as Cash Flow Hedges

The primary purposes of our cash flow hedging activities are to manage the potential changes in value associated with the amounts receivable or payable on equipment and raw material purchases that are denominated in foreign currencies in order to minimize the impact of the changes in foreign currencies. We record gains and losses on foreign currency forward contracts qualifying as cash flow hedges in other comprehensive income to the extent that these hedges are effective and until we recognize the underlying transactions in net earnings, at which time we recognize these gains and losses in other expense, net, on our consolidated statements of operations.

Net unrealized after tax gains (losses) related to these contracts that were included in other comprehensive income for the years ended December 31, 2014 and 2013 were immaterial. The unrealized amounts in other comprehensive income will fluctuate based on changes in the fair value of open contracts during each reporting period.

Foreign Currency Forward Contracts Not Designated as Hedges

Our subsidiaries have foreign currency exchange exposure from buying and selling in currencies other than their functional currencies. The primary purposes of our foreign currency hedging activities are to manage the potential changes in value associated with the amounts receivable or payable on transactions denominated in foreign currencies and to minimize the impact of the changes in foreign currencies related to foreign currency denominated interest-bearing intercompany loans and receivables and payables. The changes in fair value of these derivative contracts are recognized in other expense, net, on our consolidated statements of operations and are largely offset by the remeasurement of the underlying foreign currency denominated items indicated above. These contracts generally have original maturities of less than 12 months.

Interest Rate Swaps

From time to time, we may use interest rate swaps to manage our mix of fixed and floating interest rates on our outstanding indebtedness.

In the fourth quarter of 2014, we terminated the swaps that we entered into in 2013. The swaps were associated with the 6.5% Senior Notes although the 6.5% Senior Notes remained outstanding. The termination resulted in a $3 million gain, which is being amortized over the remaining life of the 6.5% Senior Note and included in interest expense on our consolidated statement of operations.

In the third quarter of 2012, we terminated the swaps linked to the 12% Senior Notes, although the 12% Senior Notes remained outstanding. We received cash proceeds of $2 million resulting from the gain on the termination of the swaps, which was amortized over the remaining life of the 12% Senior Notes. At December 31, 2012, we had no interest rate swaps outstanding.

As a result of our interest rate swap agreements, interest expense was reduced by $2 million in 2014, less than $1 million in 2013 and $1 million in 2012.

Interest Rate and Currency Swaps

In connection with exercising the $100 million delayed draw under the senior secured credit facility, we entered into a series of interest rate and currency swaps in a notional amount of $100 million.  These swaps convert the U.S. dollar denominated variable rate obligation under the credit facility into a fixed Brazilian real denominated obligation.  The delayed draw and the interest rate and currency swaps are used to fund expansion and general corporate purposes of our Brazilian subsidiaries.

Other Derivative Instruments

We may use other derivative instruments from time to time, such as foreign exchange options to manage exposure to foreign exchange rates and interest rate and currency swaps related to access to international financing transactions. These instruments can potentially limit foreign exchange exposure by swapping borrowings denominated in one currency for borrowings denominated in another currency. At December 31, 2014,  2013 and 2012, we had no foreign exchange options outstanding.

See Note 13, “Fair Value Measurements and Other Financial Instruments,” for a discussion of the inputs and valuation techniques used to determine the fair value of our outstanding derivative instruments.

Fair Value of Derivative Instruments

The following table details the fair value of our derivative instruments included on our consolidated balance sheets.

	Fair Value of Asset				Fair Value of (Liability)
	Derivatives (1)				Derivatives (1)
	December 31,		December 31,		December31,			December 31,
(In millions)	2014		2013		2014			2013
Derivatives designated as hedging instruments:
Foreign currency forward contracts (cash flow hedges)	$	4.3	$	3.4	$	(0.4	)	$	(1.4	)
Interest rate swaps (fair value hedges)		—		—		—			(1.0	)
Interest rate and currency swaps (cash flow hedges)		17.8		—		—			—
Derivatives not designated as hedging instruments:
Foreign currency forward contracts		41.3		7.1		(67.6	)		(49.1	)
Total	$	63.4	$	10.5	$	(68.0	)	$	(51.5	)

⁽¹⁾ Asset derivatives are included in other assets and liability derivatives are included in other liabilities.

The following table details the effect of our derivative instruments on our consolidated statements of operations.

	Amount of Gain (Loss) Recognized in
	Earnings on Derivatives
	Year Ended December 31,
(In millions)	2014			2013			2012
Derivatives designated as hedging instruments:
Foreign currency forward contracts (cash flow hedges)(1)	$	1.9		$	2.7		$	(0.1	)
Interest rate and currency swaps (cash flow hedges)(2)		13.5			—			—
Treasury locks (cash flow hedges)(3)		0.1			0.1			1.7
Sub-total cash flow hedges		15.5			2.8			1.6
Interest rate swaps (fair value hedges)		1.8			—			1.0
Derivatives not designated as hedging instruments:
Foreign currency forward contracts		(15.2	)		(8.5	)		4.6
Total	$	2.1		$	(5.7	)	$	7.2

⁽¹⁾ Amounts recognized on the foreign currency forward contracts were included in other income (expense), net.

— Amounts recognized on the interest rate and currency swaps included a $16.5 million gain which offset a loss on the remeasurement of the hedged debt, which is included in other income (expense), net and interest expense of $3 million related to the hedge of the interest payments.

⁽²⁾ Amounts recognized on the treasury locks were included in interest expense.