Financial Instruments

12 Months Ended

Dec. 31, 2013

Financial Instruments [Abstract]

Financial Instruments Disclosure

FINANCIAL INSTRUMENTS

The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. As described below, the Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. At December 31, 2013, the interest payments associated with 73% of the Company's debt are fixed obligations. The amount of the Company's fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreement and the level and composition of its debt. The Company also enters into foreign currency forward contracts to limit the Company's exposure to currency fluctuations on the respective hedged items. For additional disclosures on the fair value of financial instruments, see Note 6 to the consolidated financial statements.

Cash Flow Hedge

The Company has an interest rate swap agreement, designated as a cash flow hedge. The agreement is a forward-starting swap which had the effect of changing the floating rate LIBOR-based interest payments associated with $100 million in forecasted borrowings under the Company’s credit facility to a fixed obligation of 3.24% beginning in October 2010. The swap is recorded at fair value in other non-current liabilities in the consolidated balance sheet at December 31, 2013 and 2012 of $5.3 million and $8.2 million, respectively. The amounts recognized in other comprehensive income (loss) during the years ended December 31, 2013 and 2012 were a loss of $0.2 million, $0.1 million net of tax, and a loss of $2.0 million, $1.3 million net of tax, respectively. The effective portion of the loss reclassified from accumulated other comprehensive income (loss) to interest expense was $3.1 million, $1.9 million after tax, for the year ended December 31, 2013 and $3.0 million, $1.9 million after tax for the year ended December 31, 2012, respectively. A derivative loss of $3.0 million, $1.9 million after tax, based upon interest rates on December 31, 2013 is expected to be recognized in earnings in the next twelve months. Through December 31, 2013, the hedge ineffectiveness related to this instrument was not material.

In June 2013, the Company entered into a forward starting interest rate swap agreement, designated as a cash flow hedge. The agreement will change the floating rate LIBOR-based interest payments associated with $50 million in forecasted borrowings under the Company's credit agreement to a fixed obligation of 2.52% beginning in October 2015. The swap is recorded in other non-current assets in the consolidated balance sheet at its fair value at December 31, 2013 of $1.3 million. The amount recognized in other comprehensive income (loss) during the year ended December 31, 2013 was a gain of $1.3 million, $0.8 million after tax.

In July 2012, the Company began entering into foreign currency forward contracts, designated as cash flow hedges, to hedge certain forecasted intercompany sales denominated in euro with its Swiss-based business. The notional amount of foreign currency forward contracts outstanding at December 31, 2013 and 2012 was $78.2 million and $78.0 million, respectively. The foreign currency forward contracts are recorded gross at their fair value in the consolidated balance sheet at December 31, 2013 in other current assets of $0.3 million and in accrued and other liabilities of $0.1 million, respectively. At December 31, 2012, the foreign currency forward contracts are recorded gross at their fair value in the consolidated balance sheet in accrued and other liabilities of $0.4 million. The Company records the effective portion of the cash flow derivative hedging gains and losses in accumulated other comprehensive income (loss), net of tax and reclassifies these amounts into earnings in the period in which the transactions affect earnings. The amounts recognized in other comprehensive income (loss) during the year ended December 31, 2013 and 2012 were losses of $1.4 million, $1.1 million after tax, and $0.6 million, $0.5 million after tax. The effective portion of the loss reclassified from accumulated other comprehensive income (loss) to cost of sales was $2.0 million, $1.6 million after tax, for the year ended December 31, 2013 and $0.2 million, $0.2 million after tax, for the year ended December 31, 2012, respectively. A derivative gain of $0.2 million, $0.1 million after tax, as of December 31, 2013, is expected to be recognized in earnings in the next twelve months. Through December 31, 2013 no hedge ineffectiveness has occurred in relation to this hedge.

Other Derivatives

The Company enters into foreign currency forward contracts in order to economically hedge short-term intercompany balances largely denominated in Swiss franc and other major European currencies with its foreign businesses. In accordance with U.S. GAAP, these contracts are considered “derivatives not designated as hedging instruments.” Gains or losses on these instruments are reported in current earnings. The foreign currency forward contracts were reported at their fair value in the consolidated balance sheet at December 31, 2013 and 2012 in other current assets of $0.7 million and $0.4 million, respectively, and other liabilities of $0.4 million and $0.3 million, respectively. The Company recognized in other charges (income), a net gain of $2.1 million during the year ended December 31, 2013. At December 31, 2013 and 2012, these contracts had a notional value of $180.3 million and $132.3 million, respectively.

The Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts. Counterparties are established banks and financial institutions with high credit ratings. The Company believes that such counterparties will be able to fully satisfy their obligations under these contracts.