Financial Instruments

3 Months Ended

Mar. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS

As more fully described below, the Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. The amount of the Company’s fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreements 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. The Company does not use derivative financial instruments for trading purposes. For additional disclosures on the fair value of financial instruments, also see Note 4 to the interim 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 gross in other non-current liabilities in the consolidated balance sheet at its fair value at March 31, 2014 and December 31, 2013 of $4.7 million and $5.3 million, respectively. The amount recognized in other comprehensive income (loss) during both the three month periods ended March 31, 2014 and 2013 was a loss of $0.1 million. The effective portion of the loss reclassified from accumulated other comprehensive income (loss) to interest expense was $0.8 million ($0.5 million after tax) for both the three months ended March 31, 2014 and 2013, respectively. A derivative loss of $3.1 million based upon interest rates at March 31, 2014, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through March 31, 2014, 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 March 31, 2014 and December 31, 2013 of $0.6 million and $1.3 million, respectively. The amount recognized in other comprehensive income (loss) during the three month period ended March 31, 2014 was a loss of $0.7 million ($0.4 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 both March 31, 2014 and December 31, 2013 was $78.2 million. The foreign currency forward contracts are recorded at their fair value in the consolidated balance sheet at March 31, 2014 in other current assets of $0.5 million. At December 31, 2013, the foreign currency forward contracts are recorded gross at their fair value in the consolidated balance in other current assets of $0.3 million and in accrued and other liabilities of $0.1 million, respectively. 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 amount recognized in other comprehensive income (loss) during the three months period ended March 31, 2014 and 2013 was a gain of $0.3 million ($0.2 million after tax) and a loss of $0.8 million ($0.6 million after tax), respectively. The effective portion reclassified from accumulated other comprehensive income (loss) to cost of sales was an immaterial gain for the three months ended March 31, 2014 and a loss of $0.5 million ($0.4 million after tax) for the three months ended March 31, 2013, respectively. A derivative gain of $0.5 million as of March 31, 2014 is expected to be recognized in earnings in the next twelve months. Through March 31, 2014 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 gross at their fair value in the consolidated balance sheet at March 31, 2014 and December 31, 2013 in other current assets of $0.2 million and $0.7 million, respectively, and other liabilities of $0.8 million and $0.4 million, respectively. The Company recognized in other charges (income), net a loss of $0.2 million and $2.2 million, during the three month periods ended March 31, 2014 and 2013, respectively. At March 31, 2014 and December 31, 2013, these contracts had a notional value of $173.9 million and $180.3 million, respectively.