Financial Instruments

12 Months Ended

Dec. 31, 2014

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, 2014, the interest payments associated with 94% 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.

Cash Flow Hedges

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 and average forward rate of foreign currency forward contracts outstanding at December 31, 2014 and 2013 were $87 million (Euro 72 million) and 1.21 for contracts that mature in 2015 and $78 million (Euro 57 million) and 1.23 for contracts that matured in 2014, respectively. In January 2015 we increased the notional amount of the Company's cash flow hedges to a total notional value and average forward rate of Euro 86 million and 1.21 for contracts that mature in 2015, and Euro 67 million and 1.19 for contracts that mature in 2016, prior to the Swiss National Bank's abandonment of its previously established exchange rate floor of 1.20 Swiss francs per euro.

The Company has an interest rate swap agreement designated as a cash flow hedge. The agreement is a forward-starting swap which has 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.

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 cash flow hedges are recorded gross at fair value in the consolidated balance sheet at December 31, 2014 and 2013, respectively, and disclosed in Note 5 to the consolidated financial statements. Amounts reclassified into other comprehensive income and the effective portions of the cash flow hedges are further disclosed in Note 9 to the consolidated financial statements. A derivative loss of $1.2 million based upon interest rates and foreign currency rates at December 31, 2014, is expected to be reclassified from other comprehensive income (loss) to earnings in the next 12 months. Through December 31, 2014, no hedge ineffectiveness has occurred in relation to the cash flow hedges.

Other Derivatives

The Company enters into foreign currency forward contracts in order to economically hedge short-term intercompany balances largely denominated in Swiss franc, other major European currencies, and the Chinese Renminbi 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 are recorded at fair value in the consolidated balance sheet at December 31, 2014 and 2013, respectively, disclosed in Note 5 to the consolidated financial statements. The Company recognized in other charges (income), a net loss of $3.5 million during the year ended December 31, 2014. At December 31, 2014 and 2013, these contracts had a notional value of $325.4 million and $180.3 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.