Derivative Financial Instruments

3 Months Ended

Mar. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Our ongoing business operations expose us to various risks such as fluctuating interest rates, foreign exchange rates and increasing commodity prices. To manage these market risks, we periodically enter into derivative financial instruments such as interest rate swaps, options and foreign exchange contracts for periods consistent with and for notional amounts equal to or less than the related underlying exposures. We do not purchase or hold any derivative financial instruments for speculation or trading purposes. All derivatives are recorded on the balance sheet at fair value.

Interest Rate Risk

At March 31, 2014, we had $40.8 million of outstanding borrowings under our variable-rate five-year term loan related to the purchase of our new corporate office and research building. In anticipation of this debt, we entered into a forward-start interest rate swap to hedge the variability in cash flows due to changes in the applicable interest rate over the stated period. Under this swap, we receive variable interest rate payments based on one-month London Interbank Offering Rates (“LIBOR”) plus a margin in return for making monthly fixed interest payments at 5.41%. We designated this swap as a cash flow hedge.

In addition, we have a $25.0 million interest rate swap agreement outstanding as of March 31, 2014, that is designated as a cash flow hedge to protect against volatility in the interest rates on our floating rate notes maturing on July 28, 2015 (“Series B Notes”). Under this swap, we receive variable interest rate payments based on three-month LIBOR in return for making quarterly fixed rate payments. Including the applicable margin, the interest rate swap agreement effectively fixes the interest rate payable on the Series B Notes at 5.51%.

Foreign Exchange Rate Risk

During 2014, we entered into several foreign currency hedge contracts that were designated as cash flow hedges of forecasted transactions denominated in foreign currencies, which are described in more detail below.

We entered into a series of foreign currency contracts intended to hedge the currency risk associated with a portion of our forecasted Yen-denominated purchases of inventory from Daikyo Seiko Ltd. (“Daikyo”) made by West in the United States. As of March 31, 2014, there were nine monthly contracts outstanding at ¥95.0 million ($0.9 million) each, for an aggregate notional amount of ¥855.0 million ($8.2 million).

We also entered into a series of foreign currency contracts to hedge the currency risk associated with a portion of our forecasted USD-denominated inventory purchases made by certain European subsidiaries. As of March 31, 2014, there were nine monthly contracts outstanding at a monthly amount ranging from $1.4 million to $3.0 million, for an aggregate notional amount of $20.9 million.

Lastly, we entered into a series of foreign currency contracts to hedge the currency risk associated with a portion of our forecasted Euro-denominated sales of finished goods by one of our USD functional-currency subsidiaries. As of March 31, 2014, there were nine monthly contracts outstanding at $1.5 million each, for an aggregate notional amount of $13.5 million.

At March 31, 2014, a portion of our debt consists of borrowings denominated in currencies other than the U.S. dollar. We have designated our €61.1 million ($84.0 million) Euro note B and our €21.0 million ($28.9 million) Euro-denominated borrowings under our multi-currency revolving credit facility as a hedge of our net investment in certain European subsidiaries. A cumulative foreign currency translation loss of $5.6 million pre-tax ($3.4 million after tax) on this debt was recorded within accumulated other comprehensive loss as of March 31, 2014. We have also designated our ¥500.0 million ($4.9 million) Yen-denominated borrowings under our multi-currency revolving credit facility as a hedge of our net investment in Daikyo. At March 31, 2014, there was a cumulative foreign currency translation gain on this Yen-denominated debt of $0.5 million pre-tax ($0.3 million after tax) which was also included within accumulated other comprehensive loss.

The following table summarizes the effects of derivative instruments designated as hedges on other comprehensive income (“OCI”) and earnings, net of tax:

	Amount of Gain (Loss) Recognized in OCI for						Amount of Loss Reclassified from Accumulated OCI into Income for				Location of Loss Reclassified from Accumulated OCI into Income
	Three Months Ended March 31,						Three Months Ended March 31,
($ in millions)	2014			2013			2014		2013
Cash Flow Hedges:
Foreign currency hedge contracts	$	(0.1	)	$	0.3		$	—	$	—	Net sales
Foreign currency hedge contracts	(0.1		)	(1.7		)	—		0.6		Cost of goods and services sold
Interest rate swap contracts	(0.1		)	0.1			0.4		0.4		Interest expense
Forward treasury locks	—			—			0.1		—		Interest expense
Total	$	(0.3	)	$	(1.3	)	$	0.5	$	1.0
Net Investment Hedges:
Foreign currency-denominated debt	$	—		$	2.4		$	—	$	—	Other expense
Total	$	—		$	2.4		$	—	$	—

For the three months ended March 31, 2014 and 2013, there was no ineffectiveness related to our hedges.