Derivative Financial Instruments

9 Months Ended

Sep. 30, 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 September 30, 2014, we have a $39.8 million forward-start interest rate swap outstanding that hedges the variability in cash flows due to changes in the applicable interest rate of our variable-rate five-year term loan related to the purchase of our corporate office and research building. 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 September 30, 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 September 30, 2014, there were three monthly contracts outstanding at ¥95.0 million ($0.9 million) each, for an aggregate notional amount of ¥285.0 million ($2.7 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 September 30, 2014, there were three monthly contracts outstanding at a monthly amount ranging from $1.4 million to $2.7 million, for an aggregate notional amount of $6.6 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 September 30, 2014, there were three monthly contracts outstanding at $1.5 million each, for an aggregate notional amount of $4.5 million.

At September 30, 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 ($77.5 million) Euro note B and our €21.0 million ($26.6 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 gain of $3.1 million pre-tax ($1.9 million after tax) on this debt was recorded within accumulated other comprehensive loss as of September 30, 2014. We have also designated our ¥500.0 million ($4.6 million) Yen-denominated borrowings under our multi-currency revolving credit facility as a hedge of our net investment in Daikyo. At September 30, 2014, there was a cumulative foreign currency translation gain on this Yen-denominated debt of $0.8 million pre-tax ($0.5 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 (Gain) Loss Reclassified from Accumulated OCI into Income for					Location of (Gain) Loss Reclassified from Accumulated OCI into Income
	Three Months Ended September 30,					Three Months Ended September 30,
($ in millions)	2014		2013			2014			2013
Cash Flow Hedges:
Foreign currency hedge contracts	$	0.5	$	(0.2	)	$	(0.2	)	$	—	Net sales
Foreign currency hedge contracts	0.2		0.1			—			0.8		Cost of goods and services sold
Interest rate swap contracts	0.1		(0.2		)	0.4			0.4		Interest expense
Forward treasury locks	—		—			0.1			0.1		Interest expense
Total	$	0.8	$	(0.3	)	$	0.3		$	1.3
Net Investment Hedges:
Foreign currency-denominated debt	$	5.1	$	(2.5	)	$	—		$	—	Other expense (income)
Total	$	5.1	$	(2.5	)	$	—		$	—

	Amount of Gain (Loss) Recognized in OCI for						Amount of (Gain) Loss Reclassified from Accumulated OCI into Income for					Location of (Gain) Loss Reclassified from Accumulated OCI into Income
	Nine Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2014			2013			2014			2013
Cash Flow Hedges:
Foreign currency hedge contracts	$	0.4		$	(2.6	)	$	(0.1	)	$	—	Net sales
Foreign currency hedge contracts	0.3			—			—			2.3		Cost of goods and services sold
Interest rate swap contracts	(0.2		)	0.3			1.2			1.2		Interest expense
Forward treasury locks	—			—			0.2			0.2		Interest expense
Total	$	0.5		$	(2.3	)	$	1.3		$	3.7
Net Investment Hedges:
Foreign currency-denominated debt	$	5.6		$	(1.1	)	$	—		$	—	Other expense (income)
Total	$	5.6		$	(1.1	)	$	—		$	—

For the three and nine months ended September 30, 2014 and 2013, there was no material ineffectiveness related to our hedges.