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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 9 Months Ended
Sep. 30, 2015
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.

Derivatives and non-derivative instruments designated as accounting hedges:

Interest Rate Swaps

In the third quarter of 2014, the Company entered into interest rate swaps with a total notional amount of $250 million to convert the fixed interest rate on the 2010 Senior Notes to a floating interest rate based on the 3-month LIBOR. In the third quarter of 2014, the Company entered into interest rate swaps with a total notional amount of $250 million to convert the fixed interest rate on the remaining balance of the 2010 Senior Notes to a floating interest rate based on the 3-month LIBOR. The purpose of these hedges is to mitigate the risk associated with changes in the fair value of the 2010 Senior Notes, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is adjusted quarterly with a corresponding adjustment to the carrying value of the 2010 Senior Notes. The changes in the fair value of the hedges and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest income (expense), net, in the Company’s consolidated statement of operations.

In the third quarter of 2014, the Company entered into interest rate swaps with a total notional amount of $250 million to convert the fixed interest rate on a portion of the 2014 Senior Notes (5-year) to a floating interest rate based on the 3-month LIBOR. In the first quarter of 2015, the Company entered into interest rate swaps with a total notional amount of $200 million to convert the fixed interest rate on the remaining balance of the 2014 Senior Notes (5-year) to a floating interest rate based on the 3-month LIBOR. The purpose of these hedges is to mitigate the risk associated with changes in the fair value of the 2014 Senior Notes (5-year), thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is adjusted quarterly with a corresponding adjustment to the carrying value of the 2014 Senior Notes (5-year). The changes in the fair value of the hedges and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest income (expense), net, in the Company’s consolidated statement of operations.

The following table summarizes the impact to the statement of operations of the Company’s interest rate swaps designated as fair value hedges:

Amount of income/(expense) recognized in the consolidated statements of operations
Three Months EndedNine Months Ended
September 30,September 30,
Derivatives designated as fair value accounting hedgesLocation on Statement of Operations2015201420152014
Interest rate swaps Interest income(expense), net$3.9$7.8$11.5$8.3

Net investment hedges

The Company enters into foreign currency forward contracts that are designated as net investment hedges and additionally has designated €400 million of the 2015 Senior Notes as a net investment hedge. These hedges are intended to mitigate FX exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. These net investment hedges are designated as accounting hedges under the applicable sections of Topic 815 of the ASC.

Hedge effectiveness is assessed based on the overall changes in the fair value of the hedge. For hedges that meet the effectiveness requirements, any change in the fair value and any realized gains and losses for the hedge are recorded in AOCI in the foreign currency translation account. Any change in the fair value of these hedges that is the result of ineffectiveness is recognized immediately in other non-operating (expense) income in the Company’s consolidated statement of operations.

The following table summarizes the notional amounts of the Company’s outstanding net investment hedges:

September 30,December 31,
20152014
Notional amount of net investment hedges:
Long-term debt designated as net investment hedge€400.0€-
Contracts to sell euros for USD€-€50.0
Contracts to sell GBP for euros£20.4£-
Contracts to sell Japanese yen for USD￥19,400￥19,400

The outstanding contracts to sell Japanese yen for USD expire in November 2015. The outstanding contracts to sell GBP for euros expire in December 2015. The hedge relating to the portion of the 2015 Senior Notes that was designated as a net investment hedge will end upon the repayment of the notes in 2027 unless terminated earlier at the discretion of the Company.

The following table provides information on the gains/(losses) on the Company’s net investment hedges:

Derivatives in Net Investment Hedging RelationshipsAmount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion)
Three Months Ended
September 30,
20152014
FX forwards$(0.7)$12.1
Long-term debt(0.6)-
Total$(1.3)$12.1
Nine Months Ended
September 30,
20152014
FX forwards$12.7$8.4
Long-term debt(2.7)-
Total$10.0$8.4

The cumulative amount of realized and unrecognized net investment hedge gains recorded in AOCI is as follows:

Gains/(Losses), net of tax
September 30,December 31,
20152014
FX forwards $33.6$20.9
Long-term debt (2.7)-
Total gains on net investment hedges$30.9$20.9

Derivatives not designated as accounting hedges:

Foreign exchange forwards

The Company also enters into foreign exchange forwards to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary’s functional currency. These forward contracts are not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating (expense) income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the subsidiary’s functional currency. These contracts have expiration dates at various times through December 2015.

The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:

September 30,December 31,
20152014
Notional amount of currency pair:
Contracts to purchase USD with euros$-$38.5
Contracts to sell USD for euros$48.3$51.5
Contracts to purchase USD with GBP$-$0.2
Contracts to purchase USD with other foreign currencies$-$1.2
Contracts to purchase euros with other foreign currencies€36.0€34.0
Contracts to purchase euros with GBP€-€25.0
Contracts to sell euros for GBP€27.3€38.2

Cross-currency swaps

In conjunction with the issuance of the 2015 Senior Notes, the Company entered into a cross-currency swap to exchange €100 million for U.S. dollars on the date of the settlement of the notes.  The purpose of this cross-currency swap is to mitigate FX risk on the remaining principal balance on the 2015 Senior Notes that was not designated as a net investment hedge as more fully discussed above.   The Company has not designated these cross-currency swaps as accounting hedges.  Accordingly, changes in fair value on these swaps is recognized immediately in other non-operating (expense), income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the €100 million principal of the 2015 Senior Notes that was not designated as a net investment hedge. Under the terms of the swap, the Company will pay the counterparty interest on the $110.5 million received at 3.945% per annum and the counterparty will pay the Company interest on the €100 million paid at 1.75% per annum.  These interest payments will be settled in March of each year, beginning in 2016, until either the maturity of the cross-currency swap in 2027 or upon early termination at the discretion of the Company.  The principal payments on this cross currency swap will be settled in 2027, concurrent with the repayment of the 2015 Senior Notes at maturity or upon early termination at the discretion of the Company.

The following table summarizes the impact to the consolidated statements of operations relating to the net gain (loss) on the Company’s derivatives which are not designated as hedging instruments:

Three Months Ended
September 30,
Derivatives not designated as accounting hedgesLocation on Statement of Operations20152014
Cross-currency swapOther non-operating income (expense), net$(1.7)$-
Foreign exchange forwardsOther non-operating income (expense), net0.6(4.8)
Total$(1.1)$(4.8)
Nine Months Ended
September 30,
Derivatives not designated as accounting hedgesLocation on Statement of Operations20152014
Cross-currency swapOther non-operating income (expense), net$(7.0)$-
Foreign exchange forwardsOther non-operating income (expense), net(1.3)(3.9)
Total$(8.3)$(3.9)

The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of the derivative instrument as well as the carrying value of its nonderivative debt instruments designated and qualifying as net investment hedges:

Derivative Instruments
Balance Sheet LocationSeptember 30, 2015December 31, 2014
Assets:
Derivatives designated as accounting hedges:
FX forwards on net investment in certain foreign subsidiariesOther current assets$17.7$18.8
Interest rate swapsOther assets25.517.4
Total derivatives designated as accounting hedges43.236.2
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilitiesOther current assets1.75.6
Total assets$44.9$41.8
Liabilities:
Non-derivative instrument designated as accounting hedge:
Long-term debt designated as net investment hedgeLong-term debt$446.5$-
Derivatives not designated as accounting hedges:
Cross-currency swapOther non-current liabilities5.6-
FX forwards on certain assets and liabilitiesAccounts payable and accrued liabilities1.02.1
Total liabilities$453.1$2.1