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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 12 Months Ended
Dec. 31, 2016
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 5 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

The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt 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 long-term debt, 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 debt. The changes in the fair value of the swaps and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest expense, net in the Company’s consolidated statement of operations.

The following table summarizes the Company’s interest rate swaps designated as fair value hedges:

Hedged ItemNature of SwapNotional AmountAs of December 31,Floating Interest Rate
20162015
$500M fixed-rate 2010 Senior Notes due 2020Pay Floating/Receive Fixed$500.0$500.03-month LIBOR
$450M fixed-rate 2014 Senior Notes due 2019Pay Floating/Receive Fixed$450.0$450.03-month LIBOR
$500M fixed-rate 2012 Senior Notes due 2022Pay Floating/Receive Fixed$80.0$3-month LIBOR

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 Recognized in the Consolidated Statements of Operations
Year Ended December 31,
Derivatives Designated as Fair Value Accounting HedgesLocation on Consolidated Statement of Operations201620152014
Interest rate swaps Interest expense, net$11.2$15.2$11.7

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 below. 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. In March 2016, the Company designated these cross-currency swaps as cash flow hedges. Accordingly, changes in fair value subsequent to the date the swaps were designated as cash flow hedges will initially be recognized in OCI. Gains and losses on the swaps initially recognized in OCI will be reclassified to the statement of operations in the period in which changes in the underlying hedged item affects net income. Ineffectiveness, if any, will be recognized in other non-operating (expense) income, net in the Company’s consolidated statement of operations.

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 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, net in the Company’s consolidated statement of operations.

The following table summarizes the notional amounts of the Company’s outstanding

December 31,December 31,
20162015
Notional amount of net investment hedges:SellBuySellBuy
Contracts to sell GBP for euros£22.1€26.4£21.2€29.1
Contracts to sell Japanese yen for USD¥-$-¥19,400.0$161.8

The outstanding contracts to sell GBP for euros mature in June 2017. 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 and cash flow hedges:

Amount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion), net of TaxAmount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion),net of tax
Derivatives and Non-Derivative Instruments in Net Investment Hedging RelationshipsYear Ended December 31,Year Ended December 31,
201620152014201620152014
FX forwards$(12.0)$13.4$19.4$-$-$-
Long-term debt7.84.7----
Total net investment hedges$(4.2)$18.1$19.4$-$-$-
Year Ended December 31,Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships
201620152014201620152014
Cross currency swap$(0.9)$-$-$(3.7)*$-$-
Treasury rate lock-(1.1)----
Total cash flow hedges(0.9)(1.1)-(3.7)--
Total $(5.1)$17.0$19.4Total $(3.7)$-$-
* Reflects $6 million in losses recorded in other non-operating income, net and $2.3 million relating to the tax effect of the aforementioned item.

The cumulative amount of realized and unrecognized net investment and cash flow hedge gains/(losses) recorded in AOCI is as follows:

Cumulative Gains/(Losses), net of tax
December 31,December 31,
20162015
Net investment hedges
FX forwards$22.3$34.3
Long-term debt 12.54.7
Total net investment hedges$34.8$39.0
Cash flow hedges
Treasury rate lock(1.1)(1.1)
Cross currency swap2.8-
Total losses on cash flow hedges1.7(1.1)
Total net gains in AOCI$36.5$37.9

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 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 June 2017.

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

December 31,December 31,
20162015
Notional Amount of Currency Pair:SellBuySellBuy
Contracts to sell USD for euros$-€-$70.1€63.4
Contracts to purchase euros with Singapore dollarsS$55.5€36.0S$55.2€35.5
Contracts to sell euros for Singapore dollars€-S$-€1.4S$2.2
Contracts to sell euros for GBP€31.0£25.9€23.1£16.7
NOTE: € = Euro, £ = British pound, S$ = Singapore dollar, $ = U.S. dollar

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

Year Ended December 31,
Derivatives Not Designated as Accounting HedgesLocation on Statement of Operations201620152014
Foreign exchange forwardsOther non-operating income, net$(7.2)$(2.8)$(2.0)

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 non-derivative debt instruments designated and qualifying as net investment hedges:

Derivative and Non-derivative Instruments
Balance Sheet LocationDecember 31, 2016December 31, 2015
Assets:
Derivatives designated as accounting hedges:
FX forwards on net investment in certain foreign subsidiariesOther current assets$0.6$0.4
Interest rate swapsOther assets7.012.1
Total derivatives designated as accounting hedges7.612.5
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilitiesOther current assets-0.1
Total assets$7.6$12.6
Liabilities:
Derivatives designated as accounting hedges:
FX forwards on net investment in certain foreign subsidiariesAccounts payable and accrued liabilities$-$1.2
Interest rate swapsOther non-current liabilities0.80.3
Total derivatives designated as accounting hedges0.81.5
Non-derivative instrument designated as accounting hedge:
Long-term debt designated as net investment hedgeLong-term debt421.9434.5
Derivatives not designated as accounting hedges:
Cross-currency swapOther non-current liabilities3.87.0
FX forwards on certain assets and liabilitiesAccounts payable and accrued liabilities0.81.9
Total liabilities$427.3$444.9