Financial Instruments and Derivative Financial Instruments

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Financial Instruments and Derivative Financial Instruments

Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The fair values of revolving credit agreements and long-term debt, excluding capital leases, were determined using current rates offered for similar obligations taking into account company credit risk. This valuation methodology is Level 2 as defined in the fair value hierarchy. At September 30, 2016, the fair value and book value of revolving credit agreements and long-term debt, excluding capital leases, was $127.8 million. At December 31, 2015, the fair value and book value of revolving credit agreements and long-term debt, excluding capital leases, was $32.1 million.

Derivative Financial Instruments

The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in non-functional currencies. The Company offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the unaudited condensed consolidated statements of operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and is also generally recognized in cost of sales.

Certain of the Company's forward foreign currency contracts were designated as net investment hedges of the Company's net investment in its foreign subsidiaries. For derivative instruments that were designated and qualified as a hedge of a net investment in foreign currency, the gain or loss was reported in other comprehensive income as part of the cumulative translation adjustment to the extent it was effective. The Company utilizes the forward-rate method of assessing hedge effectiveness. Any ineffective portion of net investment hedges would be recognized in the unaudited condensed consolidated statement of operations in the same period as the change.

The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company's exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are generally recognized in cost of sales. The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.

The Company has interest rate swap agreements that do not meet the criteria for hedge accounting. The terms of the interest rate swap agreements require the Company to receive a variable interest rate based upon the three-month LIBOR and pay a fixed interest rate. Changes in the fair value of interest rate swap agreements are immediately recognized in earnings and included on the line “Other” in the “Other (income) expense” section of the unaudited condensed consolidated statements of operations.

Cash flows from hedging activities are reported in the unaudited condensed consolidated statements of cash flows with the same classification as the hedged item, generally as a component of cash flows from operations.

The Company measures its derivatives at fair value on a recurring basis using significant observable inputs. This valuation methodology is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates yield curves and foreign currency spot rates to value its derivatives and also incorporates the effect of the Company's and its counterparties' credit risk into the valuation.

Foreign Currency Derivatives: The Company held forward foreign currency exchange contracts with total notional amounts of $591.7 million at September 30, 2016, primarily denominated in euros, U.S. dollars, Japanese yen, British pounds, Swedish kroner and Mexican pesos. The Company held forward foreign currency exchange contracts with total notional amounts of $634.7 million at December 31, 2015, primarily denominated in euros, U.S. dollars, Japanese yen, Swedish kroner, British pounds, Mexican pesos and Australian dollars. The fair value of these contracts approximated a net liability of $0.1 million and $8.8 million at September 30, 2016 and December 31, 2015, respectively.

Forward foreign currency exchange contracts that qualify for hedge accounting are generally used to hedge transactions expected to occur within the next 36 months. The mark-to-market effect of forward foreign currency exchange contracts that are considered effective as hedges has been included in OCI. Based on market valuations at September 30, 2016, $2.2 million of the amount included in OCI is expected to be reclassified as a gain into the unaudited condensed consolidated statement of operations over the next twelve months, as the transactions occur.

Interest Rate Derivatives: The Company held interest rate contracts with a total notional amount of $100.0 million at September 30, 2016. The fair value of interest rate swap agreements was a net liability of $1.3 million and $0.3 million at September 30, 2016 and December 31, 2015, respectively.

The following table summarizes the fair value of derivative instruments reflected on a gross basis by contract as recorded in the unaudited condensed consolidated balance sheets:

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	SEPTEMBER 30 2016		DECEMBER 31 2015		Balance Sheet Location	SEPTEMBER 30 2016		DECEMBER 31 2015
Derivatives designated as hedging instruments
Cash Flow Hedges
Foreign currency exchange contracts
Current	Prepaid expenses and other	$	6.7	$	2.5	Prepaid expenses and other	$	5.1	$	0.6
	Other current liabilities	0.9		3.2		Other current liabilities	0.3		10.9
Long-term	Other non-current assets	0.8		—		Other long-term liabilities	1.7		2.1
Total derivatives designated as hedging instruments		$	8.4	$	5.7		$	7.1	$	13.6
Derivatives not designated as hedging instruments
Cash Flow Hedges
Interest rate swap agreements
Current	Other current liabilities	$	—	$	—	Other current liabilities	$	0.5	$	0.6
Long-term	Other non-current assets	—		0.3		Other long-term liabilities	0.8		—
Foreign currency exchange contracts
Current	Prepaid expenses and other	0.6		1.1		Prepaid expenses and other	0.3		0.3
	Other current liabilities	1.2		1.9		Other current liabilities	2.9		3.6
Total derivatives not designated as hedging instruments		$	1.8	$	3.3		$	4.5	$	4.5
Total derivatives		$	10.2	$	9.0		$	11.6	$	18.1

The following table summarizes the offsetting of the fair value of derivative instruments on a gross basis by counterparty as recorded in the unaudited condensed consolidated balance sheets:

	Derivative Assets as of September 30, 2016									Derivative Liabilities as of September 30, 2016
	Gross Amounts of Recognized Assets		Gross Amounts Offset			Net Amounts Presented		Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset			Net Amounts Presented		Net Amount
Cash Flow Hedges
Interest rate swap agreements	$	—	$	—		$	—	$	—	$	1.3	$	—		$	1.3	$	1.3
Foreign currency exchange contracts	2.7		(2.7		)	—		—		2.8		(2.7		)	0.1		0.1
Total derivatives	$	2.7	$	(2.7	)	$	—	$	—	$	4.1	$	(2.7	)	$	1.4	$	1.4
	Derivative Assets as of December 31, 2015									Derivative Liabilities as of December 31, 2015
	Gross Amounts of Recognized Assets		Gross Amounts Offset			Net Amounts Presented		Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset			Net Amounts Presented		Net Amount
Cash Flow Hedges
Interest rate swap agreements	$	0.3	$	(0.3	)	$	—	$	—	$	0.6	$	(0.3	)	$	0.3	$	0.3
Foreign currency exchange contracts	2.7		(2.7		)	—		—		11.5		(2.7		)	8.8		8.8
Total derivatives	$	3.0	$	(3.0	)	$	—	$	—	$	12.1	$	(3.0	)	$	9.1	$	9.1

The following table summarizes the pre-tax impact of derivative instruments as recorded in the unaudited condensed consolidated statements of operations:

	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)											Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)												Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	THREE MONTHS ENDED						NINE MONTHS ENDED						THREE MONTHS ENDED						NINE MONTHS ENDED							THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30												SEPTEMBER 30													SEPTEMBER 30
Derivatives designated as hedging instruments	2016			2015			2016		2015				2016			2015			2016			2015				2016			2015			2016			2015
Cash Flow Hedges
Foreign currency exchange contracts	$	(0.7	)	$	(1.1	)	$	7.7	$	(4.1	)	Cost of sales	$	(0.9	)	$	(2.1	)	$	(1.8	)	$	(6.5	)	Cost of sales	$	(0.1	)	$	—		$	(0.2	)	$	—
Total	$	(0.7	)	$	(1.1	)	$	7.7	$	(4.1	)		$	(0.9	)	$	(2.1	)	$	(1.8	)	$	(6.5	)		$	(0.1	)	$	—		$	(0.2	)	$	—
																										Amount of Gain or (Loss) Recognized in Income on Derivative
																										THREE MONTHS ENDED						NINE MONTHS ENDED
																										SEPTEMBER 30
Derivatives Not Designated as Hedging Instruments																									Location of Gain or (Loss) Recognized in Income on Derivative	2016			2015			2016			2015
Cash Flow Hedges
Interest rate swap agreements																									Other	$	0.5		$	(1.0	)	$	(1.2	)	$	(1.6	)
Foreign currency exchange contracts																									Cost of sales	(0.2		)	2.7			0.3			2.4
Total																										$	0.3		$	1.7		$	(0.9	)	$	0.8