Derivative Financial Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 6 — Derivative Financial Instruments

Interest Rate Swap Agreements

As of September 30, 2015 the Company had two agreements to swap $75 million of floating rate obligations for fixed rate obligations at an average of 0.959% and 0.754% against LIBOR in U.S. dollars. Of the total of $150 million of swaps outstanding at September 30, 2015, $50 million matures each of March 2016, September 2016, and March 2017. All of the swaps were accounted for as cash flow hedges of our floating rate bank loans. To ensure the swaps were highly effective, all the principal terms of the swaps matched the terms of the bank loans. The fair value of the interest rate swaps was a liability of $0.5 million at September 30, 2015 and an asset of $0.1 million and a liability of $0.3 million at December 31, 2014.

Foreign Currency Forward Exchange Contracts

A number of our European subsidiaries are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries’ functional currencies, being either the Euro or the British Pound sterling.  We entered into contracts to exchange U.S. dollars for Euros and British Pound sterling through March 2018, which we account for as cash flow hedges.  The aggregate notional amount of these contracts was $375.7 million and $255.8 million at September 30, 2015 and December 31, 2014, respectively.  The purpose of these contracts is to hedge a portion of the forecasted transactions of European subsidiaries under long-term sales contracts with certain customers.  These contracts are expected to provide us with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing our exposure to fluctuations in currency exchange rates.  The effective portion of the hedges, losses of $0.3 million and losses of $16.3 million, were recorded in other comprehensive income (“OCI”) for the three months and nine months ended September 30, 2015, respectively, and losses of $10.8 million and $9.0 million for the three and nine-month periods ended September 30, 2014, respectively.  We classified the carrying amount of these contracts of $2.2 million in other assets and $17.8 million in other liabilities on the Condensed Consolidated Balance Sheets at September 30, 2015 and $0.3 million in other assets and $12.7 million classified in other liabilities at December 31, 2014.  During the three months ended September 30, 2015 and 2014, we recognized net losses of $4.2 million and net gains of $1.6 million, respectively, recorded in gross margin.  During the nine months ended September 30, 2015 and 2014, we recognized net losses of $13.0 million and net gains of $5.0 million, respectively, recorded in gross margin.  For the quarters ended September 30, 2015 and 2014, hedge ineffectiveness was immaterial.

In addition, we enter into foreign exchange forward contracts which are not designated as hedges.  These are used to provide an offset to transactional gains or losses arising from the remeasurement of non-functional monetary assets and liabilities such as accounts receivable.  The change in the fair value of the derivatives is recorded in the statement of operations.  There are no credit contingency features in these derivatives.  During the quarters ended September 30, 2015 and 2014, we recognized net foreign exchange gains of $1.5 million and net foreign exchange losses of $8.2 million, respectively, in the Condensed Consolidated Statements of Operations.  During the nine-month periods ended September 30, 2015 and 2014, we recognized net foreign exchange losses of $12.5 million and $7.9 million, respectively, in the Condensed Consolidated Statements of Operations in gross margin. The net foreign exchange impact recognized from these hedges offset the translation exposure of these transactions.  The carrying amount of the contracts for asset and liability derivatives not designated as hedging instruments was $1.8 million classified in other assets and less than $0.1 million in other liabilities and $0.8 million classified in other assets and $5.5 million in other liabilities on the September 30, 2015 and December 31, 2014 Condensed Consolidated Balance Sheets, respectively.

The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive income for the quarters and nine months ended September 30, 2015 and 2014 was as follows:

	Quarter Ended September 30,						Nine Months Ended September 30,
(In millions)	2015			2014			2015			2014
Unrealized (losses) gains at beginning of period, net of tax	$	(25.2	)	$	6.1		$	(9.2	)	$	7.2
Losses (gains) reclassified to net sales		4.6			(1.2	)		7.4			(3.5	)
Increase (decrease) in fair value		5.3			(7.4	)		(13.5	)		(6.2	)
Unrealized (losses) gains at end of period, net of taxes	$	(15.3	)	$	(2.5	)	$	(15.3	)	$	(2.5	)

We expect to reclassify $9.0 million of unrealized losses into earnings over the next twelve months as the hedged sales are recorded.

Commodity Hedging

Beginning in 2015, we began a program to reduce the impact of the purchase price variability of a key raw material. The purpose of these contracts is to hedge a portion of the forecasted purchases thereby reducing our exposure to the impact of price variations.  The effective portion of these hedges was recorded in OCI for the three and nine-month periods ending September 30, 2015.  For the three and nine-month periods ended September 30, 2015, the impact of these hedges on our financial statements was immaterial. We classified the carrying amount of these contracts of $0.8 million in other liabilities on the Condensed Consolidated Balance Sheets at September 30, 2015.