Derivative Financial Instruments

6 Months Ended

Jun. 30, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 6 — Derivative Financial Instruments

Interest Rate Swap Agreements

As of June 30, 2016 the Company had two agreements to swap $50 million each of floating rate obligations for fixed rate obligations at an average of 1.03% and 0.89% against LIBOR in U.S. dollars. Of the total of $100 million of swaps outstanding at June 30, 2016, $50 million matures on each of 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 of the principal terms of the swaps matched the terms of the bank loans. The fair value of interest rate swaps was a liability of $0.1 million at June 30, 2016 and December 31, 2015.

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 December 2018, which we account for as cash flow hedges.  The aggregate notional amount of these contracts was $415.8 million and $417.5 million at June 30, 2016 and December 31, 2015, 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 $15.1 million and $9.3 million, respectively, were recorded in other comprehensive income (“OCI”) for the three and six months ended June 30, 2016, and gains of $7.6 million and losses of $16.0 million for the three and six months ended June 30, 2015.  We classified the carrying amount of these contracts of $1.2 million in other assets and $23.0 million in other liabilities on the Condensed Consolidated Balance Sheets at June 30, 2016 and $0.9 million in other assets and $22.1 million classified in other liabilities at December 31, 2015.  During the three and six months ended June 30, 2016, we recognized net losses of $3.4 million and $8.5 million in gross margin, respectively. During the three and six months ended June 30, 2015, we recognized net losses of $5.2 million and $8.8 million in gross margin, respectively. For the quarters ended June 30, 2016 and 2015, 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 June 30, 2016 and 2015, we recognized net foreign exchange losses of $1.6 million and net foreign exchange gains of $2.5 million, respectively, in the Condensed Consolidated Statements of Operations. During the six months ended June 30, 2016 and 2015, we recognized net foreign exchange gains of $2.7 million and $2.5 million, respectively, in the Condensed Consolidated Statements of Operations. 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 $0.1 million classified in other assets and $1.4 million in other liabilities and $0.4 million classified in other assets and $0.4 million in other liabilities on the June 30, 2016 and December 31, 2015 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 ended June 30, 2016 and 2015 was as follows:

	Quarter Ended June 30,						Six Months Ended June 30,
(In millions)	2016			2015			2016			2015
Unrealized losses at beginning of period, net of tax	$	(5.7	)	$	(25.2	)	$	(15.0	)	$	(9.2	)
Losses reclassified to net sales		1.7			4.7			6.1			7.4
(Decrease) increase in fair value		(12.5	)		5.3			(7.6	)		(13.4	)
Unrealized losses at end of period, net of taxes	$	(16.5	)	$	(15.2	)	$	(16.5	)	$	(15.2	)

We expect to reclassify $10.6 million of unrealized losses into earnings over the next twelve months as the hedged sales are recorded.