Derivative Financial Instruments

12 Months Ended

Dec. 31, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 12 — Derivative Financial Instruments

Interest Rate Swap Agreements

As of December 31, 2016, the Company had two agreements to swap $50 million of floating rate obligations for fixed rate obligations at an average of 0.878% and 1.087% against LIBOR in U.S. dollars. Of the total of $100 million of swaps outstanding at December 31, 2016, $50 million matures on each of March 2017 and September 2019. Each of the swaps was accounted for as a cash flow hedge 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 an asset of $0.7 million at December 31, 2016 and a liability of $0.1 million  at December 31, 2015.

In December 2016 we swapped €25.0 million of floating rate obligations for fixed rate obligations at a rate of 0.365% against EURIBOR in Euros.  The swap amortizes over seven equal annual installments beginning June 30, 2017 until the final maturity on June 30, 2023.  The derivative is accounted for as a cash flow hedge of the floating rate French term loan.  To ensure the swap is highly effective, all the principal terms of the swap matched the terms of the bank loan.  The fair value of the interest rate swap was a liability of $0.1 million at December 31, 2016.

The Company also uses treasury locks to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. On September 22, 2016, the Company entered into an interest rate treasury lock agreement with a notional value of $150 million for a forecasted 2017 debt issuance, in order to increase available debt capacity and for general corporate purposes.  We account for this interest rate treasury lock as a cash flow hedge so any change in fair value is recorded into other comprehensive income and then amortized into interest expense over the life of the debt upon issuance. As of December 31, 2016, the fair value of this the treasury lock was $10.3 million pre-tax and is recorded in current assets and other comprehensive income, net of tax. The interest rate lock had no impact on net income or cash flows from operations for the year ended December 31, 2016.

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 June 2019. The aggregate notional amount of these contracts was $423.8 million and $417.5 million at December 31, 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 was a loss of $32.2 million; $26.7 million and $18.4 million, for the years ended December 31, 2016, 2015 and 2014, respectively, and are recorded in other comprehensive income . At December 31, 2016, $33.9 million of the carrying amount of these contracts was classified in other liabilities on the consolidated balance sheets and $0.9 million in other assets and $22.1 million classified in other liabilities at December 31, 2015. During the years ended December 31, 2016, 2015 and 2014, we recognized a net loss of $19.4 million, a net loss of $17.8 million and a net gain of $4.6 million, respectively, recorded in sales. For the three years ended December 31, 2016, 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 years ended December 31, 2016, 2015 and 2014, we recognized net foreign exchange losses of $0.9 million, $14.9 million, and $16.3 million, respectively, in the consolidated statements of operations. The carrying amount of the contracts for asset and liability derivatives not designated as hedging instruments was $1.0 million classified in other assets and $0.3 million in other liabilities and $0.4 million classified in other assets and $0.4 million in other liabilities on the December 31, 2016 and 2015 consolidated balance sheets, respectively.

The activity, net of tax, in “accumulated other comprehensive loss related to foreign currency forward exchange contracts for the years ended December 31, 2016, 2015 and 2014 was as follows:

(In millions)	2016			2015			2014
Unrealized (losses) gains at beginning of period, net of tax	$	(15.0	)	$	(9.2	)	$	7.2
Losses (gains) reclassified to net sales		14.4			11.8			(3.2	)
Decrease in fair value		(25.3	)		(17.6	)		(13.2	)
Unrealized losses at end of period, net of taxes	$	(25.9	)	$	(15.0	)	$	(9.2	)

Unrealized losses of $18.7 million recorded in “accumulated other comprehensive income,” net of tax of $3.3 million, as of December 31, 2016 are expected to be reclassified into earnings over the next twelve months as the hedged sales are recorded. The impact of credit risk adjustments was immaterial for the three years.