Derivatives

The use of financial instruments, including derivatives, exposes the Company to market risk related to changes in interest rates, foreign currency exchange rates and commodity prices. The Company primarily uses derivatives to manage its interest rate exposure, to achieve a desired proportion of variable and fixed-rate debt, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies, to manage changes in fair value resulting from changes in foreign currency exchange rates and to manage the risk associated with the volatility of future cash flows associated with changes in commodity prices. The Company does not use derivative instruments for speculative or trading purposes.

Fair Value Hedges-Interest Rate Swap Agreements

The Company generally enters into interest rate swap agreements related to existing debt obligations with initial maturities ranging from 5 to 10 years, although the Company may enter into interest rate swap agreements with respect to debt obligations with shorter or longer maturities. The Company’s interest rate swap agreements have the economic effect of modifying the fixed interest obligations associated with approximately $596.0 million of the medium-term notes so that the interest payable on these medium-term notes effectively became variable. The Company uses these interest rate swap agreements to manage its interest rate exposure and to achieve a desired proportion of variable and fixed-rate debt. The critical terms of the interest rate swap agreements match the critical terms of the medium-term notes that the interest rate swap agreements pertain to, including the notional amounts and maturity dates. These transactions are characterized as fair value hedges for accounting purposes because they protect the Company against changes in the fair values of certain fixed-rate borrowings due to benchmark interest rate movements. The changes in fair values of these interest rate swap agreements are recognized as interest expense in the Condensed Consolidated Statements of Operations with the corresponding amounts included in other assets or other noncurrent liabilities in the Condensed Consolidated Balance Sheets. The amount of net gain (loss) attributable to the risk being hedged is recognized as interest expense in the Condensed Consolidated Statements of Operations with the corresponding amount included in current portion of long-term debt and long-term debt. The periodic interest settlements for the interest rate swap agreements are recorded as interest expense and are included as a part of cash flows from operating activities.

Cash Flow Hedges-Forward-Starting Interest Rate Swaps

The Company also uses derivatives to hedge interest rates on anticipated issuances of medium-term and long-term notes. The Company generally uses these instruments to hedge interest rates on anticipated debt issuances occurring within one year or less of the inception date of the derivative, although the Company may use such instruments to hedge interest rates on anticipated issuances occurring beyond one year of the inception date of the derivative. The Company uses these instruments to reduce the volatility in future interest payments that would be made pursuant to the anticipated issuances of the notes. These derivatives are designated as cash flow hedges. The changes in fair values of these instruments are recognized in other comprehensive income (loss), and after the notes are issued and the derivative instruments are settled, the amount in other comprehensive income (loss) is amortized to interest expense in the Condensed Consolidated Statements of Operations over the term of the related notes. The cash paid or received from the settlement of forward-starting interest rate swaps is included in cash flows from operating activities.

Cash Flow Hedges-Cross-Currency Interest Rate Swap Agreements

The Company’s foreign exchange risk management policy emphasizes hedging foreign currency intercompany financing activities with derivatives, and the hedges and related intercompany financing arrangements generally have maturity dates of 3 years or less from inception. The Company may use such instruments to hedge intercompany financing arrangements with maturities of more than three years. The Company uses derivative instruments, such as cross-currency interest rate swap agreements, to hedge currency risk associated with foreign currency-denominated assets and liabilities associated with intercompany financing activities. In connection with intercompany financing arrangements entered into in April 2015, the Company entered into two cross-currency interest rate swap agreements to manage the related foreign currency exchange risk of the intercompany financing arrangements. As of September 30, 2016, the notional value of outstanding cross-currency interest rate swaps was $188.0 million, and the cross-currency interest rate swaps are intended to eliminate uncertainty in cash flows in U.S. Dollars and British Pounds in connection with the intercompany financing arrangements. The cross-currency interest rate swap agreements have been designated as qualifying hedging instruments and are accounted for as cash flow hedges. The critical terms of the cross-currency interest rate swap agreements correspond to the terms of the intercompany financing arrangements, including the annual principal and interest payments being hedged, and the cross-currency interest rate swap agreements mature at the same time as the intercompany financing arrangements.

The Company uses the hypothetical derivative method to measure the effectiveness of its cross-currency interest rate swap agreements. The fair values of these cross-currency interest rate swap agreements are recognized as other assets or other noncurrent liabilities in the Condensed Consolidated Balance Sheets. The effective portions of the changes in fair values of these cross-currency interest rate swap agreements are reported in accumulated other comprehensive income (loss) in the Condensed Consolidated Balance Sheets and an amount is reclassified out of accumulated other comprehensive income (loss) into other expense, net, in the same period that the carrying value of the underlying foreign currency intercompany financing arrangements are remeasured. The ineffective portion of the unrealized gains and losses on these cross-currency interest rate swaps, if any, is recorded immediately to other expense, net. The Company evaluates the effectiveness of its cross-currency swap agreements on a quarterly basis, and the Company did not record any ineffectiveness for the nine months ended September 30, 2016 and 2015. The cash flows related to the cross-currency interest rate swap agreements, including amounts related to the periodic interest settlements and the principal balances, are included in cash flows from operating activities.

Foreign Currency Forward Contracts

A portion of our revenues, costs and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The Company seeks to manage such foreign exchange risk, in part, through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk also is managed through the use of derivative financial instruments.

All derivative contracts used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the consolidated balance sheet. Changes in fair value are reported in earnings or in Other comprehensive income/(loss) (“OCI”), depending on the nature and purpose of the financial instrument (offset or hedge relationship) and the effectiveness of the hedge relationships, as follows:


•	The Company records in OCI the effective portion of the gains or losses on foreign currency forward-exchange contracts that are designated as cash flow hedges and reclassify those amounts, as appropriate, into earnings in the same period or periods during which the hedged transaction affects earnings.

•

The Company recognizes the gains and losses on foreign currency forward-exchange contracts that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement. Such contracts are not designated as hedges.

As of September 30, 2016, the notional amount of contracts designated as hedges was $381.9 million and the notional amount of contracts not designated as hedges was $1.0 billion.

Hedging instruments are not available for certain currencies in countries in which the Company has operations. In these cases, the Company uses alternative means in an effort to achieve an economic offset to the local currency exposure such as invoicing and/or paying intercompany and third party transactions in U.S. Dollars.

The Company reports its derivative positions in the Condensed Consolidated Balance Sheets on a gross basis and does not net asset and liability derivative positions with the same counterparty. The Company monitors its positions with, and the credit quality of, the financial institutions that are parties to its financial transactions.

Commodity Contracts

The Company enters into commodity-based derivatives in order to mitigate the risk associated with the impact changes in prices of commodities could have on the cost of certain of the Company’s raw materials. These commodity-based derivatives provide the Company with cost certainty, and in certain instances, allow the Company to benefit should the cost of the commodity fall below certain dollar thresholds. At September 30, 2016, the Company had approximately $7.2 million notional amount outstanding of commodity-based derivatives that are not designated as effective hedges for accounting purposes and have maturity dates through June 2017. Fair market value gains or losses associated with commodity derivative instruments are included in the results of operations and are classified in cost of products sold.

The following table summarizes the Company’s outstanding derivative instruments designated as hedges and their effects on the Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (in millions):



		Assets					Liabilities
Derivatives designated as hedging instruments	Balance Sheet Location	September 30, 2016		December 31, 2015		Balance Sheet Location	September 30, 2016		December 31, 2015
Interest rate swaps	Other assets	$	18.9	$	2.2	Other noncurrent liabilities	$	—	$	5.3
Forward-starting interest rate swaps	Prepaid expenses and other	—		0.1		Other accrued liabilities	—		3.2
Cross-currency interest rate swaps	Other assets	—		0.6		Other noncurrent liabilities	32.0		3.3
Foreign exchange contracts on forecasted transactions	Prepaid expenses and other and other assets	2.5		6.6		Other accrued liabilities	1.7		0.1
Foreign exchange contracts on intercompany borrowings	Prepaid expenses and other	—		—		Other accrued liabilities	—		1.6
Total assets		$	21.4	$	9.5	Total liabilities	$	33.7	$	13.5

The Company is not a party to any derivatives that require collateral to be posted prior to settlement.

Fair Value Hedges

The following table presents the pretax effects of derivative instruments designated as fair value hedges on the Company’s Condensed Consolidated Statements of Operations (in millions):



Derivatives in fair value hedging relationships	Location of gain (loss) recognized in income	Amount of gain (loss) recognized in income
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2016			2015			2016			2015
Interest rate swaps	Interest expense, net	$	(5.3	)	$	17.5		$	22.0		$	16.6
Fixed-rate debt	Interest expense, net	$	5.3		$	(17.5	)	$	(22.0	)	$	(16.6	)

The Company did not realize any ineffectiveness related to fair value hedges during the three and nine months ended September 30, 2016 and 2015.

Cash Flow Hedges

The following table presents the pretax effects of derivative instruments designated as cash flow hedges on the Company’s Condensed Consolidated Statements of Operations and AOCI (in millions):



Derivatives in cash flow hedging relationships	Location of gain (loss) recognized in income	Amount of gain (loss) reclassified from AOCI into income
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2016			2015			2016			2015
Forward-starting interest rate swaps	Interest expense, net	$	(2.4	)	$	(0.2	)	$	(5.1	)	$	(0.6	)
Cross-currency interest rate swaps on intercompany borrowings	Other expense, net	(5.2		)	(2.0		)	(29.6		)	(2.0		)
Foreign exchange contracts on forecasted transactions	Cost of products sold	1.9			4.8			2.1			13.1
Foreign exchange contracts on intercompany borrowings	Other expense, net	(0.3		)	(0.2		)	—			(0.2		)
		$	(6.0	)	$	2.4		$	(32.6	)	$	10.3



Derivatives in cash flow hedging relationships	Amount of gain (loss) recognized in AOCI
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Forward-starting interest rate swaps	$	—		$	—		$	(88.1	)	$	—
Cross-currency interest rate swaps on intercompany borrowings	(3.7		)	(6.0		)	(29.3		)	(2.9		)
Foreign exchange contracts on forecasted transactions	0.1			8.3			7.3			12.3
Foreign exchange contracts on intercompany borrowings	(0.8		)	(1.4		)	—			0.5
	$	(4.4	)	$	0.9		$	(110.1	)	$	9.9

During December 2015, the Company entered into forward-starting interest rate swaps for an aggregate $1.0 billion notional amount for the anticipated issuance of notes to finance the Jarden Acquisition (the “2015 Swaps”). During January 2016, the Company entered into additional forward-starting interest rate swaps for an aggregate $1.3 billion notional amount (the “2016 Swaps,” and together with the 2015 Swaps, the “Swaps”). The total notional amount of the Swaps relating to the anticipated issuance of medium-term and long-term notes for the Jarden Acquisition was $2.3 billion. In March 2016, the Company completed the offering and sale of the Notes (see Footnote 9 for additional information) and settled the Swaps. The net pretax loss and net amount paid upon settlement of the Swaps was $91.2 million, which was recorded in AOCI net of tax and is included in cash flows from operating activities in the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2016. As the Swaps hedged the benchmark rates associated with the anticipated issuances of the Notes, the losses associated with the Swaps will be reclassified from AOCI to interest expense over the terms of the Notes the Swaps were designated to hedge.

The Company recognized income of $0.4 million and expense of $1.6 million in other (income) expense during the three and nine months ended September 30, 2016, respectively, related to the ineffectiveness of certain cash flow hedges. The Company did not realize any ineffectiveness related to cash flow hedges during the three and nine months ended September 30, 2015. As of September 30, 2016, the Company expects to reclassify net pretax gains of $9.2 million from AOCI into earnings during the next 12 months, which primarily represents foreign currency-related gains offset by $9.7 million of losses related to the Swaps.

Derivatives Not Designated as Hedging Instruments

The following table summarizes the Company’s outstanding derivative instruments that are not designated as hedging instruments and their effects on the Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (in millions):



		Assets					Liabilities
Derivatives not designated as hedging instruments	Balance Sheet Location	September 30, 2016		December 31, 2015		Balance Sheet Location	September 30, 2016		December 31, 2015
Foreign exchange contracts	Prepaid expenses and other	$	15.1	$	—	Other accrued liabilities	$	16.9	$	—
Commodity contracts	Prepaid expenses and other	—		—		Other accrued liabilities	1.7		—
Total assets		$	15.1	$	—	Total liabilities	$	18.6	$	—

The Company recognized income of $0.8 million and $4.1 million in other (income) expense during the three and nine months ended September 30, 2016, respectively, related to derivatives that are not designated as hedging instruments. The amounts of gains (losses) from changes in the fair value of derivatives not designated as hedging instruments was not material for the three and nine months ended September 30, 2015.