Derivative Instruments

The Company enters into cash flow hedges from time to time to reduce the exposure to variability in certain expected future cash flows. The type of cash flow hedges the Company enters into includes foreign currency contracts and interest rate exchange contracts that effectively convert a portion of floating-rate debt to fixed-rate debt and are designed to reduce the impact of interest rate changes on future interest expense.

The effective portion of gains or losses on interest rate exchange contracts is reported in Accumulated other comprehensive income (loss) in Shareholders’ equity and reclassified into net income in the same period or periods in which the hedged transaction affects net income. The remaining gain or loss in excess of the cumulative change in the present value of future cash flows or the hedged item, if any, is recognized into net income during the period of change. See Note 13 for the amount of loss reclassified into income for interest rate contracts for the nine months ended September 30, 2017 and 2016. As of September 30, 2017, the Company did not have any interest rate contracts outstanding.

In 2010 and 2011, the Company entered into two separate forward starting interest rate contracts in anticipation of the issuance of the 4.2% Senior Notes and the 4.5% Senior Notes. The Company cash settled these two interest rate contracts in 2010 and 2011 for a total of $68.9 million, which is being amortized into interest expense over the 10 year term of the debt instruments. Approximately $6.5 million of the pre-tax amount, included in accumulated other comprehensive income (loss) in shareholders’ equity at September 30, 2017, will be recognized into net income over the next 12 months as the underlying hedged transactions are realized.

At September 30, 2017, the Company had outstanding foreign currency exchange contracts with a combined notional value of €180 million that have not been designated as hedges for accounting purposes. These contracts are used to minimize the earnings impact due to foreign currency fluctuations between the Swiss Franc and the Euro associated with certain intercompany loans that were established in conjunction with the SFC Koenig acquisition. The change in the fair value of the foreign currency exchange contracts and the corresponding foreign currency gain or loss on the revaluation of the intercompany loans are both recorded through earnings each period as incurred within other (income) expense in the Condensed Consolidated Statements of Operations.

During the three and nine months ended September 30, 2017, the Company recorded a gain of $9.3 million and $14.8 million, respectively, within other (income) expense related to these foreign currency exchange contracts. During the three and nine months ended September 30, 2017, the Company recorded a foreign currency transaction loss of $10.0 million and $15.2 million, respectively, within other (income) expense related to these intercompany loans.

The foreign currency exchange contracts are settled in cash approximately every 90 days, with the proceeds recorded within Financing Activities on the Condensed Statement of Cash Flows. The non-cash impact associated with the change in the amount receivable from or payable to the counter parties is recorded within Operating Activities on the Condensed Statement of Cash Flows until such time as the foreign currency exchange contracts are settled in cash. For the three and nine months ended September 30, 2017, the Company received zero and $4.4 million in settlement of the foreign currency exchange contracts. The Company received $9.5 million on October 4, 2017 in settlement of the foreign currency exchange contracts outstanding as of September 30, 2017.

Fair values relating to derivative financial instruments reflect the estimated amounts that the Company would receive or pay to sell or buy the contracts based on quoted market prices of comparable contracts at each balance sheet date. The following table sets forth the fair value amounts of derivative instruments held by the Company as of September 30, 2017 and December 31, 2016:



	Fair Value Assets (Liabilities)
	September 30, 2017		December 31, 2016		Balance Sheet Caption
	(In thousands)
Foreign currency exchange contracts	$	10,351	$	—	Other current assets