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 types of cash flow hedges the Company enters into include foreign currency exchange contracts designed to minimize the earnings impact on certain intercompany loans and interest rate exchange agreements 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 agreements 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 14 for the amount of loss reclassified into income for interest rate contracts for the three months ended March 31, 2018 and 2017. As of March 31, 2018, the Company did not have any interest rate contracts outstanding.

In 2010 and 2011, the Company entered into two separate forward starting interest rate exchange agreements 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 $6.4 million of the pre-tax amount included in accumulated other comprehensive income (loss) in shareholders’ equity at March 31, 2018 will be recognized in net income over the next 12 months as the underlying hedged transactions are realized.

At March 31, 2018, 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 economic impact and reduce the variability on earnings 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 - net in the Condensed Consolidated Statements of Operations.

During the three months ended March 31, 2018 and 2017, the Company recorded gains of $1.2 million and $0.4 million, respectively, within Other (income) expense - net related to these foreign currency exchange contracts. During the three months ended March 31, 2018 and 2017, the Company recorded a foreign currency transaction loss of $1.2 million and $0.4 million, respectively, within Other (income) expense - net 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 Consolidated Statements of Cash Flows. For the three months ended March 31, 2018, the Company received $6.6 million in settlement of the foreign currency exchange contracts. The Company repaid the underlying intercompany loans in April 2018 and thus did not extend the foreign currency exchange contracts when they expired.

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 March 31, 2018 and December 31, 2017:



	Fair Value Assets
	March 31, 2018		December 31, 2017		Balance Sheet Caption
Foreign currency exchange contracts	$	362	$	5,779	Other current assets