Derivative Financial Instruments

12 Months Ended

Dec. 31, 2014

Derivative Financial Instruments

Derivative Financial Instruments

(13)    Derivative Financial Instruments

Currency Forward Contracts

        We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency exchange rates. Our objective is to preserve the economic value of non-functional currency-denominated cash flows and to minimize the impact of changes as a result of currency fluctuations. Our principal currency exposures relate to the Euro, South African Rand, CNY and GBP.

        From time to time, we enter into forward contracts to manage the exposure on contracts with forecasted transactions denominated in non-functional currencies and to manage the risk of transaction gains and losses associated with assets/liabilities denominated in currencies other than the functional currency of certain subsidiaries ("FX forward contracts"). In addition, some of our contracts contain currency forward embedded derivatives ("FX embedded derivatives"), because the currency of exchange is not "clearly and closely" related to the functional currency of either party to the transaction. Certain of our FX forward contracts are designated as cash flow hedges. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives' fair value are not included in current earnings, but are included in AOCI. These changes in fair value are reclassified into earnings as a component of revenues or cost of products sold, as applicable, when the forecasted transaction impacts earnings. In addition, if the forecasted transaction is no longer probable, the cumulative change in the derivatives' fair value is recorded as a component of "Other income (expense), net" in the period in which the transaction is no longer considered probable of occurring. To the extent a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period in which it occurs.

        We had FX forward contracts with an aggregate notional amount of $298.0 and $191.3 outstanding as of December 31, 2014 and 2013, respectively, with substantially all such contracts scheduled to mature in 2015. We also had FX embedded derivatives with an aggregate notional amount of $246.0 and $145.8 at December 31, 2014 and 2013, respectively, with scheduled maturities of $151.7, $84.0 and $10.3 in 2015, 2016 and years thereafter, respectively. The unrealized losses, net of taxes, recorded in AOCI related to FX forward contracts were $0.3 and $1.0 as of December 31, 2014 and 2013, respectively. We anticipate reclassifying $0.2 of the unrealized loss as of December 31, 2014 to income over the next 12 months, with the remaining $0.1 in 2016. The net gain (loss) recorded in "Other income (expense), net" related to FX forward contracts and FX embedded derivatives totaled $(2.4) in 2014, $0.5 in 2013 and $(0.2) in 2012.

Commodity Contracts

        From time to time, we enter into commodity contracts to manage the exposure on forecasted purchases of commodity raw materials. At December 31, 2014 and 2013, the outstanding notional amount of commodity contracts was 4.2 and 3.4 pounds of copper, respectively. We designate and account for these contracts as cash flow hedges and, to the extent these commodity contracts are effective in offsetting the variability of the forecasted purchases, the change in fair value is included in AOCI. We reclassify AOCI associated with our commodity contracts to cost of products sold when the forecasted transaction impacts earnings. As of December 31, 2014 and 2013, the fair value of these contracts was $1.4 (current liabilities) and $0.4 (current assets), respectively. The unrealized gain (loss), net of taxes, recorded in AOCI was $(1.0) and $0.2 as of December 31, 2014 and 2013, respectively. We anticipate reclassifying the unrealized loss as of December 31, 2014 to income over the next 12 months.

        The following summarizes the gross and net fair values of our FX forward and commodity contracts by counterparty at December 31, 2014 and 2013:

	December 31, 2014								December 31, 2013
	Gross Assets		Gross Liabilities			Net Assets / Liabilities			Gross Assets		Gross Liabilities			Net Assets / Liabilities
FX Forward Contracts:
Counterparty A	$	—	$	(0.1	)	$	(0.1	)	$	0.7	$	(0.1	)	$	0.6
Counterparty B		0.3		(3.5	)		(3.2	)		0.1		(0.4	)		(0.3	)
Aggregate of other counterparties		0.5		(1.8	)		(1.3	)		0.3		—			0.3
Totals(1)	$	0.8	$	(5.4	)	$	(4.6	)	$	1.1	$	(0.5	)	$	0.6
Commodity Contracts:
Counterparty A(2)	$	—	$	(1.4	)	$	(1.4	)	$	0.4	$	—		$	0.4

(1) We enter into arrangements designed to provide the right of setoff in the event of counterparty default or insolvency, and have elected to offset the fair values of our qualifying financial instruments in our consolidated balance sheets. Amounts presented in our consolidated balance sheets are as follows:

		December 31, 2014			December 31, 2013
Designated as hedging instruments:
Other current assets		$	—		$	0.3
Accrued expenses			(0.1	)		—
Other long-term liabilities			(0.1	)		—
			(0.2	)		0.3
Not designated as hedging instruments:
Other current assets			—			0.6
Accrued expenses			(4.4	)		(0.3	)
			(4.4	)		0.3
Net fair value of FX forward contracts		$	(4.6	)	$	0.6
(2)	Related contracts are designated as hedging instruments. Net amounts at December 31, 2014 and 2013 are recorded in "Accrued expenses" and "Other current assets," respectively.

        The following summarizes the fair value of our FX embedded derivative instruments, which are not designated as hedging instruments, and the related balance sheet classification as of December 31, 2014 and 2013:

Balance Sheet Classification	December 31, 2014			December 31, 2013
Other current assets	$	5.1		$	0.7
Other assets		1.2			—
Accrued expenses		(4.7	)		(6.5	)
Other long-term liabilities		(0.9	)		(2.1	)
	$	0.7		$	(7.9	)

        The following summarizes the pre-tax gain (loss) recognized in AOCI resulting from derivative financial instruments designated as cash flow hedging relationships for the years ended December 31, 2014, 2013 and 2012:

	Year ended December 31,
	2014			2013			2012
FX forward contracts	$	0.4		$	(0.3	)	$	(0.4	)
Commodity contracts		(2.5	)		(1.2	)		0.4
	$	(2.1	)	$	(1.5	)	$	—

        The following summarizes the pre-tax gain (loss) related to derivative financial instruments designated as cash flow hedging relationships reclassified from AOCI to income through "Revenues" for FX forward contracts and "Cost of products sold" for commodity contracts for the years ended December 31, 2014, 2013 and 2012:

	Year ended December 31,
	2014			2013(1)			2012(1)
FX forward contracts	$	(0.8	)	$	(4.0	)	$	(0.7	)
Commodity contracts		(0.7	)		(1.3	)		(0.8	)
	$	(1.5	)	$	(5.3	)	$	(1.5	)

(1) For the years ended December 31, 2013 and 2012, losses of $0.2 and $0.4, respectively, were recognized in "Other income (expense), net" relating to derivative ineffectiveness and amounts excluded from effectiveness testing.

        The following summarizes the gain (loss) recognized in "Other income (expense), net" for the years ended December 31, 2014, 2013 and 2012 related to derivative financial instruments not designated as cash flow hedging relationships:

	Year ended December 31,
	2014			2013		2012
FX forward contracts	$	(7.8	)	$	0.1	$	0.6
FX embedded derivatives		5.4			0.6		(0.4	)
	$	(2.4	)	$	0.7	$	0.2

Concentrations of Credit Risk

        Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, and foreign currency forward and commodity contracts. These financial instruments, other than trade accounts receivable, are placed with high-quality financial institutions throughout the world. We periodically evaluate the credit standing of these financial institutions.

        We maintain cash levels in bank accounts that, at times, may exceed federally-insured limits. We have not experienced, and believe we are not exposed to significant risk of, loss in these accounts.

        We have credit loss exposure in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. We anticipate, however, that counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk, but we do monitor the credit standing of counterparties.

        Concentrations of credit risk arising from trade accounts receivable are due to selling to customers in a particular industry. We mitigate our credit risks by performing ongoing credit evaluations of our customers' financial conditions and obtaining collateral, advance payments, or other security when appropriate. No one customer, or group of customers that to our knowledge are under common control, accounted for more than 10% of our revenues for any period presented.