Derivative Financial Instruments and Risk Management

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Risk Management

DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Derivative Financial Instruments

All derivatives are recorded as other assets or liabilities in the Condensed Consolidated Balance Sheets at their respective fair values. For derivatives designated as cash flow hedges, the effective portion of the unrealized gain or loss related to the derivatives are recorded in Other comprehensive income (loss) until the transaction affects earnings. We assess both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been, and will continue to be, highly effective in offsetting changes in cash flows of the hedged item. The impact of any ineffectiveness is recognized in the Condensed Consolidated Statements of Income. Changes in the fair value of derivatives that do not meet the criteria for designation as a hedge are recognized in earnings.

Foreign Exchange: We manufacture and sell products in a number of countries throughout the world and, as a result, we are exposed to movements in foreign currency exchange rates. Our major foreign currency exposures involve the markets in Western Europe, South America and Asia. Some of our sales and purchase contracts contain embedded derivatives due to the nature of doing business in certain jurisdictions, which we take into consideration as part of our risk management policy. The purpose of our foreign currency hedging activities is to manage the economic impact of exchange rate volatility associated with anticipated foreign currency purchases and sales made in the normal course of business. We primarily utilize forward foreign exchange contracts with maturities of less than 2 years in managing this foreign exchange rate risk. We have not designated these forward foreign exchange contracts, which have a notional value at June 30, 2016 of $300.4 million, as hedges and therefore do not apply hedge accounting.

The following table presents the fair value of foreign currency derivatives included within the Condensed Consolidated Balance Sheets:

	As of June 30, 2016				As of December 31, 2015
(In millions)	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Other current assets / liabilities	$	4.7	$	4.6	$	5.8	$	1.3
Other assets / liabilities	0.9		—		1.2		0.1
Total	$	5.6	$	4.6	$	7.0	$	1.4

A master netting arrangement allows counterparties to net settle amounts owed to each other as a result of separate offsetting derivative transactions. We enter into master netting arrangements with our counterparties when possible to mitigate credit risk in derivative transactions by permitting us to net settle for transactions with the same counterparty. However, we do not net settle with such counterparties. As a result, we present derivatives at their gross fair values in the Condensed Consolidated Balance Sheets.  

As of June 30, 2016 and December 31, 2015, information related to these offsetting arrangements was as follows:

(In millions)	As of June 30, 2016
Offsetting of Assets	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Presented in the Consolidated Balance Sheets		Amount Subject to Master Netting Agreement			Net Amount
Derivatives	$	5.6	$	—	$	5.6	$	(3.3	)	$	2.3

(In millions)	As of June 30, 2016
Offsetting of Liabilities	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Presented in the Consolidated Balance Sheets		Amount Subject to Master Netting Agreement			Net Amount
Derivatives	$	11.2	$	—	$	11.2	$	(3.3	)	$	7.9

(In millions)	As of December 31, 2015
Offsetting of Assets	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Presented in the Consolidated Balance Sheets		Amount Subject to Master Netting Agreement			Net Amount
Derivatives	$	7.0	$	—	$	7.0	$	(1.7	)	$	5.3

(In millions)	As of December 31, 2015
Offsetting of Liabilities	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Presented in the Consolidated Balance Sheets		Amount Subject to Master Netting Agreement			Net Amount
Derivatives	$	2.9	$	—	$	2.9	$	(1.7	)	$	1.2

The following table presents the location and amount of the gain (loss) on foreign currency derivatives and on the remeasurement of assets and liabilities denominated in foreign currencies, as well as the net impact recognized in the Condensed Consolidated Statements of Income: 

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivatives	Amount of Gain (Loss) Recognized in Income on Derivatives
		Three Months Ended June 30,						Six Months Ended June 30,
(In millions)		2016			2015			2016			2015
Foreign exchange contracts	Revenue	$	—		$	0.2		$	(0.5	)	$	0.3
Foreign exchange contracts	Cost of sales	(0.2		)	0.4			(0.3		)	(0.5		)
Foreign exchange contracts	Other income, net	0.1			—			(0.1		)	0.1
Total		(0.1		)	0.6			(0.9		)	(0.1		)
Remeasurement of assets and liabilities in foreign currencies		0.1			(0.5		)	(0.2		)	(1.2		)
Net loss on foreign currency transactions		$	—		$	0.1		$	(1.1	)	$	(1.3	)

Interest Rates: We have entered into interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt, including a forward starting interest rate swap entered into on January 15, 2016 covering the period beginning January 19, 2017 to January 19, 2021. The agreements swap one-month LIBOR for fixed rates. We have designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in Accumulated other comprehensive income (loss).

At June 30, 2016, the fair value recorded in other liabilities on the Condensed Consolidated Balance Sheet was $6.7 million. The effective portion of these derivatives designated as cash flow hedges of $4.1 million has been reported in Other comprehensive income (loss), net of tax, on the Condensed Consolidated Statement of Comprehensive Income.

Ineffectiveness from cash flow hedges, all of which are interest rate swaps, was immaterial as of June 30, 2016.

Refer to Note 9. Fair Value Of Financial Instruments for a description of how the values of the above financial instruments are determined.

Credit Risk

By their nature, financial instruments involve risk including credit risk for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables and derivative contracts. We manage the credit risk on financial instruments by transacting only with financially secure counterparties, requiring credit approvals and establishing credit limits, and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for losses are established based on collectability assessments.