Derivative Financial Instruments and Credit Risk

12 Months Ended

Dec. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Credit Risk

DERIVATIVE FINANCIAL INSTRUMENTS AND CREDIT RISK

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 our products in a number of countries throughout the world and, as a result, 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 December 31, 2015 of $352.3 million, as hedges and therefore do not apply hedge accounting.

The following table presents the fair value of foreign currency derivatives included within the consolidated balance sheets:

	As of December 31, 2015				As of December 31, 2014
(In millions)	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Other current assets / liabilities	$	5.8	$	1.3	$	6.9	$	3.9
Other assets / liabilities	1.2		0.1		2.2		—
Total	$	7.0	$	1.4	$	9.1	$	3.9

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 consolidated balance sheets.

As of December 31, 2015 and 2014, information related to these offsetting arrangements was as follows:

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

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

(in millions)	As of December 31, 2014
Offsetting of Assets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Amount Presented in the Consolidated Balance Sheets		Amount Subject to Master Netting Agreement			Net Amount
Derivatives	$	9.1	$	—	$	9.1	$	(3.8	)	$	5.3

Offsetting of Liabilities	As of December 31, 2014
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Amount Presented in the Consolidated Balance Sheets		Amount Subject to Master Netting Agreement			Net Amount
Derivatives	$	3.9	$	—	$	3.9	$	(3.8	)	$	0.1

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 consolidated statements of income:

Derivatives not designated as hedging instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income
(In millions)		2015			2014			2013
Foreign exchange contracts	Revenue	$	0.8		$	(1.5	)	$	—
Foreign exchange contracts	Cost of sales	(0.3		)	0.9			0.4
Foreign exchange contracts	Other income, net	(0.1		)	(0.1		)	(0.7		)
Total		0.4			(0.7		)	(0.3		)
Remeasurement of assets and liabilities in foreign currencies		(1.3		)	1.0			(0.2		)
Net gain (loss) on foreign currency transactions		$	(0.9	)	$	0.3		$	(0.5	)

Interest Rates: On March 23, 2015 we entered into two forward starting interest rate swaps, designated as cash flow hedges against the cash flow variability related to the interest rate exposure on a portion of our variable rate debt. The first swap is for the period beginning August 10, 2015 through February 10, 2020 for variability in cash flow related to interest expense on $75 million of our borrowings, fixing the annual interest rate at 1.592% plus a margin dependent on our leverage ratio. The second swap is for the period from January 11, 2016 through February 10, 2020 for variability in cash flow related to interest expense on an additional $100 million of our borrowings, fixing the annual interest rate at 1.711% plus a margin dependent on our leverage ratio. At December 31, 2015, the fair value recorded in other liabilities on the condensed consolidated balance sheet is $1.5 million. The effective portion of these derivatives designated as cash flow hedges of $0.8 million has been reported in other comprehensive income (loss) on the condensed consolidated statements of comprehensive income (loss) as of December 31, 2015.

Ineffectiveness from cash flow hedges, all of which are interest rate swaps, was immaterial as of December 31, 2015.

On January 15, 2016, we entered into a new forward starting interest rate swap which fixed the annual interest rate on a portion of our borrowings under the credit facility. See Note 19. Subsequent Events, for information regarding the new interest rate swap.

Refer to Note 14. 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.