FINANCIAL INSTRUMENTS

Derivatives and Hedging

In the normal course of business, the Company is exposed to risks relating to changes in foreign currency exchange rates, interest rates and commodity prices. Derivative financial instruments, such as foreign currency exchange forward contracts, interest rate swaps, and commodities futures contracts are used to manage the risks associated with changes in foreign markets conditions. All derivatives are recognized in the Condensed Consolidated Balance Sheets at fair value at the end of each period. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties, and currently does not anticipate nonperformance by any counterparties.

Foreign Currency

The Company conducts a significant portion of its business in currencies other than the U.S. Dollar and a portion of its business in currencies other than the functional currencies of its subsidiaries. As a result, the Company’s operating results are impacted by foreign currency exchange rate volatility.

At September 30, 2017, the Company held foreign currency forward contracts to purchase and sell various currencies to mitigate foreign currency exposure primarily with the U.S. Dollar and Euro. The Company has not designated any foreign currency exchange forward contracts as eligible for hedge accounting, and, as a result, changes in the fair value of foreign currency forward contracts are recorded in "Other (expense) income, net" in the Condensed Consolidated Statements of Operations. The total notional value of foreign currency exchange forward contracts held at September 30, 2017 and December 31, 2016 was approximately $627 million and $552 million, respectively, and generally have settlement dates within one year.

Commodities

As part of its risk management policy, the Company enters into commodities futures contracts for the purpose of mitigating its exposure to fluctuations in prices of certain metals it uses in the production of its finished goods. The Company held futures contracts to purchase and sell various metals, primarily tin and silver, with a notional value of $42.7 million and $42.0 million at September 30, 2017 and December 31, 2016, respectively. Substantially all contracts outstanding at September 30, 2017 have delivery dates within one year. Changes in the fair value of commodities futures contracts are recorded in "Other (expense) income, net" in the Condensed Consolidated Statements of Operations.

Certain subsidiaries of the Company have entered into supply agreements with a third party that have been deemed to constitute financing agreements with an embedded derivative feature whose fair value is determined by the change in the market value of the underlying metals between delivery date and measurement date. Amounts associated with these supply agreements, which serve as the notional value of the embedded derivative, have been recorded in "Inventories" and "Current installments of long-term debt and revolving credit facilities" in the Condensed Consolidated Balance Sheets and totaled $11.9 million and $9.9 million at September 30, 2017 and December 31, 2016, respectively, and primarily relate to gold and palladium purchases. The fair value of these contracts has been bifurcated and recorded as a derivative liability in "Accrued expenses and other current liabilities" in the Condensed Consolidated Balance Sheets and was immaterial at September 30, 2017 and December 31, 2016.

For the three and nine months ended September 30, 2017 and 2016, the Company recorded the following realized and unrealized losses associated with derivative contracts not designated as hedging instruments:



(amounts in millions)		Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives not designated as hedging instruments:	Location on Condensed Consolidated Statement of Operations:	2017		2016		2017		2016
Foreign exchange and metals contracts	Other (expense) income, net	$	3.3	$	1.4	$	5.8	$	12.1

Interest Rates

The Company entered into interest rate swaps to effectively fix the floating base rate portion of its interest payments on approximately $1.14 billion of U.S. Dollar denominated debt and €280 million of Euro denominated debt at 1.96% and 1.20%, respectively, through June 2020.

Changes in the fair value of a derivative that is designated as, and meets all the required criteria of, a cash flow hedge are recorded in "Other comprehensive income (loss)" and reclassified from "Accumulated other comprehensive loss" into earnings as the underlying hedged item affects earnings. Amounts reclassified into earnings related to the interest rate swaps are included in "Interest expense, net" in the Condensed Consolidated Statements of Operations.

For the three and nine months ended September 30, 2017, the interest rate swaps were deemed highly effective, with no ineffectiveness recorded in the Condensed Consolidated Statement of Operations. During the next twelve months, the Company expects to reclassify $6.3 million from "Accumulated other comprehensive loss" to "Interest expense, net" in the Condensed Consolidated Statements of Operations.

Master Netting Arrangements

In the normal course of business, the Company enters into contracts with certain counterparties to purchase and sell foreign currency exchange forwards and metal futures that contain master netting arrangements, typically in the form of an International Swaps and Derivatives Association (ISDA) or similar agreements. The right to set-off within these agreements is limited to certain termination events, such as bankruptcy or default of either party to the agreement. The Company has made an accounting policy decision not to offset and recognizes gross derivative asset and liability balances in the Condensed Consolidated Balance Sheets.

The following table provides information on the Company's derivative positions at September 30, 2017 and December 31, 2016, subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral:



	September 30, 2017						December 31, 2016
(amounts in millions)	Asset			Liability			Asset			Liability
Gross amounts	7.2			7.3			6.3			8.9
Gross amount subject to offset in master netting arrangements that are not offset	(3.2		)	(1.2		)	(2.5		)	(2.6		)
Cash collateral paid	—			(0.4		)	—			(1.0		)
Net	$	4.0		$	5.7		$	3.8		$	5.3

Collateral paid to counterparties is recorded in "Other current assets" in the Condensed Consolidated Balance Sheets.

Fair Value Measurements

Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority, and Level 3 having the lowest. The three levels of the fair value hierarchy are as follows:


•	Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.


•	Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in non-active markets; and model-derived valuations whose inputs are observable or whose significant valuation drivers are observable.


•	Level 3 – significant inputs to the valuation model are unobservable and/or reflect the Company’s market assumptions.

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:



(amounts in millions)	Balance sheet location	Classification	September 30, 2017		December 31, 2016
Asset Category
Cash equivalents	Cash and cash equivalents	Level 2	$	79.7	$	48.2
Foreign exchange and metals contracts not designated as hedging instruments	Other current assets	Level 2	7.4		8.5
Available for sale equity securities	Other assets	Level 1	5.9		5.1
Available for sale equity securities	Other assets	Level 2	0.6		0.6
Total			$	93.6	$	62.4

Liability Category
Interest rate swaps designated as cash flow hedging instruments	Accrued expenses and other liabilities	Level 2	$	6.3	$	10.2
Foreign exchange and metals contracts not designated as hedging instruments	Accrued expenses and other liabilities	Level 2	8.7		10.7
Interest rate swaps designated as cash flow hedging instruments	Other liabilities	Level 2	2.1		—
Long-term contingent consideration	Contingent consideration	Level 3	79.0		75.8
Total			$	96.1	$	96.7

The following methods and assumptions were used to estimate the fair value of each class of the Company’s financial assets and liabilities:

Cash equivalents - Cash equivalents primarily comprise certificates of deposits issued by financial institutions. These funds are not publicly traded, but historically have been highly liquid. The Company records certificates of deposit at amortized cost in the Condensed Consolidated Balance Sheets. Given the relatively short maturities of these instruments, the Company believes amortized cost approximates fair value.

Available for sale equity securities - Available for sale equity securities classified as Level 1 assets and are measured using quoted market prices at the reporting date multiplied by the quantity held. Available for sales equity securities classified as Level 2 assets are measured using quoted prices for similar instruments in active markets.

Derivatives - Derivative assets and liabilities include foreign currency, metals, and interest rate derivatives. The values are determined using pricing models based upon observable market inputs, such as market spot and futures prices on over-the-counter derivative instruments, market interest rates, and consideration of counterparty credit risk.

Long-term contingent consideration - The long-term contingent consideration represents a potential liability of up to $100 million tied to the achievement of certain adjusted EBITDA and common stock trading price performance metrics over a seven-year period ending December 2020 which was agreed upon in connection with the MacDermid Acquisition. The estimated fair value of the adjusted EBITDA performance metric is derived using the income approach with unobservable inputs, based on future forecasts and present value assumptions which include a discount rate of approximately 9.50% and expected future value of payments of $60.0 million calculated using a probability weighted adjusted EBITDA assessment with higher probability associated with the Company achieving the maximum adjusted EBITDA targets. The common stock performance metric has been satisfied. Changes in the estimated fair value of the long-term contingent consideration are recorded in "Selling, technical, general and administrative expenses" in the Condensed Consolidated Statements of Operations. Relative to the share price metric, an increase or decrease in the discount rate of 1% changes the fair value measure of the metric by approximately $1.3 million. Relative to the adjusted EBITDA metric, an increase or a decrease in the discount rate of 1%, within a range of probability between 80% and 100%, changes the estimated fair value measure of the metric by approximately $1.6 million. During the nine months ended September 30, 2017, the only change to the long-term contingent consideration liability was to adjust the instrument to its estimated fair value.

There were no significant transfers between the fair value hierarchy levels for the nine months ended September 30, 2017.

The carrying value and estimated fair value of the Company’s long-term debt and capital lease obligations totaled $5.35 billion and $5.55 billion, respectively, at September 30, 2017, and $5.14 billion and $5.35 billion, respectively, at December 31, 2016. The carrying values noted above include unamortized premiums, discounts and debt issuance costs. The estimated fair value of long-term debt and capital lease obligations is measured using quoted market prices at the reporting date multiplied by the gross carrying amount of the related debt, which excludes unamortized premiums, discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.