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 the conditions of those markets. All derivatives are recognized in the Consolidated Balance Sheets at fair value. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company continually monitors its derivative positions and the credit ratings of its counterparties and does not anticipate nonperformance by the 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 December 31, 2017, the Company held foreign currency forward contracts to purchase and sell various currencies to mitigate foreign currency exposure primarily with U.S. dollars 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 Consolidated Statements of Operations. The total notional value of foreign currency exchange forward contracts held at December 31, 2017 was approximately $615 million, and generally have settlement dates within one year. The total notional value of foreign currency exchange forward contracts held at December 31, 2016 was approximately $552 million.

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 €279 million of euro denominated debt at 1.96% and 1.20%, respectively, through June 2020.

Changes in fair values of derivatives that are designated as, and meet all the required criteria of, cash flow hedges are recorded in "Other comprehensive income (loss)" and reclassified from "Accumulated other comprehensive loss" into earnings as the underlying hedged items affects earnings. Amounts reclassified into earnings related to the Company's interest rate swaps are included in "Interest expense, net" in the Consolidated Statements of Operations.

During 2017, the Company's interest rate swaps were deemed highly effective utilizing the dollar-offset method of assessing hedge effectiveness. The Company repriced a portion of its euro denominated debt during the fourth quarter of 2017, which resulted in a mis-match of critical terms which had an immaterial effect on its results of operations. The Company expects to reclassify $2.8 million from "Accumulated other comprehensive loss" to "Interest expense, net" in its Consolidated Statement of Operations during 2018.

Commodities

As part of its risk management policy, the Company enters into commodity 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, for a notional amount of $31.8 million and $42.0 million at December 31, 2017 and 2016, respectively. Substantially all contracts outstanding at December 31, 2017 have delivery dates within one year. The Company has not designated these derivatives as hedging instruments and, accordingly, records changes in their fair values in "Other (expense) income, net" in the 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 embedded derivative features whose fair values are determined by changes in the market values of the underlying metals between delivery and measurement dates. Amounts associated with these supply agreements, primarily related to gold and palladium, which serve as the notional values of the embedded derivatives, have been recorded in the Consolidated Balance Sheets as "Inventories" and "Current installments of long-term debt and revolving credit facilities" and totaled $9.7 million and $9.9 million at December 31, 2017 and 2016, respectively. The fair value of these contracts has been bifurcated and recorded in the Consolidated Balance Sheets as "Accrued expenses and other current liabilities" and were immaterial at December 31, 2017 and 2016.

For 2017 and 2016, the Company recorded the following realized and unrealized losses associated with derivative contracts not designated as hedging instruments:



($ amounts in millions)		December 31,
Derivatives not designated as hedging instruments:	Location on Condensed Consolidated Statement of Operations:	2017			2016
Foreign exchange and metals contracts	Other (expense) income, net	$	(9.5	)	$	(12.5	)

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. Although the right to offset within these agreements exists under certain termination events, such as bankruptcy or default, it is the Company's accounting policy to present derivative assets and liabilities under such master netting arrangements on a gross basis in the Consolidated Balance Sheets.

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



	December 31, 2017						December 31, 2016
($ amounts in millions)	Asset			Liability			Asset			Liability
Gross amounts	$	5.5		$	6.2		$	6.3		$	8.9
Gross amount subject to offset in master netting arrangements that are not offset	(1.0		)	(2.0		)	(2.5		)	(2.6		)
Cash collateral paid	—			(0.4		)	—			(1.0		)
Net	$	4.5		$	3.8		$	3.8		$	5.3

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

Fair Value Measurements

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



			December 31,
($ amounts in millions)	Balance sheet location	Classification	2017		2016
Asset Category
Foreign exchange and metals contracts not designated as hedging instruments	Other current assets	Level 2	5.5		8.5
Available for sale equity securities	Other assets	Level 1	3.7		5.1
Interest rate swaps designated as cash flow hedging instruments	Other assets	Level 2	3.4		—
Available for sale equity securities	Other assets	Level 2	0.6		0.6
Total			$	13.2	$	14.2

Liability Category
Interest rate swaps designated as cash flow hedging instruments	Accrued expenses and other liabilities	Level 2	$	2.8	$	10.2
Foreign exchange and metals contracts not designated as hedging instruments	Accrued expenses and other liabilities	Level 2	7.3		10.7
Interest rate swaps designated as cash flow hedging instruments	Other liabilities	Level 2	0.8		—
Long-term contingent consideration	Contingent consideration	Level 3	79.2		75.8
Total			$	90.1	$	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:

Available for sale equity securities - Available for sale equity securities classified as Level 1 assets 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 9.5%, 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 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 $1.2 million. Relative to the Adjusted EBITDA metric, an increase or a decrease in the discount rate of 1.5%, within a range of probability between 80% and 100%, changes the estimated fair value measure of the metric by approximately $2.2 million. During 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 during 2017.

The carrying value and estimated fair value of the Company’s long-term debt and capital lease obligations totaled $5.44 billion and $5.58 billion, respectively, at December 31, 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.

Nonrecurring Fair Value Measurements

As a result of the 2017 annual goodwill impairment test, the Agricultural Solutions segment recorded an impairment charge of $160 million to reduce the carrying value of the Agro Business reporting unit to its fair value. As a result of the 2016 annual goodwill impairment test, Performance Solutions segment recorded an impairment charge of $46.6 million to reduce the carrying value of the Offshore Solutions reporting unit to its fair value. These measurements were performed on a non-recurring basis using significant unobservable inputs (Level 3). See Note 8, Goodwill and Intangible Assets, to the Consolidated Financial Statements for further information.