FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS

Products Corporation maintains standby and trade letters of credit for various corporate purposes under which Products Corporation is obligated, of which $8.8 million and $9.0 million (including amounts available under credit agreements in effect at that time) were maintained at June 30, 2015 and December 31, 2014, respectively. Included in these amounts are approximately $7.5 million and $7.7 million at June 30, 2015 and December 31, 2014, respectively, in standby letters of credit that support Products Corporation’s self-insurance programs. The estimated liability under such programs is accrued by Products Corporation.

Derivative Financial Instruments

The Company uses derivative financial instruments, primarily (i) FX Contracts, intended for the purpose of managing foreign currency exchange risk by reducing the effects of fluctuations in foreign currency exchange rates on the Company’s net cash flows, and (ii) interest rate hedging transactions, such as the 2013 Interest Rate Swap referred to below, intended for the purpose of managing interest rate risk associated with Products Corporation’s variable rate indebtedness.

Foreign Currency Forward Exchange Contracts

The FX Contracts are entered into primarily to hedge the anticipated net cash flows resulting from inventory purchases and intercompany payments denominated in currencies other than the local currencies of the Company’s foreign and domestic operations and generally have maturities of less than one year.

The U.S. Dollar notional amount of the FX Contracts outstanding at June 30, 2015 and December 31, 2014 was $61.2 million and $7.6 million, respectively.

Interest Rate Swap Transaction

In November 2013, Products Corporation executed a forward-starting floating-to-fixed interest rate swap transaction with a 1.00% floor, based on a notional amount of $400 million in respect of indebtedness under the Acquisition Term Loan over a period of three years (the "2013 Interest Rate Swap"). The Company designated the 2013 Interest Rate Swap as a cash flow hedge of the variability of the forecasted three-month LIBOR interest rate payments related to its Acquisition Term Loan with respect to the $400 million notional amount over the three-year term of the 2013 Interest Rate Swap. Under the terms of the 2013 Interest Rate Swap, Products Corporation will receive from the counterparty a floating interest rate based on the higher of three-month USD LIBOR or 1.00%, which commenced in May 2015, while paying a fixed interest rate payment to the counterparty equal to 2.0709% (which effectively fixes the interest rate on such notional amount at 5.0709% over the three-year term of the 2013 Interest Rate Swap). For the six months ended June 30, 2015, the 2013 Interest Rate Swap was deemed effective and therefore the changes in fair value related to the 2013 Interest Rate Swap have been recorded in Other Comprehensive Loss. As of June 30, 2015, the balance of deferred net losses on derivatives included in accumulated other comprehensive loss was $4.2 million after-tax.

(See "Quantitative Information – Derivative Financial Instruments" below). The Company expects that $2.3 million of the after-tax deferred net losses related to the 2013 Interest Rate Swap will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. The amount ultimately realized in earnings may differ as LIBOR is subject to change. Realized gains and losses are ultimately determined by actual rates at maturity of the derivative.

Credit Risk

Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the gross fair value of the derivative instruments in asset positions, which totaled $0.7 million and $0.2 million as of June 30, 2015 and December 31, 2014, respectively. The Company attempts to minimize exposure to credit risk by generally entering into derivative contracts with counterparties that have investment-grade credit ratings and are major financial institutions. The Company also periodically monitors any changes in the credit ratings of its counterparties. Given the current credit standing of the Company's counterparties to its derivative instruments, the Company believes the risk of loss under these derivative instruments arising from any non-performance by any of the counterparties is remote.

Quantitative Information – Derivative Financial Instruments

The effects of the Company’s derivative instruments on its consolidated financial statements were as follows:

(a) Fair Values of Derivative Financial Instruments in the Consolidated Balance Sheets:

	Fair Values of Derivative Instruments
	Assets					Liabilities
	Balance Sheet	June 30, 2015		December 31, 2014		Balance Sheet	June 30, 2015		December 31, 2014
	Classification	Fair Value		Fair Value		Classification	Fair Value		Fair Value
Derivatives designated as hedging instruments:
2013 Interest Rate Swap(i)	Prepaid expenses and other	$	—	$	—	Accrued expenses and other	$	4.2	$	2.1
	Other assets	—		—		Other long-term liabilities	2.9		1.4
Derivatives not designated as hedging instruments:
FX Contracts(ii)	Prepaid expenses and other	$	0.7	$	0.2	Accrued Expenses	$	0.2	$	—

⁽ⁱ⁾ The fair values of the 2013 Interest Rate Swap at June 30, 2015 and December 31, 2014 were measured based on the implied forward rates from the U.S. Dollar three-month LIBOR yield curve at June 30, 2015 and December 31, 2014, respectively.

⁽ⁱⁱ⁾ The fair values of the FX Contracts at June 30, 2015 and December 31, 2014 were measured based on observable market transactions of spot and forward rates at June 30, 2015 and December 31, 2014, respectively.

(b) Effects of Derivative Financial Instruments on the Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2015 and 2014:

	Amount of Gain (Loss) Recognized in Other Comprehensive Income
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Derivatives designated as hedging instruments:
2013 Interest Rate Swap, net of tax (a)	$	(0.1	)	$	(1.9	)	$	(2.0	)	$	(2.9	)

^(a)  Net of tax benefit of nil and $1.2 million for the three months ended June 30, 2015 and 2014, respectively, and$1.2 million and $1.8 million for the six month ended June 30, 2015 and 2014, respectively.

	Income Statement Classification	Amount of Gain (Loss) Recognized in Net Income
		Three Months Ended June 30,						Six Months Ended June 30,
		2015			2014			2015			2014
Derivatives designated as hedging instruments:
2013 Interest Rate Swap	Interest Expense	$	(0.5	)	$	—		$	(0.5	)	$	—
Derivatives not designated as hedging instruments:
FX Contracts	Foreign currency gain (loss), net	$	0.4		$	(1.2	)	$	0.9		$	(1.3	)