FINANCIAL INSTRUMENTS

The Company’s financial instruments include cash and marketable securities. Due to the short-term nature of these instruments, their book value approximates their fair value. The Company’s financial instruments may include long-term debt, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency derivative contracts. All derivative contracts are placed with counterparties that have an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. At December 31, 2018 and 2017, the Company had no derivative contracts that contained credit risk related contingent features.

The Company uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and component purchases. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges. At December 31, 2018, the following commodity derivative contracts were outstanding. At December 31, 2017, there were no commodity derivative contracts outstanding.



	Commodity derivative contracts
	Volume hedged
Commodity	December 31, 2018	Units of measure	Duration
Copper	256.7	Metric Tons	Dec - 19

The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to optimize its interest costs. The Company selectively uses interest rate swaps to reduce market value risk associated with changes in interest rates (fair value hedges). At December 31, 2018 and December 31, 2017, the Company had no outstanding interest rate swaps.

The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. In addition, the Company uses foreign currency forward contracts to hedge exposure associated with our net investment in certain foreign operations (net investment hedges). The Company has also designated its Euro denominated debt as a net investment hedge of the Company's investment in a European subsidiary. Foreign currency derivative contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency. At December 31, 2018 and December 31, 2017, the following foreign currency derivative contracts were outstanding:



Foreign currency derivatives (in millions)
Functional currency	Traded currency	Notional in traded currency December 31, 2018	Notional in traded currency December 31, 2017	Ending Duration
Brazilian real	Euro	3.6	1.1	Jun - 19
Brazilian real	US dollar	5.3	—	Jun - 19
Chinese renminbi	Euro	—	18.6	Jun - 18
Chinese renminbi	US dollar	—	36.0	Sep - 18
Euro	British pound	7.0	3.9	Oct - 19
Euro	Chinese renminbi	—	85.0	Dec - 18
Euro	Japanese yen	—	1,311.3	Dec - 18
Euro	Swedish krona	539.6	267.4	Jun - 19
Euro	US dollar	18.9	56.5	Dec - 19
Japanese yen	Chinese renminbi	88.8	—	Dec - 19
Japanese yen	Korean won	5,785.2	—	Dec - 19
Japanese yen	US dollar	2.8	—	Dec - 19
Korean won	Euro	6.4	3.1	Dec - 19
Korean won	Japanese yen	266.4	619.0	Dec - 19
Korean won	US dollar	7.1	11.2	Dec - 19
Swedish krona	Euro	56.0	109.7	Jan - 20
US dollar	Euro	—	42.0	Dec - 18
US dollar	Mexican peso	574.5	—	Dec - 19

The Company selectively uses cross-currency swaps to hedge the foreign currency exposure associated with our net investment in certain foreign operations (net investment hedges). At December 31, 2018, the following cross-currency swap contracts were outstanding. At December 31, 2017, there were no cross-currency swap derivative contracts outstanding.



	Cross-Currency Swaps
(in millions)	Notional in USD		Notional in Local Currency		Duration
Fixed $ to fixed €	$	250.0	€	206.2	Sep - 20
Fixed $ to fixed ¥	$	100.0	¥	10,977.5	Feb - 23

At December 31, 2018 and 2017, the following amounts were recorded in the Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:



(in millions)	Assets					Liabilities
Derivatives designated as hedging instruments Under Topic 815:	Location	December 31, 2018		December 31, 2017		Location	December 31, 2018		December 31, 2017
Foreign currency	Prepayments and other current assets	$	1.9	$	0.9	Accounts payable and accrued expenses	$	1.6	$	3.9
	Other non-current assets	$	—	$	0.8	Other non-current liabilities	$	0.1	$	—
Commodity	Prepayments and other current assets	$	—	$	—	Accounts payable and accrued expenses	$	0.2	$	—
Net investment hedges	Prepayments and other current assets	$	—	$	—	Accounts payable and accrued expenses	$	—	$	—
	Other non-current assets	$	11.9	$	—	Other non-current liabilities	$	—	$	—
Derivatives not designated as hedging instruments
Foreign currency	Prepayments and other current assets	$	1.1	$	—	Accounts payable and accrued expenses	$	—	$	1.1

Effectiveness for cash flow hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into accumulated other comprehensive income (loss) ("AOCI") and reclassified into income as the underlying operating transactions are recognized. These realized gains or losses offset the hedged transaction and are recorded on the same line in the statement of operations. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.

Effectiveness for net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into foreign currency translation adjustments and only released when the subsidiary being hedged is sold or substantially liquidated. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.

The table below shows deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less. The amount expected to be reclassified to income in one year or less assumes no change in the current relationship of the hedged item at December 31, 2018 market rates.



(in millions)	Deferred gain (loss) in AOCI at						Gain (loss) expected to be reclassified to income in one year or less
Contract Type	December 31, 2018			December 31, 2017
Foreign currency	$	0.1		$	(2.3	)	$	—
Commodity	(0.2		)	—			(0.2		)
Net investment hedges:	—
Foreign currency	4.5			2.9			—
Cross-currency swaps	11.9			—			—
Foreign currency denominated debt	(30.4		)	(57.1		)	—
Total	$	(14.1	)	$	(56.5	)	$	(0.2	)

Derivative instruments designated as hedging instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:



	Year Ended December 31, 2018
(in millions)	Net sales			Cost of sales			Selling, general and administrative expenses			Other comprehensive income
Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded	$	10,529.6		$	8,300.2		$	945.7		$	(170.1	)

Gain (loss) on cash flow hedging relationships:

Foreign currency
Gain (loss) recognized in other comprehensive income	$	—		$	—		$	—		$	(1.3	)
Gain (loss) reclassified from AOCI to income	$	(2.3	)	$	(1.1	)	$	(0.3	)	$	—
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring	$	—		$	—		$	—		$	—

Commodity
Gain (loss) recognized in other comprehensive income	$	—		$	—		$	—		$	(0.4	)
Gain (loss) reclassified from AOCI to income	$	—		$	(0.2	)	$	—		$	—
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring	$	—		$	—		$	—		$	—



	Year Ended December 31, 2017
(in millions)	Net sales		Cost of sales			Selling, general and administrative expenses			Other comprehensive income
Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded	$	9,799.3	$	7,683.7		$	899.1		$	232.1

Gain (loss) on cash flow hedging relationships:

Foreign currency
Gain (loss) recognized in other comprehensive income	$	—	$	—		$	—		$	(4.7	)
Gain (loss) reclassified from AOCI to income	$	3.4	$	(0.1	)	$	—		$	—
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring	$	—	$	—		$	(0.1	)	$	—

Commodity
Gain (loss) recognized in other comprehensive income	$	—	$	—		$	—		$	0.6
Gain (loss) reclassified from AOCI to income	$	—	$	0.5		$	—		$	—
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring	$	—	$	—		$	—		$	—



	Year Ended December 31, 2016
(in millions)	Net sales			Cost of sales			Selling, general and administrative expenses		Other comprehensive income
Total amounts of earnings and other comprehensive income line items in which the effects of cash flow hedges are recorded	$	9,071.0		$	7,142.3		$	818.0	$	(111.9	)

Gain (loss) on cash flow hedging relationships:

Foreign currency
Gain (loss) recognized in other comprehensive income	$	—		$	—		$	—	$	7.0
Gain (loss) reclassified from AOCI to income	$	(0.1	)	$	1.4		$	—	$	—
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring	$	—		$	—		$	0.3	$	—

Commodity
Gain (loss) recognized in other comprehensive income	$	—		$	—		$	—	$	0.6
Gain (loss) reclassified from AOCI to income	$	—		$	(1.4	)	$	—	$	—
Gain (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring	$	—		$	(0.3	)	$	—	$	—

There were no gains and (losses) recorded in income related to components excluded from the assessment of effectiveness for derivative instruments designated as cash flow hedges.

Gains and (losses) on derivative instruments designated as net investment hedges were recognized in other comprehensive income during the periods presented below.



(in millions)	Year Ended December 31,
Net investment hedges	2018		2017			2016
Foreign currency	$	1.6	$	(7.9	)	$	0.4
Cross-currency swaps	$	11.9	$	—		$	—
Foreign currency denominated debt	$	26.7	$	(83.7	)	$	16.8

Derivatives designated as net investment hedge instruments as defined by ASC Topic 815 held during the period resulted in the following gains and (losses) recorded in Interest expense and finance charges on components excluded from the assessment of effectiveness:



(in millions)	Year Ended December 31,
Net investment hedges	2018		2017		2016
Foreign currency	$	0.6	$	1.3	$	—
Cross-currency swaps	$	8.7	$	—	$	—

There were no gains and (losses) recorded in income related to components excluded from the assessment of effectiveness for foreign currency denominated debt designated as net investment hedges. There were no gains and losses reclassified from AOCI for net investment hedges during the periods presented.



		Year Ended December 31,
(in millions)		2018				2017				2016
Contract Type	Location	Gain (loss) on swaps		Gain (loss) on borrowings		Gain (loss) on swaps		Gain (loss) on borrowings		Gain (loss) on swaps		Gain (loss) on borrowings
Interest rate swap	Interest expense and finance charges	$	—	$	—	$	—	$	—	$	8.5	$	(8.5	)

Derivatives not designated as hedging instruments are used to hedge remeasurement exposures of monetary assets and liabilities denominated in currencies other than the operating units' functional currency. The gains and (losses) recorded in income from derivative instruments not designated as hedging instruments were immaterial for the periods presented.