XML 44 R25.htm IDEA: XBRL DOCUMENT v3.3.1.900
Hedging Instruments
 12 Months Ended
Dec. 31, 2015
Hedging Instruments [Abstract]  
Hedging Instruments

Note 17.      HEDGING Instruments

 

Disclosure within this footnote is presented to provide transparency about how and why we use derivative and non-derivative instruments (collectively “hedging instruments”) and how the hedging instruments and related hedged items affect our financial position, results of operations, and cash flows. See Note 2 for a discussion surrounding our hedging instruments and hedging accounting policies, Note 16 for additional information regarding the fair value of our derivative instruments and Note 19 for additional information regarding the effect of derivative instruments designated as cash flow hedges on the consolidated statement of operations.

 

We are exposed to certain risks related to our ongoing business operations. The primary risks that we manage by using hedging instruments are foreign currency exchange risk and interest rate risk. Our subsidiaries enter into foreign currency exchange contracts to manage the exchange risk associated with their forecasted intercompany inventory purchases and sales for the next year. From time to time, we may also enter into other foreign currency exchange contracts or foreign-denominated debt issuances to minimize the impact of foreign currency fluctuations associated with specific balance sheet exposures, including net investments in certain foreign subsidiaries. We enter into interest rate swaps to minimize the impact of interest rate fluctuations associated with borrowings under our variable-rate Credit Facility.

 

The primary purpose of our foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions, including transactions denominated in euro, British pound, Japanese yen, Canadian dollar, Australian dollar and Swiss franc. We also utilize natural hedges to mitigate our transaction and commitment exposures. Our corporate policy prescribes the range of allowable hedging activity. We enter into foreign currency exchange contracts with well-capitalized multinational financial institutions, and we do not hold or engage in transactions involving hedging instruments for purposes other than risk management. Our accounting policies for these contracts are based on our designation of such instruments as hedging transactions.

 

Cash Flow Hedges

 

We have designated our foreign currency exchange contracts and variable-to-fixed interest rate swaps as cash flow hedges as these derivative instruments mitigate the exposure to variability in the cash flows of forecasted transactions attributable to foreign currency exchange and interest rates. Unless noted otherwise, we have also designated our derivative instruments as qualifying for hedge accounting treatment.

 

We did not de-designate any instruments from hedge accounting treatment during the years ended December 31, 2015, 2014 and 2013. Gains or losses related to hedge ineffectiveness recognized in earnings during the years ended December 31, 2015, 2014 and 2013 were not material.  At December 31, 2015, the estimated amount of net gains, net of income tax expense, which are expected to be reclassified out of AOCI and into earnings within the next twelve months is $2.3 million if exchange and interest rates do not fluctuate from the levels at December 31, 2015.

 

We hedge approximately 85% of the estimated exposure from intercompany product purchases and sales denominated in the euro, British pound, Canadian dollar, Japanese yen, Australian dollar and Swiss franc.  We have additional unhedged foreign currency exposures related to foreign services and emerging markets where it is not practical to hedge. We primarily utilize foreign currency exchange contracts with durations of less than 24 months. Quarterly, we enter into contracts to hedge incremental portions of anticipated foreign currency transactions for the current and following year. As a result, our risk with respect to foreign currency exchange rate fluctuations and the notional value of foreign currency exchange contracts may vary throughout the year. The U.S. dollar is the currency purchased or sold in all of our foreign currency exchange contracts. The notional amount of foreign currency exchange contracts to hedge forecasted intercompany inventory purchases and sales totaled $176.1 million and $186.7 million at December 31, 2015 and December 31, 2014, respectively.

 

We have entered into forward fixed interest rate swap agreements to manage the economic effect of variable interest obligations on amounts borrowed under the terms of our Credit Facility. Beginning on March 30, 2012, the variable interest rate associated with $40 million of borrowings outstanding under the Credit Facility became effectively fixed at 1.36% plus the range of applicable interest rate fixed credit spreads (“Credit Spread”) through June 30, 2016. Beginning on March 28, 2013, the variable interest rate associated with an additional $40 million of borrowings outstanding under the Credit Facility became effectively fixed at 1.64% plus the Credit Spread through June 30, 2016.

 

Net Investment Hedge

 

In June 2015, we issued and sold our 2025 Notes through a private placement an aggregate principal amount of €88.9 million (approximately USD $100 million). We have designated these euro-denominated notes as a hedge of our euro net investment in certain foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the euro relative to the U.S. dollar. As a result of this designation, gains and losses from the change in translated U.S. dollar value of these euro-denominated notes are recorded in AOCI rather than to earnings. We recorded a $1.9 million gain, net of income tax, within AOCI as a result of this net investment hedge for the year ended December 31, 2015. This unrealized gain recorded at December 31, 2015 will not be reclassified in earnings until the complete or substantially complete liquidation of the net investment in the hedged foreign operations or all or a portion of the hedge no longer qualifies for hedge accounting treatment. See Note 11 to the consolidated financial statements included in this Annual Report on Form 10-K for further information regarding the issuance of these 2025 Notes. 

 

Fair Values of Hedging Instruments Designated as Hedges in Consolidated Balance Sheets

 

The fair values of hedging instruments, and their respective classification on the consolidated balance sheets and amounts subject to offset under master netting arrangements consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging Assets

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

 2015 

 

 

 2014 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

Balance Sheet Classification

 

 

 

 

 

 

Foreign currency exchange contracts

 

Other current assets

 

$

 4,876 

 

$

 12,226 

Gross amounts subject to master netting arrangements not offset on the balance sheet

 

 

 1,268 

 

 

 1,323 

Net amount

 

 

 

$

 3,608 

 

$

 10,903 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging Liabilities

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

 2015 

 

 

 2014 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

Balance Sheet Classification

 

 

 

 

 

 

Foreign currency exchange contracts

 

Accrued liabilities

 

$

 1,365 

 

$

 1,323 

Interest rate swaps

 

Accrued liabilities

 

 

 384 

 

 

 1,117 

Total derivative instruments presented as cash flow hedges on the balance sheet

 

 

 1,749 

 

 

 2,440 

Foreign currency borrowings designated as net investment hedge on the balance sheet

 

Long-term debt

 

 

 97,085 

 

 

 -

Total hedging instruments presented on the balance sheet

 

 

 

 

 98,834 

 

 

 2,440 

Gross amounts subject to master netting arrangements not offset on the balance sheet

 

 

 

 

 1,268 

 

 

 1,323 

Net amount

 

 

 

$

 97,566 

 

$

 1,117 

 

The effect of derivative instruments designated as cash flow hedges on the consolidated balance sheets for the years ended December 31, 2015, 2014 and 2013 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in AOCI on Derivative Instruments (Effective Portion)

 

 

 

 

For Year Ended December 31,

 

Derivative instruments

 

 

 

 2015 

 

 

 2014 

 

 

 2013 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange contracts, net of tax

 

 

$

 (5,604)

 

$

 7,098 

 

$

 1,350 

 

Interest rate swaps, net of tax

 

 

 

 461 

 

 

 442 

 

 

 541 

 

Total derivative instruments, net of tax

 

 

$

 (5,143)

 

$

 7,540 

 

$

 1,891