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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company uses derivative financial instruments to manage interest rate and foreign currency risks, as summarized below. It is the Company's policy not to enter into derivative financial instruments for speculative purposes. Notional amounts are stated in United States dollar equivalents at spot exchange rates at the respective dates.
| Notional Amount
| September 30, 2018 |  | December 31, 2017
| (in millions)
Foreign currency forward exchange contracts | $ | 1,268.1 |  |  | $ | 979.8 |
Cross currency swap contracts | 300.0 |  |  | — |
Derivative financial instruments involve credit risk in the event the counterparty should default. It is the Company's policy to execute such instruments with global financial institutions that the Company believes to be creditworthy. The Company diversifies its derivative financial instruments among counterparties to minimize exposure to any one of these entities. The Company also uses International Swap Dealers Association master-netting agreements. The master-netting agreements provide for the net settlement of all contracts through a single payment in a single currency in the event of default, as defined by the agreements. The Company previously used interest rate swaps to convert a portion of its fixed-rate debt into variable-rate debt. These interest rate swaps were designated as fair value hedges and met the shortcut method requirements under the accounting standards for derivatives and hedging. Accordingly, changes in the fair values of the interest rate swaps were considered to exactly offset changes in the fair value of the underlying long-term debt. In December 2017, these interest rate swaps were settled. The Company uses foreign currency forward exchange contracts to manage foreign currency risks. The contracts are denominated in currencies of major industrial countries, principally the Euro and the Japanese yen. The Company uses foreign currency forward exchange contracts to offset the changes due to currency rate movements in the amount of future cash flows associated with intercompany transactions and certain local currency expenses expected to occur within the next 13 months. These foreign currency forward exchange contracts are designated as cash flow hedges. The Company uses cross currency swap contracts and foreign currency denominated debt to offset changes in the value of its net investment in certain foreign subsidiaries resulting from changes in foreign currency exchange rates. The cross currency swap contracts and the foreign currency denominated debt are designated as net investment hedges. Certain of the Company's locations have assets and liabilities denominated in currencies other than their functional currencies resulting principally from intercompany and local currency transactions. The Company uses foreign currency forward exchange contracts that are not designated as hedging instruments to offset the transaction gains and losses associated with certain of these assets and liabilities. All derivative financial instruments are recognized at fair value in the consolidated condensed balance sheets. For each derivative instrument that is designated as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets the loss or gain on the underlying hedged item. The gain or loss on the interest rate swaps (designated as fair value hedges) is classified in net interest expense, as they hedged the interest rate risk associated with the Company's fixed-rate debt. The Company reports in "Accumulated Other Comprehensive Loss" the gain or loss on derivative financial instruments that are designated, and that qualify, as cash flow hedges. The Company reclassifies these gains and losses into earnings in the same period in which the underlying hedged transactions affect earnings. Changes in the fair value of net investment hedges are reported in "Accumulated Other Comprehensive Loss" as a part of the cumulative translation adjustment and would be reclassified into earnings if the underlying net investment is sold or substantially liquidated. The portion of the change in fair value related to components excluded from the net investment hedge effectiveness assessment are amortized into earnings over the life of the derivative. The gains and losses on derivative financial instruments for which the Company does not elect hedge accounting treatment are recognized in the consolidated condensed statements of operations in each period based upon the change in the fair value of the derivative financial instrument. Cash flows from net investment hedges are reported as investing activities in the consolidated condensed statements of cash flows, and cash flows from all other derivative financial instruments are reported as operating activities. The following table presents the location and fair value amounts of derivative instruments reported in the consolidated condensed balance sheets (in millions):
|  |  |  | Fair Value
Derivatives designated as hedging instruments |  | Balance Sheet Location |  | September 30, 2018 |  | December 31, 2017
Assets |  |  |  |  |  |  |  |
Foreign currency contracts |  | Other current assets |  | $ | 28.2 |  |  | $ | 4.9 |
Liabilities |  |  |  |  |  |  |  |
Cross currency swap contracts |  | Other long-term liabilities |  | $ | 10.5 |  |  | $ | — |
Foreign currency contracts |  | Accrued and other liabilities |  | $ | 3.3 |  |  | $ | 24.8 |
The following table presents the effect of master-netting agreements and rights of offset on the consolidated condensed balance sheets (in millions):
|  |  |  |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |  |
|  |  | Gross Amounts Offset in the Consolidated Balance Sheet |  |  |  |
|  |  | Net Amounts Presented in the Consolidated Balance Sheet |  |
September 30, 2018 | Gross Amounts |  | Financial Instruments |  | Cash Collateral Received |  | Net Amount
Derivative assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts | $ | 28.2 |  |  | $ | — |  |  | $ | 28.2 |  |  | $ | (3.3 | ) |  | $ | — |  |  | $ | 24.9 |
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts | $ | 3.3 |  |  | $ | — |  |  | $ | 3.3 |  |  | $ | (3.3 | ) |  | $ | — |  |  | $ | — |
Cross currency swap contracts | $ | 10.5 |  |  | $ | — |  |  | $ | 10.5 |  |  | $ | — |  |  | $ | — |  |  | $ | 10.5 |
December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts | $ | 4.9 |  |  | $ | — |  |  | $ | 4.9 |  |  | $ | (3.7 | ) |  | $ | — |  |  | $ | 1.2 |
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts | $ | 24.8 |  |  | $ | — |  |  | $ | 24.8 |  |  | $ | (3.7 | ) |  | $ | — |  |  | $ | 21.1 |
The following tables present the effect of derivative and non-derivative hedging instruments on the consolidated condensed statements of operations and consolidated condensed statements of comprehensive income (in millions):
|  | Amount of Gain or (Loss) Recognized in OCI on Derivative |  |  |  | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
|  | Three Months Ended September 30, |  | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income |  | Three Months Ended September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Cash flow hedges |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  | $ | 12.1 |  |  | $ | (13.6 | ) |  | Cost of sales |  | $ | (4.6 | ) |  | $ | 3.1 |
|  |  |  |  |  | Selling, general, and administrative expenses |  | $ | (0.4 | ) |  | $ | (0.4 | )
|  | Amount of Gain or (Loss) Recognized in OCI on Derivative |  |  |  | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
|  | Nine Months Ended September 30, |  | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income |  | Nine Months Ended September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Cash flow hedges |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  | $ | 28.2 |  |  | $ | (39.7 | ) |  | Cost of sales |  | $ | (18.8 | ) |  | $ | 7.8 |
|  |  |  |  |  | Selling, general, and administrative expenses |  | $ | (2.5 | ) |  | $ | (0.2 | )
|  | Amount of Gain or (Loss) Recognized in OCI on Derivative |  |  |  | Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
|  | Three Months Ended September 30, |  | Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) |  | Three Months Ended September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Net investment hedges |  |  |  |  |  |  |  |  |  |
Cross currency swap contracts |  | $ | (0.5 | ) |  | $ | — |  |  | Interest expense (income), net |  | $ | 1.6 |  |  | $ | — |
Foreign currency denominated debt |  | $ | — |  |  | $ | (16.9 | ) |  |  |  |  |  |
|  | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) |  |  |  | Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
|  | Nine Months Ended September 30, |  | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income |  | Nine Months Ended September 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Net investment hedges |  |  |  |  |  |  |  |  |  |
Cross currency swap contracts |  | $ | (10.5 | ) |  | $ | — |  |  | Interest expense (income), net |  | $ | 1.8 |  |  | $ | — |
Foreign currency denominated debt |  | $ | 6.8 |  |  | $ | (32.5 | ) |  |  |  |  |  |
In June 2018, the Company repaid and dedesignated its €370.0 million of outstanding long-term debt which had been previously designated as a net investment hedge, and concurrently entered into cross currency swap contracts, which were designated as a net investment hedge. The cross currency swaps have an expiration date of June 15, 2028. At maturity of the cross currency swap contracts, the Company will deliver the notional amount of €257.2 million and will receive $300.0 million from the counterparties. The Company will receive semi-annual interest payments from the counterparties based on a fixed interest rate until maturity of the agreements.
|  |  |  | Amount of Gain or (Loss) Recognized in Income on Derivative
|  |  |  | Three Months Ended September 30,
|  | Location of Gain or (Loss) Recognized in Income on Derivative |
Fair value hedges |  | 2018 |  | 2017
Interest rate swap agreements |  | Interest expense (income), net |  | $ | — |  |  | $ | (0.1 | )
|  |  |  | Amount of Gain or (Loss) Recognized in Income on Derivative
|  |  |  | Nine Months Ended September 30,
|  | Location of Gain or (Loss) Recognized in Income on Derivative |
Fair value hedges |  | 2018 |  | 2017
Interest rate swap agreements |  | Interest expense (income), net |  | $ | — |  |  | $ | 0.1 |
In December 2017, the interest rate swap agreements were settled at a loss of $0.7 million, which is being amortized to interest expense over the remaining life of the debt.
|  |  |  | Amount of Gain or (Loss) Recognized in Income on Derivative
|  |  |  | Three Months Ended September 30,
|  | Location of Gain or (Loss) Recognized in Income on Derivative |
Derivatives not designated as hedging instruments |  | 2018 |  | 2017
Foreign currency contracts |  | Other (income) expense, net |  | $ | 5.9 |  |  | $ | (6.2 | )
|  |  |  | Amount of Gain or (Loss) Recognized in Income on Derivative
|  |  |  | Nine Months Ended September 30,
|  | Location of Gain or (Loss) Recognized in Income on Derivative |
Derivatives not designated as hedging instruments |  | 2018 |  | 2017
Foreign currency contracts |  | Other (income) expense, net |  | $ | 7.3 |  |  | $ | (12.8 | )
The following table presents the effect of cash flow hedge accounting on the consolidated condensed statements of operations:
| Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
| Three Months Ended September 30, 2018 |  | Nine Months Ended September 30, 2018
| Cost of sales |  | Selling, general, and administrative expenses |  | Interest expense (income), net |  | Cost of sales |  | Selling, general, and administrative expenses |  | Interest expense (income), net
Total amounts of income and expense line items presented in the consolidated condensed statements of operations in which the effects of cash flow hedges are recorded | $ | (224.9 | ) |  | $ | (269.5 | ) |  | $ | (0.5 | ) |  | $ | (704.7 | ) |  | $ | (800.4 | ) |  | $ | 0.3 |
The effects of cash flow hedging: |  |  |  |  |  |  |  |  |  |  |
Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts: |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain (loss) reclassified from accumulated OCI into income | $ | (4.6 | ) |  | $ | (0.4 | ) |  | $ | — |  |  | $ | (18.8 | ) |  | $ | (2.5 | ) |  | $ | — |
The Company expects that during the next twelve months it will reclassify to earnings a $2.4 million gain currently recorded in "Accumulated Other Comprehensive Loss."

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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