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DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 27, 2014
DERIVATIVE FINANCIAL INSTRUMENTS |
DERIVATIVE FINANCIAL INSTRUMENTS | (11) DERIVATIVE FINANCIAL INSTRUMENTS Currency Forward Contracts We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency exchange rates. Our objective is to preserve the economic value of non-functional currency-denominated cash flows and to minimize the impact of changes as a result of currency fluctuations. Our principal currency exposures relate to the Euro, South African Rand, Chinese Yuan and Great Britain Pound. From time to time, we enter into forward contracts to manage the exposure on contracts with forecasted transactions denominated in non-functional currencies and to manage the risk of transaction gains and losses associated with assets/liabilities denominated in currencies other than the functional currency of certain subsidiaries (“FX forward contracts”). In addition, some of our contracts contain currency forward embedded derivatives (“FX embedded derivatives”), because the currency of exchange is not “clearly and closely” related to the functional currency of either party to the transaction. Certain of our FX forward contracts are designated as cash flow hedges. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings, but are included in accumulated other comprehensive income (“AOCI”). These changes in fair value are reclassified into earnings as a component of revenues or cost of products sold, as applicable, when the forecasted transaction impacts earnings. In addition, if the forecasted transaction is no longer probable, the cumulative change in the derivatives’ fair value is recorded as a component of “Other income (expense), net” in the period in which the transaction is no longer considered probable of occurring. To the extent a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period in which it occurs. We had FX forward contracts with an aggregate notional amount of $200.9 and $191.3 outstanding as of September 27, 2014 and December 31, 2013, respectively, with all such contracts scheduled to mature within the next 12 months. We also had FX embedded derivatives with an aggregate notional amount of $150.1 and $145.8 at September 27, 2014 and December 31, 2013, respectively. The unrealized losses, net of taxes, recorded in AOCI related to FX forward contracts were $0.8 and $1.0 as of September 27, 2014 and December 31, 2013, respectively. We anticipate reclassifying the unrealized loss as of September 27, 2014 to income within 12 months. Commodity Contracts From time to time, we enter into commodity contracts to manage the exposure on forecasted purchases of commodity raw materials. At September 27, 2014 and December 31, 2013, the outstanding notional amount of commodity contracts was 6.4 and 3.4 pounds of copper, respectively. We designate and account for these contracts as cash flow hedges and, to the extent these commodity contracts are effective in offsetting the variability of the forecasted purchases, the change in fair value is included in AOCI. We reclassify AOCI associated with our commodity contracts to cost of products sold when the forecasted transaction impacts earnings. As of September 27, 2014 and December 31, 2013, the fair value of these contracts was $0.7 (current liabilities) and $0.4 (current assets), respectively. The unrealized gain (loss), net of taxes, recorded in AOCI was $(0.4) and $0.2 as of September 27, 2014 and December 31, 2013, respectively. We anticipate reclassifying the unrealized loss as of September 27, 2014 to income within 12 months. The following summarizes the gross and net fair values of our FX forward and commodity contracts by counterparty at September 27, 2014 and December 31, 2013, respectively:
|  | September 27, 2014 |  | December 31, 2013 |
|  | Gross Assets |  | Gross Liabilities |  | Net Assets / Liabilities |  | Gross Assets |  | Gross Liabilities |  | Net Assets / Liabilities |
FX forward contracts: |  |  |  |  |  |  |  |  |  |  |  |  |
Counterparty A |  | $ | 0.2 |  | $ | (0.1 | ) | $ | 0.1 |  | $ | 0.7 |  | $ | (0.1 | ) | $ | 0.6 |
Counterparty B |  | 0.1 |  | (1.8 | ) | (1.7 | ) | 0.1 |  | (0.4 | ) | (0.3 | )
Aggregate of other counterparties |  | 0.1 |  | (0.8 | ) | (0.7 | ) | 0.3 |  | — |  | 0.3 |
Totals (1) |  | $ | 0.4 |  | $ | (2.7 | ) | $ | (2.3 | ) | $ | 1.1 |  | $ | (0.5 | ) | $ | 0.6 |
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |  |
Counterparty A (2) |  | $ | — |  | $ | (0.7 | ) | $ | (0.7 | ) | $ | 0.4 |  | $ | — |  | $ | 0.4 |
(1) We enter into arrangements designed to provide the right of setoff in the event of counterparty default or insolvency, and have elected to offset the fair values of our qualifying financial instruments in our condensed consolidated balance sheets. Amounts presented in our condensed consolidated balance sheets are as follows:
|  | September 27, |  | December 31, |
|  | 2014 |  | 2013 |
Designated as hedging instruments: |  |  |  |  |
Other current assets |  | $ | 0.1 |  | $ | 0.3 |
Not designated as hedging instruments: |  |  |  |  |
Other current assets |  | — |  | 0.6 |
Accrued expenses |  | (2.4 | ) | (0.3 | )
|  | (2.4 | ) | 0.3 |
Net fair value of FX forward contracts |  | $ | (2.3 | ) | $ | 0.6 |
(2) Related contracts are designated as hedging instruments. Net amounts at September 27, 2014 and December 31, 2013 are recorded in “Accrued expenses” and “Other current assets,” respectively. The following summarizes the fair value of our FX embedded derivative instruments, which are not designated as hedging instruments, and the related balance sheet classification as of September 27, 2014 and December 31, 2013:
|  | September 27, |  | December 31, |
Balance Sheet Classification |  | 2014 |  | 2013 |
Other current assets |  | $ | 1.7 |  | $ | 0.7 |
Other assets |  | 0.9 |  | — |
Accrued expenses |  | (5.0 | ) | (6.5 | )
Other long-term liabilities |  | (1.2 | ) | (2.1 | )
|  | $ | (3.6 | ) | $ | (7.9 | )
The following summarizes the pre-tax gain (loss) recognized in AOCI resulting from derivative financial instruments designated as cash flow hedging relationships for the three and nine months ended September 27, 2014 and September 28, 2013:
|  | Three months ended |  | Nine months ended |
|  | September 27, 2014 |  | September 28, 2013 |  | September 27, 2014 |  | September 28, 2013 |
FX forward contracts |  | $ | 0.1 |  | $ | (0.2 | ) | $ | 0.6 |  | $ | (4.2 | )
Commodity contracts |  | (0.8 | ) | 0.8 |  | (1.5 | ) | (1.5 | )
|  | $ | (0.7 | ) | $ | 0.6 |  | $ | (0.9 | ) | $ | (5.7 | )
The following summarizes the pre-tax loss related to derivative financial instruments designated as cash flow hedging relationships reclassified from AOCI to income through ‘‘Revenues’’ for FX forward contracts and ‘‘Cost of products sold’’ for commodity contracts for the three and nine months ended September 27, 2014 and September 28, 2013:
|  | Three months ended |  | Nine months ended |
|  | September 27, 2014 |  | September 28, 2013 |  | September 27, 2014 |  | September 28, 2013 |
FX forward contracts |  | $ | — |  | $ | (2.1 | ) | $ | — |  | $ | (3.0 | )
Commodity contracts |  | (0.3 | ) | (0.6 | ) | (0.5 | ) | (0.5 | )
|  | $ | (0.3 | ) | $ | (2.7 | ) | $ | (0.5 | ) | $ | (3.5 | )
During the nine months ended September 28, 2013, losses of $0.2 were recognized in ‘‘Other income (expense), net’’ relating to derivative ineffectiveness and amounts excluded from effectiveness testing. The following summarizes the gain (loss) recognized in ‘‘Other income (expense), net’’ for the three and nine months ended September 27, 2014 and September 28, 2013 related to derivative financial instruments not designated as cash flow hedging relationships:
|  | Three months ended |  | Nine months ended |
|  | September 27, 2014 |  | September 28, 2013 |  | September 27, 2014 |  | September 28, 2013 |
FX forward contracts |  | $ | (4.6 | ) | $ | 0.9 |  | $ | (2.8 | ) | $ | (1.0 | )
FX embedded derivatives |  | 3.1 |  | (0.8 | ) | 1.0 |  | 4.9 |
|  | $ | (1.5 | ) | $ | 0.1 |  | $ | (1.8 | ) | $ | 3.9 |

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5618551-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624181-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624163-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5708773-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624177-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579245-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5579240-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41641-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35706170&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=35706170&loc=SL5624171-113959 + Details
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