XML 38 R18.htm IDEA: XBRL DOCUMENT v3.3.1.900
Derivative Instruments
 12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
DERIVATIVE INSTRUMENTS
In the normal course of business, the Company is exposed to risks relating to changes in foreign currency exchange rates, interest rates and commodity prices. Derivative financial instruments, such as foreign currency exchange rate instruments and interest rate swaps, are used to manage changes in market conditions related to foreign currency exchange rate and interest rate volatility. All derivatives are recognized in the Consolidated Balance Sheets at fair value. The counterparties to the Company’s derivative agreements are major international financial institutions. The Company continually monitors its derivative positions and the credit ratings of its counterparties and does not anticipate nonperformance by the counterparties.
Foreign Currency
The Company conducts a significant portion of its business in currencies other than the U.S. Dollar, the currency in which the Consolidated Financial Statements are reported, and as a result, the Company’s operating results are affected by foreign currency exchange rate volatility relative to the U.S. Dollar.
As of December 31, 2015, the aggregate U.S. Dollar notional amount of foreign currency forward contracts, none of which were designated as hedges, totaled $254 million, all with settlement dates within one year. The majority of forward contracts are in U.S. Dollars ($217 million) and Euros (€26.6 million), with lesser amounts in Chinese Yuans, British Pounds, New Zealand Dollars and Australian Dollars. The market value of forward contracts are determined using pricing models based upon observable market inputs including both forward and spot prices for the underlying currencies. The net fair value of the foreign currency forward contracts is included in "Foreign exchange (loss) gain" in the Consolidated Statement of Operations.
In connection with the Alent Acquisition, during July 2015, the Company entered into zero-cost, deal-contingent contracts to purchase £1.06 billion ($1.64 billion at the July 13, 2015 announcement date spot rate of 1.5487) in order to hedge against foreign currency effects on the acquisition cash purchase price. The contracts consisted of £530 million of contingent forward contracts and £530 million of contingent options. Upon settlement, the contracts had a weighted average strike price of 1.6053. However, during November 2015, the Company took advantage of a weakened sterling and further reduced its foreign currency exposure by entering into a series of call and put options against the sterling to replace its out-of-the-money contingent options and to synthetically create a forward contract to purchase £530 million at a weighted average strike price of 1.5177. For the year ended December 31, 2015, the Company recorded fair value losses of $73.7 million in "Gain (loss) on derivative contracts" in the Consolidated Statements of Operations related the Alent Acquisition foreign currency options.
In September 2014, in connection with the Agriphar and CAS Acquisitions, the Company entered into two separate foreign exchange forward contracts. The first contract was for the Company to buy €277 million at a rate of 1.2878, which was settled on October 1, 2014 with a realized loss of $7.0 million and recorded in "Gain (loss) on derivative contracts" in the Consolidated Statements of Operations. The second contract was for the Company to sell €204 million at a rate of 1.2840 which was settled upon closing of the CAS acquisition on November 3, 2014 with a realized gain of $7.3 million that was also recorded in "Gain (loss) on derivative contracts" in the Consolidated Statements of Operations.
Interest Rates
In August 2015, the Company entered into a series of pay-fixed, receiving-floating interest rate swaps with respect to a portion of its indebtedness that meet the criteria to be accounted for as cash flow hedges. The swaps effectively fix the floating base rate portion of the interest payments on approximately $1.16 billion of the Company's USD denominated debt and €285 million of its Euro denominated debt at 1.96% and 1.20%, respectively, from September 2015 through June 2020.
Changes in the fair value of a derivative that is designated as, and meets all the required criteria for, a cash flow hedge are recorded in "Accumulated other comprehensive income (loss)" and reclassified into earnings as the underlying hedged item affects earnings. Amounts reclassified into earnings related to the interest rate swaps are included in interest expense.
Commodities
As part of its risk management policy, the Company enters into commodities forward contracts on an ongoing basis for the purpose of mitigating its exposure to fluctuations in prices of certain metals it uses in the production of its finished goods.  The Company held forward contracts to purchase various metals for a notional amount of $16.5 million as of December 31, 2015.  The Company has not designated these derivatives as hedging instruments and has recognized $0.3 million of gains related to fair market value adjustments in “Gain (loss) on derivative contracts” in the Consolidated Statements of Operations for the year ended December 31, 2015.
Under certain circumstances, the Company is required to split and account separately for derivatives that are embedded within certain binding sales or purchase contracts.  Two of the Company’s subsidiaries, Enthone Inc. and Enthone BV, have entered into supply agreements with a third party whereby metals used in production are provided on an as-needed basis with purchase deferred until the metals are used in production.  As risk of loss passes to the Company at the delivery date and the purchase price for the metals delivered is not set at the time of delivery, these contracts have been deemed to constitute financing agreements with an embedded derivative feature whose fair value is determined by the change in market value of the underlying metals between the delivery date and measurement date.  In each agreement, the Company guarantees the indebtedness and liability of Enthone Inc. and Enthone BV.  The host contract represents a supply agreement and is, therefore, not recorded in the Consolidated Balance Sheets.

The embedded derivative feature is subject to fair value accounting at each financial statement date until settled.  The fair value of the embedded derivative is recorded as a liability in the Consolidated Balance Sheets and remeasured each reporting period based on relevant period-end spot rates.  Assets associated with these purchase contracts, which serve as the notional value of the embedded derivative, have been recorded in "Inventory" in the Consolidated Balance Sheets and totaled $13.0 million as of December 31, 2015. Liabilities associated with these purchase contracts are included in "Current installments of long-term debt and revolving credit facilities" in the Consolidated Balance Sheets and totaled $13.0 million as of December 31, 2015. As of December 31, 2015, the fair value of the embedded derivative liability was immaterial.
The following table summarizes the fair value of derivative instruments reported in the Consolidated Balance Sheets:
 (amounts in millions)
 
 
 
December 31, 2015
 
December 31, 2014
 
 
 
 
U.S. Dollar Amount
 
U.S. Dollar Amount
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
Liabilities Balance Sheet Location
 
 
 
 
Interest rate swaps
 
Other long-term liabilities
 
$
12.5

 
$
—

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Assets Balance Sheet Location
 
 
 
 
Foreign exchange and metals contracts
 
Prepaid expenses & other current assets
 
1.1

 
—

Foreign exchange contracts
 
Other assets
 
1.0

 
—

 
 
Liabilities Balance Sheet Location
 
 

 
 

Foreign exchange contracts
 
Accrued expenses and other current liabilities
 
1.0

 
0.1

Total derivative contracts asset/(liability)
 
 
 
$
(11.4
)
 
$
(0.1
)

For the years ended December 31, 2015 and 2014, the Company recorded unrealized losses of $12.5 million and $0.2 million, respectively, in Other Comprehensive Income related primarily to interest rate swaps. For the Successor and Predecessor 2013 Periods, gains (losses) totaled $0.2 million and $(0.3) million, respectively.
For the years ended December 31, 2015 and 2014, the Company recorded realized and unrealized (losses) gains of $(74.0) million and $0.4 million, respectively, in "(Loss) gain on derivative contracts" related to foreign currency derivative contracts. For the Successor and Predecessor 2013 Periods, gains (losses) totaled $0.1 million and $(0.3) million, respectively.