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Derivatives and Hedging Activities
 3 Months Ended
Mar. 31, 2015
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities

Note 11 Derivatives and Hedging Activities

We report all derivative instruments on our condensed consolidated balance sheets at fair value and establish criteria for designation and effectiveness of transactions entered into for hedging purposes.

As a large global organization, we face exposure to market risks, such as fluctuations in foreign currency exchange rates and interest rates. To manage the volatility relating to these exposures, we enter into various derivative instruments from time to time under our risk management policies. We designate derivative instruments as hedges on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. We assess the initial and ongoing effectiveness of our hedging relationships in accordance with our policy. We do not purchase, hold or sell derivative financial instruments for trading purposes. Our practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if we determine the underlying forecasted transaction is no longer probable of occurring.

Foreign Currency Forward Contracts Designated as Cash Flow Hedges

The primary purposes of our cash flow hedging activities are to manage the potential changes in value associated with the amounts receivable or payable on equipment and raw material purchases that are denominated in foreign currencies in order to minimize the impact of the changes in foreign currencies. We record gains and losses on foreign currency forward contracts qualifying as cash flow hedges in other comprehensive income to the extent that these hedges are effective and until we recognize the underlying transactions in net earnings, at which time we recognize these gains and losses in other expense, net, on our condensed consolidated statements of operations.

Net unrealized after tax gains (losses) related to these contracts that were included in other comprehensive income were $1 million for the three months ended March 31, 2015 and $2 million for the three months ended March 31, 2014. The unrealized amounts in other comprehensive income will fluctuate based on changes in the fair value of open contracts during each reporting period.

Foreign Currency Forward Contracts Not Designated as Hedges

Our subsidiaries have foreign currency exchange exposure from buying and selling in currencies other than their functional currencies. The primary purposes of our foreign currency hedging activities are to manage the potential changes in value associated with the amounts receivable or payable on transactions denominated in foreign currencies and to minimize the impact of the changes in foreign currencies related to foreign currency denominated interest-bearing intercompany loans and receivables and payables. The changes in fair value of these derivative contracts are recognized in other income, net, on our condensed consolidated statements of operations and are largely offset by the remeasurement of the underlying foreign currency denominated items indicated above. These contracts generally have original maturities of less than 12 months.

Interest Rate Swaps

From time to time, we may use interest rate swaps to manage our fixed and floating interest rates on our outstanding indebtedness.

At March 31, 2015, we had no outstanding interest rate swaps. At March 31, 2014, we had $100 million notional amount of outstanding interest rate swaps, which did not materially impact our condensed consolidated results of operations or financial position.

Interest Rate and Currency Swaps

In 2014, in connection with exercising the $100 million delayed draw under the senior secured credit facility, we entered into a series of interest rate and currency swaps in a notional amount of $100 million.  These swaps convert the U.S. dollar denominated variable rate obligation under the credit facility into a fixed Brazilian real denominated obligation.  The delayed draw and the interest rate and currency swaps are used to fund expansion and general corporate purposes of our Brazilian subsidiaries.

Net Investment Hedge

In March 2015, we entered into a series of cross currency swaps with a combined notional amount of $425 million, hedging a portion of the net investment in a certain European subsidiary against fluctuations in foreign exchange rates.  For derivative instruments that are designated and qualify as hedges of net investments in foreign operations, settlements and changes in fair values of the derivative instruments are recognized in currency translation adjustment, a component of accumulated other comprehensive loss, net of taxes, to offset the changes in the values of the net investments being hedged. Any portion of the net investment hedge that is determined to be ineffective is recorded in other income, net on the condensed consolidated statements of operations.

Other Derivative Instruments

We may use other derivative instruments from time to time, such as foreign exchange options to manage exposure to foreign exchange rates and to access to international financing transactions. These instruments can potentially limit foreign exchange exposure by swapping borrowings denominated in one currency for borrowings denominated in another currency. At March 31, 2015 and 2014, we had no foreign exchange options outstanding.

Fair Value of Derivative Instruments

See Note 12, “Fair Value Measurements and Other Financial Instruments,” for a discussion of the inputs and valuation techniques used to determine the fair value of our outstanding derivative instruments.

 

The following table details the fair value of our derivative instruments included on our condensed consolidated balance sheets.

 

 

 

Fair Value of Asset

 

 

Fair Value of (Liability)

 

 

 

Derivatives

 

 

Derivatives

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

(In millions)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts (cash flow hedges)

 

$

5.5

 

 

$

4.3

 

 

$

(1.9

)

 

$

(0.4

)

Interest rate and currency swaps (cash flow hedges)

 

 

31.9

 

 

 

17.8

 

 

 

—

 

 

 

—

 

Cross-currency swaps (net investment hedges)

 

 

—

 

 

 

—

 

 

 

(13.0

)

 

 

—

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

 

64.6

 

 

 

41.3

 

 

 

(77.1

)

 

 

(67.6

)

Total

 

$

102.0

 

 

$

63.4

 

 

$

(92.0

)

 

$

(68.0

)

 

Short-term asset derivatives and liability derivatives are included in prepaid expenses and other current assets, or other current liabilities, respectively. Long-term asset derivatives and liability derivatives are included in other non-current assets or other non-current liabilities, respectively.

The following table details the effect of our derivative instruments on our condensed consolidated statements of operations.

 

 

Amount of Gain (Loss)

 

 

Recognized on Derivatives

 

 

in Earnings

 

 

Three Months Ended

 

 

March 31,

 

(In millions)

2015

 

 

2014

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts (cash flow hedges)(1)

$

0.8

 

 

$

2.3

 

Interest rate and currency swaps (cash flow hedges)(2)

 

15.1

 

 

 

—

 

Treasury locks (cash flow hedges)(3)

 

0.1

 

 

 

0.1

 

   Sub-total cash flow hedges

 

16.0

 

 

 

2.4

 

Interest rate swaps (fair value hedges)

 

0.1

 

 

 

0.5

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

32.0

 

 

 

(3.1

)

Total

$

48.1

 

 

$

(0.2

)

  

 

(1)

Amounts recognized on the foreign currency forward contracts were included in other income, net.

(2)

Amounts recognized on the interest rate and currency swaps included a $17.0 million gain which offset a loss on the remeasurement of the hedged debt, which is included in other income, net and interest expense of $2 million related to the hedge of the interest payments.

(3)

Amounts recognized on the treasury locks were included in interest expense.