Financial Instruments | 3 Months Ended |
Mar. 31, 2014 |
Text Block [Abstract] | ' |
Financial Instruments | ' |
Financial Instruments |
We employ established policies and procedures to manage our exposure to changes in interest rates and foreign currencies. We use foreign exchange forward contracts to hedge short-term foreign currency denominated loans, investments and certain third-party and intercompany transactions. We may also use foreign exchange forward contracts to hedge our net investments in our foreign subsidiaries and foreign exchange option contracts to reduce the volatility that fluctuating foreign exchange rates may have on our international earnings streams. In addition, we may use interest rate derivatives to hedge a portion of the interest rate exposure on our outstanding debt or in anticipation of a future debt issuance, as discussed under “Interest Rate Risk Management” below. |
We do not use derivative financial instruments for trading or speculative purposes. If a hedging instrument ceases to qualify as a hedge in accordance with hedge accounting guidelines, any subsequent gains and losses are recognized currently in income. Collateral is generally not required for these types of instruments. |
By their nature, all such instruments involve risk, including the credit risk of non-performance by counterparties. However, at March 31, 2014 and December 31, 2013, there was no significant risk of loss in the event of non-performance of the counterparties to these financial instruments. We control our exposure to credit risk through monitoring procedures. |
Our trade receivables do not represent a significant concentration of credit risk at March 31, 2014 and December 31, 2013, because we sell to a large number of customers in different geographical locations and industries. |
Interest Rate Risk Management |
Our objective in managing our exposure to interest rates is to limit the impact of interest rate changes on our earnings, cash flows and financial position, and to lower our overall borrowing costs. To achieve these objectives, we maintain a policy that floating-rate debt be managed within a minimum and maximum range of our total debt exposure. To manage our exposure and limit volatility, we may use fixed-rate debt, floating-rate debt and/or interest rate swaps. We recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. As of March 31, 2014, we did not have any interest rate derivatives outstanding. |
Fair Value Hedges |
For interest rate derivative instruments that are designated and qualify as a fair value hedge, we assess quarterly whether the interest rate swaps are highly effective in offsetting changes in the fair value of the hedged debt. Changes in fair values of interest rate swap agreements that are designated fair-value hedges are recognized in earnings as an adjustment of “Other Income (Expense) – Net” in the unaudited consolidated statements of operations and comprehensive income. The effectiveness of the hedge is monitored on an ongoing basis for hedge accounting purposes, and if the hedge is considered ineffective, we discontinue hedge accounting prospectively. |
In November 2010, we issued senior notes with a face value of $300 million that mature on November 15, 2015 (the "2015 notes”). In November and December 2010, we entered into interest rate derivative transactions with aggregate notional amounts of $125 million. The objective of these hedges was to offset the change in fair value of the fixed rate 2015 notes attributable to changes in LIBOR. These transactions have been accounted for as fair value hedges. We have recognized the gain or loss on the derivative instruments, as well as the offsetting loss or gain on the hedged item, in “Other Income (Expense) – Net” in the unaudited consolidated statements of operations and comprehensive income. |
In March 2012, in connection with our objective to manage our exposure to interest rate changes and our policy to manage our fixed and floating-rate debt mix, the interest rate derivatives discussed in the previous paragraph were terminated. This resulted in a gain of $0.3 million and the receipt of $5.0 million in cash on March 12, 2012, the swap termination settlement date. The gain of $0.3 million was recorded in “Other Income (Expense)—Net” in the consolidated statement of operations and comprehensive income during the year ended December 31, 2012. |
Approximately $0.8 million of derivative gains offset by a $0.5 million loss on the fair value adjustment related to the hedged debt were recorded through the date of termination in the results for the three months ended March 31, 2012. The $4.9 million adjustment in the carrying amount of the hedged debt at the date of termination is being amortized as an offset to “Interest Expense” in our consolidated statement of operations and comprehensive income over the remaining term of the 2015 notes. Approximately $0.3 million of amortization was recorded during the three months ended March 31, 2014, resulting in a balance of $2.2 million in the unaudited consolidated balance sheet at March 31, 2014. |
Cash Flow Hedges |
For interest rate derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the periodic hedge remeasurement gains or losses on the derivative are reported as a component of other comprehensive income ("OCI") and reclassified to earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. |
Foreign Exchange Risk Management |
Our objective in managing exposure to foreign currency fluctuations is to reduce the volatility caused by foreign exchange rate changes on the earnings, cash flows and financial position of our international operations. We follow a policy of hedging balance sheet positions denominated in currencies other than the functional currency applicable to each of our various subsidiaries. In addition, we are subject to foreign exchange risk associated with our international earnings and net investments in our foreign subsidiaries. We use short-term, foreign exchange forward and option contracts to execute our hedging strategies. Typically, these contracts have maturities of 12 months or less. These contracts are denominated primarily in the British pound sterling, the Euro and Canadian dollar. The gains and losses on the forward contracts associated with the balance sheet positions are recorded in “Other Income (Expense) – Net” in the unaudited consolidated statements of operations and comprehensive income and are essentially offset by the losses and gains on the underlying foreign currency transactions. |
As in prior years, we have hedged substantially all balance sheet positions denominated in a currency other than the functional currency applicable to each of our various subsidiaries with short-term, foreign exchange forward contracts. In addition, we may use foreign exchange option contracts to hedge certain foreign earnings streams and foreign exchange forward contracts to hedge certain net investment positions. The underlying transactions and the corresponding foreign exchange forward and option contracts are marked-to-market at the end of each quarter and the fair value impacts are reflected within the unaudited consolidated financial statements. |
As of March 31, 2014 and 2013, the notional amounts of our foreign exchange contracts were $295.9 million and $280.5 million, respectively. |
Fair Values of Derivative Instruments in the Consolidated Balance Sheet |
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| Asset Derivatives | | Liability Derivatives |
| 31-Mar-14 | | 31-Dec-13 | | 31-Mar-14 | | 31-Dec-13 |
| Balance Sheet | | Fair Value | | Balance Sheet | | Fair Value | | Balance Sheet | | Fair Value | | Balance Sheet | | Fair Value |
Location | Location | Location | Location |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | |
Foreign exchange forward contracts | Other Current | | $ | 0.2 | | | Other Current | | $ | 0.4 | | | Other Accrued & | | $ | 0.3 | | | Other Accrued & | | $ | 0.4 | |
Assets | Assets | Current Liabilities | Current Liabilities |
Total derivatives not designated as hedging instruments | | | $ | 0.2 | | | | | $ | 0.4 | | | | | $ | 0.3 | | | | | $ | 0.4 | |
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Total Derivatives | | | $ | 0.2 | | | | | $ | 0.4 | | | | | $ | 0.3 | | | | | $ | 0.4 | |
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Our foreign exchange forward and option contracts are not designated as hedging instruments under authoritative guidance. |
The Effect of Derivative Instruments on the Consolidated Statement of Operations and Comprehensive Income |
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Derivatives Not Designated as Hedging | Location of Gain or (Loss) Recognized in | | Amount of Gain or (Loss) Recognized in Income on Derivatives | | | | | | | | | | | | | | |
Instruments | Income on Derivatives | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | | | | | | | | | | | | | |
| | | 2014 | | 2013 | | | | | | | | | | | | | | |
Foreign exchange forward contracts | Non-Operating Income (Expenses) – Net | | $ | (4.9 | ) | | $ | (5.3 | ) | | | | | | | | | | | | | | |
Fair Value of Financial Instruments |
Our financial assets and liabilities that are reflected in the consolidated financial statements include derivative financial instruments, cash and cash equivalents, accounts receivable, other receivables, accounts payable, short-term borrowings and long-term borrowings. We use short-term foreign exchange forward contracts to hedge short-term foreign currency-denominated intercompany loans and certain third-party and intercompany transactions and we use foreign exchange option contracts to reduce the volatility that fluctuating foreign exchange rates may have on our international earnings streams. Fair value for derivative financial instruments is determined utilizing a market approach. |
We have a process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, we use quotes from independent pricing vendors based on recent trading activity and other relevant information including market interest rate curves and referenced credit spreads. |
In addition to utilizing external valuations, we conduct our own internal assessment of the reasonableness of the external valuations by utilizing a variety of valuation techniques including Black-Scholes option pricing and discounted cash flow models that are consistently applied. Inputs to these models include observable market data, such as yield curves, and foreign exchange rates where applicable. Our assessments are designed to identify prices that do not accurately reflect the current market environment, those that have changed significantly from prior valuations and other anomalies that may indicate that a price may not be accurate. We also follow established routines for reviewing and reconfirming valuations with the pricing provider, if deemed appropriate. In addition, the pricing provider has an established challenge process in place for all valuations, which facilitates identification and resolution of potentially erroneous prices. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality and our own creditworthiness and constraints on liquidity. For inactive markets that do not have observable pricing or sufficient trading volumes, or for positions that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate will be used. |
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. |
The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value. Level inputs, as defined by authoritative guidance, are as follows: |
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Level Input: | Input Definition: | | | | | | | | | | | | | | | | | | | | | | |
Level I | Observable inputs utilizing quoted prices (unadjusted) for identical assets or liabilities in active markets at the measurement date. | | | | | | | | | | | | | | | | | | | | | | |
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Level II | Inputs other than quoted prices included in Level I that are either directly or indirectly observable for the asset or liability through corroboration with market data at the measurement date. | | | | | | | | | | | | | | | | | | | | | | |
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Level III | Unobservable inputs for the asset or liability in which little or no market data exists therefore requiring management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. | | | | | | | | | | | | | | | | | | | | | | |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. |
The following table summarizes fair value measurements by level at March 31, 2014 for assets and liabilities measured at fair value on a recurring basis: |
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| Quoted Prices in | | Significant Other | | Significant | | Balance at March 31, 2014 | | | | | | | | |
Active Markets | Observable | Unobservable | | | | | | | | |
for Identical | Inputs (Level II) | Inputs | | | | | | | | |
Assets (Level I) | | (Level III) | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Cash Equivalents (1) | $ | 98.7 | | | $ | — | | | $ | — | | | $ | 98.7 | | | | | | | | | |
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Other Current Assets: | | | | | | | | | | | | | | | |
Foreign Exchange Forwards (2) | $ | — | | | $ | 0.2 | | | $ | — | | | $ | 0.2 | | | | | | | | | |
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Liabilities: | | | | | | | | | | | | | | | |
Other Accrued and Current Liabilities: | | | | | | | | | | | | | | | |
Foreign Exchange Forwards (2) | $ | — | | | $ | 0.3 | | | $ | — | | | $ | 0.3 | | | | | | | | | |
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-1 | Cash equivalents represent fair value as it consists of highly liquid investments with an original maturity of three months or less. | | | | | | | | | | | | | | | | | | | | | | |
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-2 | Primarily represents foreign currency forward and option contracts. Fair value is determined utilizing a market approach and considers a factor for nonperformance in the valuation. | | | | | | | | | | | | | | | | | | | | | | |
The following table summarizes fair value measurements by level at December 31, 2013 for assets and liabilities measured at fair value on a recurring basis: |
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| Quoted Prices in | | Significant Other | | Significant | | Balance at December 31, 2013 | | | | | | | | |
Active Markets | Observable | Unobservable | | | | | | | | |
for Identical | Inputs (Level II) | Inputs | | | | | | | | |
Assets (Level I) | | (Level III) | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Cash Equivalents (1) | $ | 95.9 | | | $ | — | | | $ | — | | | $ | 95.9 | | | | | | | | | |
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Other Current Assets: | | | | | | | | | | | | | | | |
Foreign Exchange Forwards (2) | $ | — | | | $ | 0.4 | | | $ | — | | | $ | 0.4 | | | | | | | | | |
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Liabilities: | | | | | | | | | | | | | | | |
Other Accrued and Current Liabilities: | | | | | | | | | | | | | | | |
Foreign Exchange Forwards (2) | $ | — | | | $ | 0.4 | | | $ | — | | | $ | 0.4 | | | | | | | | | |
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-1 | Cash equivalents represent fair value as it consists of highly liquid investments with an original maturity of three months or less. | | | | | | | | | | | | | | | | | | | | | | |
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-2 | Primarily represents foreign currency forward and option contracts. Fair value is determined utilizing a market approach and considers a factor for nonperformance in the valuation. | | | | | | | | | | | | | | | | | | | | | | |
At March 31, 2014 and December 31, 2013, the fair value of cash and cash equivalents, accounts receivable, other receivables and accounts payable approximated carrying value due to the short-term nature of these instruments. The estimated fair values of other financial instruments subject to fair value disclosures, determined based on valuation models using discounted cash flow methodologies with market data inputs from globally recognized data providers and third-party quotes from major financial institutions (categorized as Level II in the fair value hierarchy), are as follows: |
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| Balance at | | | | | | | | |
| 31-Mar-14 | | 31-Dec-13 | | | | | | | | |
| Carrying | | Fair Value | | Carrying | | Fair Value | | | | | | | | |
Amount (Asset) | (Asset) Liability | Amount (Asset) | (Asset) Liability | | | | | | | | |
Liability | | Liability | | | | | | | | | |
Long-term Debt | $ | 1,047.10 | | | $ | 1,081.40 | | | $ | 1,047.00 | | | $ | 1,054.80 | | | | | | | | | |
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Credit Facilities | $ | 464.5 | | | $ | 464.6 | | | $ | 466.5 | | | $ | 466.1 | | | | | | | | | |
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Items Measured at Fair Value on a Nonrecurring Basis |
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we are required to record assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. |
During the three months ended March 31, 2014 and 2013, we did not measure any assets or liabilities at fair value on a nonrecurring basis. |