Note 7 - Derivative Financial Instruments and Risk Management | 9 Months Ended |
Sep. 30, 2013 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Derivative Instruments and Hedging Activities Disclosure [Text Block] | ' |
Note 7. Derivative Financial Instruments and Risk Management |
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Derivative Financial Instruments |
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We hold derivative financial instruments for the purpose of hedging foreign currency risks for certain identifiable and anticipated transactions. |
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We manufacture and sell our products in a number of countries throughout the world and, as a result, are exposed to movements in foreign currency exchange rates. Our major foreign currency exposures involve the markets in Western Europe, South America and Asia. Many of our sales and purchase contracts are written contemplating this risk and therefore contain embedded derivatives, which we take into consideration as part of our risk management policy. The purpose of our foreign currency hedging activities is to manage the economic impact of exchange rate volatility associated with anticipated foreign currency purchases and sales made in the normal course of business. We primarily utilize forward foreign exchange contracts with maturities of less than 2 years. We do not apply hedge accounting for these forward foreign exchange contracts. As of September 30, 2013, we held forward foreign exchange contracts with an aggregate notional value of $486.8 million. |
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The following table presents the fair value of foreign currency derivatives included within the condensed consolidated balance sheets: |
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| | As of September 30, 2013 | | | As of December 31, 2012 | | | | | |
(In millions) | | Derivative Assets | | | Derivative Liabilities | | | Derivative Assets | | | Derivative Liabilities | | | | | |
Other current assets / liabilities | | $ | 3.7 | | | $ | 3.8 | | | $ | 5.9 | | | $ | 6.6 | | | | | |
Other assets / liabilities | | | 2.6 | | | | 0.5 | | | | 1.7 | | | | 0.4 | | | | | |
Total | | $ | 6.3 | | | $ | 4.3 | | | $ | 7.6 | | | $ | 7 | | | | | |
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Refer to Note 8. Fair Value of Financial Instruments, for a description of how the values of the above financial instruments are determined. |
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A master netting arrangement allows counterparties to net settle amounts owed to each other as a result of separate offsetting derivative transactions. We enter into master netting arrangements with our counterparties when possible to mitigate credit risk in derivative transactions by permitting us to net settle for transactions with the same counterparty. However, we do not net settle with such counterparties. We present our derivatives at gross fair values in the condensed consolidated balance sheets. As of September 30, 2013 and December 31, 2012, information related to these offsetting arrangements was as follows: |
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(in millions) | | As of September 30, 2013 | |
Offsetting of Assets | | | | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets | |
| | Gross Amounts of Recognized Assets | | | Gross Amounts Offset in the Consolidated Balance Sheets | | | Net Presented in the Consolidated Balance Sheets | | | Financial Instruments | | | Net Amount | |
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Derivatives | | $ | 6.3 | | | $ | - | | | $ | 6.3 | | | $ | (3.2 | ) | | $ | 3.1 | |
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Offsetting of Liabilities | | As of September 30, 2013 | |
| | | | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets | |
| | Gross Amounts of Recognized Liabilities | | | Gross Amounts Offset in the Consolidated Balance Sheets | | | Net Presented in the Consolidated Balance Sheets | | | Financial Instruments | | | Net Amount | |
Derivatives | | $ | 4.3 | | | $ | - | | | $ | 4.3 | | | $ | (3.2 | ) | | $ | 1.1 | |
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(in millions) | | As of December 31, 2012 | |
Offsetting of Assets | | | | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets | |
| | Gross Amounts of Recognized Assets | | | Gross Amounts Offset in the Consolidated Balance Sheets | | | Net Presented in the Consolidated Balance Sheets | | | Financial Instruments | | | Net Amount | |
Derivatives | | $ | 7.6 | | | $ | - | | | $ | 7.6 | | | $ | (3.8 | ) | | $ | 3.8 | |
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Offsetting of Liabilities | | As of December 31, 2012 | |
| | | | | | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets | |
| | Gross Amounts of Recognized Liabilities | | | Gross Amounts Offset in the Consolidated Balance Sheets | | | Net Presented in the Consolidated Balance Sheets | | | Financial Instruments | | | Net Amount | |
Derivatives | | $ | 7 | | | $ | - | | | $ | 7 | | | $ | (3.8 | ) | | $ | 3.2 | |
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The following table presents the location and amount of gains (losses) from derivatives not designated as hedging instruments in the condensed consolidated statements of income: |
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Derivatives not designated as hedging instruments | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income on Derivatives | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | |
(In millions) | | | 2013 | | | 2012 | | | 2013 | | | 2012 | | | | |
Foreign exchange contracts | Revenue | | $ | (0.6 | ) | | $ | 1.3 | | | $ | 0.9 | | | $ | 3.2 | | | | |
Foreign exchange contracts | Cost of sales | | | (0.3 | ) | | | (0.6 | ) | | | (0.4 | ) | | | (1.0 | ) | | | |
Foreign exchange contracts | Other income, net | | | (0.1 | ) | | | 0.1 | | | | (0.5 | ) | | | 0.2 | | | | |
Total | | | (1.0 | ) | | | 0.8 | | | | - | | | | 2.4 | | | | |
Remeasurement of assets and liabilities in foreign currencies | | | (0.6 | ) | | | (0.8 | ) | | | (0.6 | ) | | | (1.1 | ) | | | |
Net (loss) gain on foreign currency transactions | | $ | (1.6 | ) | | $ | - | | | $ | (0.6 | ) | | $ | 1.3 | | | | |
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Credit Risk |
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By their nature, financial instruments involve risk including credit risk for non-performance by counterparties. Financial instruments that potentially subject us to credit risk primarily consist of trade receivables and derivative contracts. We manage the credit risk on financial instruments by transacting only with financially secure counterparties, requiring credit approvals and credit limits, and monitoring counterparties’ financial condition. Our maximum exposure to credit loss in the event of non-performance by the counterparty is limited to the amount drawn and outstanding on the financial instrument. Allowances for the losses are established based on collectability assessments. |