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Derivative Instrument and Hedging Activities
 3 Months Ended
Mar. 31, 2012
Derivative Instrument and Hedging Activities [Abstract]  
Derivative Instrument and Hedging Activities Note F: Derivative Instrument and Hedging Activities
F. The Company is exposed to global market risk as part of its normal daily business activities. To manage these risks, the Company enters into various derivative contracts. These contracts include interest rate swap agreements, foreign currency exchange contracts and contracts intended to hedge the Company’s exposure to copper and zinc. The Company reviews its hedging program, derivative positions and overall risk management on a regular basis.

Interest Rate Swap Agreements. In March 2012, in connection with the issuance of $400 million of debt, the Company terminated the interest rate swap hedge relationships that had been entered into in August 2011. These interest rate swaps were designated as cash flow hedges and effectively fixed interest rates on the forecasted debt issuance to variable rates based on 3-month LIBOR. Upon termination, the ineffective portion of the cash flow hedges of approximately $2 million was recognized in the Company’s consolidated statement of income in other, net. The remaining loss of approximately $23 million from the termination of these swaps is being amortized as an increase to interest expense over the remaining term of the debt, through March 2022.

At December 31, 2011, the interest rate swaps were considered 100 percent effective; therefore, the market valuation loss of $23 million was recorded in other comprehensive income in the Company’s statement of shareholders’ equity with a corresponding increase to accrued liabilities in the Company’s condensed consolidated balance sheet at December 31, 2011.

For both the three months ended March 31, 2012 and 2011, the Company recognized a net decrease in interest expense of $3 million related to the amortization of gains resulting from the terminations (in 2012, 2008 and 2004) of the interest rate swap agreements.

Foreign Currency Contracts. The Company’s net cash inflows and outflows exposed to the risk of changes in foreign currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt and other payables, and investments in subsidiaries. To mitigate this risk during 2012 and 2011, the Company, including certain European operations, entered into foreign currency forward contracts and foreign currency exchange contracts.

Gains (losses) related to foreign currency forward and exchange contracts are recorded in the Company’s consolidated statements of income in other income (expense), net. In the event that the counterparties fail to meet the terms of the foreign currency forward contracts, the Company’s exposure is limited to the aggregate foreign currency rate differential with such institutions.

Metal Contracts. During 2012 and 2011, the Company entered into several contracts to manage its exposure to increases in the price of copper and zinc. Gains (losses) related to these contracts are recorded in the Company’s consolidated statements of income in cost of goods sold.

 

The pre-tax gain (loss) included in the Company’s consolidated statements of income is as follows, in millions:

 

                 
    Three Months Ended
March  31,		  
    2012     2011  
     

Foreign Currency Contracts

                

Exchange Contracts

   $ (5 )    $ (8 ) 

Forward Contracts

     (1 )      2  

Metal Contracts

     7       —    
   

 

 

    

 

 

  
     

Total gain (loss)

   $ 1     $ (6 ) 
   

 

 

    

 

 

  

The Company presents its derivatives net due to the right of offset by its counterparties under master netting arrangements in current assets or accrued liabilities in the consolidated balance sheet. The notional amounts being hedged and the fair value of those derivative instruments, on a gross basis, are as follows, in millions:

 

      0000000000       0000000000       0000000000  
    At March 31, 2012  
    Notional
Amount		     Assets     Liabilities  

Foreign Currency Contracts

                        

Exchange Contracts

   $ 114                  

Current assets

           $ 4     $ 3  

Forward Contracts

     71                  

Current assets

             1       —    

Current liabilities

             —         2  
       

Metal Contracts

     53                  

Current assets

             5       —    

Current liabilities

             —         1  
           

 

 

    

 

 

  
       

Total

           $ 10     $ 6  
           

 

 

    

 

 

  

 

      0000000000       0000000000       0000000000  
    At December 31, 2011  
    Notional
Amount		     Assets     Liabilities  

Foreign Currency Contracts

                        

Exchange Contracts

   $ 108                  

Current assets

           $ 8     $ —    

Forward Contracts

     76                  

Current assets

             1       —    

Current liabilities

             1       2  
       

Metal Contracts

     67                  

Current assets

             2       —    

Current liabilities

             —         4  
           

 

 

    

 

 

  
       

Total

           $ 12     $ 6  
           

 

 

    

 

 

  

The fair value of all metal and foreign currency derivative contracts is estimated on a recurring basis, quarterly, using Level 2 inputs (significant other observable inputs).