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Derivative Instruments and Hedging Activities
 6 Months Ended
Jun. 30, 2012
Derivative Instruments and Hedging Activities [Abstract]  
Derivative Instruments and Hedging Activities Note F: Derivative Instruments 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 it 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 June 30, 2012, the balance remaining was $23 million.

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 six months ended June 30, 2012 and 2011, the Company recognized a net decrease in interest expense of $5 million (including additional expense of approximately $500,000 related to the cash flow hedge terminated in March 2012) 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
June 30,		     Six Months Ended
June 30,		  
    2012     2011     2012     2011  

Foreign Currency Contracts

                                

Exchange Contracts

   $ 9     $ 1     $ 4     $ (7 ) 

Forward Contracts

     —         (1 )      (1 )      1  

Metal Contracts

     (6 )      (1 )      1       (1 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Total gain (loss)

   $ 3     $ (1 )    $ 4     $ (7 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

 

The Company presents its derivatives, net by counterparty due to the right of offset under master netting arrangements in current assets or current 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:

 

                         
    At June 30, 2012  
    

Notional
Amount

     Assets     Liabilities  

Foreign Currency Contracts

                        

Exchange Contracts

   $ 143                  

Current assets

           $ 5     $ —    

Forward Contracts

     67                  

Current assets

             1       —    

Current liabilities

             —         1  

Metal Contracts

     50                  

Current assets

             1       —    

Current liabilities

             —         4  
           

 

 

    

 

 

  

Total

           $ 7     $ 5  
           

 

 

    

 

 

  

 

                         
    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).