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Financial Instruments | 12 Months Ended
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Dec. 31, 2012
Financial Instruments |
Financial Instruments | (13) Financial Instruments Currency Forward Contracts We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency exchange rates. Our objective is to preserve the economic value of non-functional currency denominated cash flows and to minimize their impact. Our principal currency exposures relate to the Euro, Chinese Yuan, South African Rand and British Pound. From time to time, we enter into currency protection agreements ("FX forward contracts") to manage the exposure on contracts with forecasted transactions denominated in non-functional currencies and to manage the risk of transaction gains and losses associated with assets/liabilities denominated in currencies other than the functional currency of certain subsidiaries. In addition, some of our contracts contain currency forward embedded derivatives ("FX embedded derivatives"), as the currency of exchange is not "clearly and closely" related to the functional currency of either party to the transaction. Certain of our FX forward contracts are designated as cash flow hedges, as deemed appropriate. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives' fair value are not included in current earnings, but are included in accumulated other comprehensive income ("AOCI"). These changes in fair value will subsequently be reclassified into earnings as a component of revenues or cost of products sold, as applicable, when the forecasted transaction impacts earnings. In addition, if the forecasted transaction is no longer probable the cumulative change in the derivatives' fair value will be recorded as a component of "Other income (expense), net" in the period it occurs. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs. We had FX forward contracts with an aggregate notional amount of $107.3 and $66.1 outstanding as of December 31, 2012 and 2011, respectively, with scheduled maturities of $102.0 and $5.3 in 2013 and 2014, respectively. These FX forward contracts typically have maturity dates ranging from one to two years. We had FX embedded derivatives with an aggregate notional amount of $96.3 and $73.2 at December 31, 2012 and 2011, respectively, with scheduled maturities of $77.4, $11.4 and $7.5 in 2013, 2014 and 2015, respectively. The unrealized loss, net of taxes, recorded in AOCI related to FX forward contracts was $3.4 and $3.7 as of December 31, 2012 and 2011, respectively. We anticipate reclassifying approximately $1.9 of the unrealized loss to income over the next 12 months. The net loss recorded in "Other income (expense), net" related to FX forward contracts and embedded derivatives totaled $0.2 in 2012, $37.0 in 2011, and $17.3 in 2010. Beginning on August 30, 2011, we entered into FX forward contracts to hedge a significant portion of the Clyde Union acquisition purchase price, which, as previously noted, was paid in GBP. From the inception of these contracts until December 22, 2011 (the date the contracts were settled), the U.S. dollar strengthened against the GBP by approximately 4%. As a result, we recorded charges and made cash payments to settle the contracts during 2011 of $34.6, with the charges recorded to "Other income (expense), net." Commodity Contracts From time to time, we enter into commodity contracts to manage the exposure on forecasted purchases of commodity raw materials ("commodity contracts"). At December 31, 2012 and 2011, the outstanding notional amount of commodity contracts was 3.3 and 2.9 pounds of copper, respectively. We designate and account for these contracts as cash flow hedges and, to the extent these commodity contracts are effective in offsetting the variability of the forecasted purchases, the change in fair value is included in AOCI. We reclassify the AOCI associated with our commodity contracts to cost of products sold when the forecasted transaction impacts earnings. As of December 31, 2012 and 2011, the fair value of these contracts was $0.2 (current asset) and $0.8 (current liability), respectively. The unrealized gain (loss), net of taxes, recorded in AOCI was $0.1 and $(0.7) as of December 31, 2012 and 2011, respectively. We anticipate reclassifying the unrealized gain to income over the next 12 months. Interest Rate Swaps Prior to the August 2010 repayment of our then-existing variable rate term loan, we maintained Swaps to hedge the associated interest rate risk. These Swaps, which we designated and accounted for as cash flow hedges, effectively converted the majority of our borrowings under our then-existing variable rate term loan to a fixed rate of 4.795% plus the applicable margin. In connection with the repayment of our then-existing term loan, we terminated all of our Swaps, resulting in a cash payment of $26.9 (including $2.6 of accrued interest) and a charge to earnings of $24.3 during 2010. The following summarizes the fair value of our derivative financial instruments:
|  | December 31, 2012 |  | December 31, 2011 |
--- | --- | --- | --- | --- | ---
|  | Balance Sheet Classification |  | Fair Value |  | Balance Sheet Classification |  | Fair Value |
Derivative contracts designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Other current assets |  | $ | 0.2 |  | Other current assets |  | $ | — |
FX forward contracts |  | Other current assets |  |  | 0.1 |  | Other current assets |  |  | — |
|  |  |  | $ | 0.3 |  |  |  | $ | — |
FX forward contracts |  | Accrued expenses |  | $ | (0.3 | ) | Accrued expenses |  | $ | (0.4 | )
Commodity contracts |  | Accrued expenses |  |  | — |  | Accrued expenses |  |  | (0.8 | )
|  |  |  | $ | (0.3 | ) |  |  | $ | (1.2 | )
Derivative contracts not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |
FX forward contracts |  | Other current assets |  | $ | 0.1 |  | Other current assets |  | $ | — |
FX embedded derivatives |  | Other current assets |  |  | 0.3 |  | Other current assets |  |  | 1.2 |
|  |  |  | $ | 0.4 |  |  |  | $ | 1.2 |
FX forward contracts |  | Accrued expenses |  | $ | (0.1 | ) | Accrued expenses |  | $ | (0.4 | )
FX embedded derivatives |  | Accrued expenses |  |  | (0.9 | ) | Accrued expenses |  |  | (0.3 | )
FX embedded derivatives |  | Other long-term liabilities |  |  | (9.8 | ) | Other long-term liabilities |  |  | (14.8 | )
|  |  |  | $ | (10.8 | ) |  |  | $ | (15.5 | )
The following summarizes the effects of derivative financial instruments in cash flow hedging relationships on AOCI and the consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010:
|  | Amount of gain (loss) recognized in AOCI, pre-tax(1) |  |  |  | Amount of gain (loss) reclassified from AOCI to income, pre-tax(1) |
--- | --- | --- | --- | --- | --- | --- | ---
|  | Classification of gain (loss) reclassified from AOCI |
|  | 2012 |  | 2011 |  | 2010 |  | 2012 |  | 2011 |  | 2010 |
Swaps |  | $ | — |  | $ | — |  | $ | (9.3 | ) | Interest Expense |  | $ | — |  | $ | — |  | $ | (12.7 | )
|  |  |  |  |  |  |  |  |  |  | Loss on early extinguishment of interest rate protection agreements and term loan |  |  | — |  |  | — |  |  | (24.3 | )
FX Forward contracts |  |  | (0.4 | ) |  | (0.2 | ) |  | (4.9 | ) | Cost of products sold |  |  | (0.7 | ) |  | (0.8 | ) |  | — |
FX embedded derivatives |  |  | — |  |  | — |  |  | 2.3 |  | Cost of products sold |  |  | — |  |  | — |  |  | 1.8 |
Commodity contracts |  |  | 0.4 |  |  | (1.8 | ) |  | 1.0 |  | Cost of products sold |  |  | (0.8 | ) |  | 0.6 |  |  | 0.7 |
|  | $ | — |  | $ | (2.0 | ) | $ | (10.9 | ) |  |  | $ | (1.5 | ) | $ | (0.2 | ) | $ | (34.5 | )
(1) For the years ended December 31, 2012, 2011 and 2010, gains (losses) of $(0.4), $0.3 and $1.1, respectively, were recognized in "Other income (expense), net" relating to derivative ineffectiveness and amounts excluded from effectiveness testing. The following summarizes the effects of derivative financial instruments not designated as cash flow hedging relationships on the consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010:
|  |  |  | Amount of gain (loss) recognized in income |
--- | --- | --- | --- | --- | ---
|  | Classification of gain (loss) recognized in income |  | 2012 |  | 2011 |  | 2010 |
FX forward contracts |  | Other income (expense), net |  | $ | 0.6 |  | $ | (38.5 | ) | $ | 5.0 |
FX embedded derivatives(1) |  | Other income (expense), net |  |  | (0.4 | ) |  | 1.2 |  |  | (23.4 | )
|  |  |  | $ | 0.2 |  | $ | (37.3 | ) | $ | (18.4 | )
(1) Includes $4.6 of losses reclassified from AOCI during the year ended December 31, 2010 resulting from the discontinuance of cash flow hedge accounting as the forecasted transactions were determined to no longer be probable. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, and foreign currency forward and commodity contracts. These financial instruments, other than trade accounts receivable, are placed with high-quality financial institutions throughout the world. We periodically evaluate the credit standing of these financial institutions. We have credit loss exposure in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. We anticipate, however, that counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk, but we do monitor the credit standing of counterparties. Concentrations of credit risk arising from trade accounts receivable are due to selling to customers in a particular industry. We mitigate our credit risks by performing ongoing credit evaluations of our customers' financial conditions and obtaining collateral, advance payments, or other security when appropriate. No one customer, or group of customers that to our knowledge are under common control, accounted for more than 10% of our revenues for any period presented.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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