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FINANCIAL INSTRUMENTS | 3 Months Ended
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Mar. 30, 2013
FINANCIAL INSTRUMENTS |
FINANCIAL INSTRUMENTS | (11) 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, South African Rand, CNY and GBP. 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 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 $602.3 and $107.3 outstanding as of March 30, 2013 and December 31, 2012, respectively. These FX forward contracts typically have maturity dates ranging from one to two years. In March of 2013, we entered into FX forward contracts with an aggregate notional value of $479.0 to hedge a significant portion of our net investment in a foreign subsidiary. We also had FX embedded derivatives with an aggregate notional amount of $80.0 and $96.3 at March 30, 2013 and December 31, 2012, respectively. The unrealized gain (loss), net of taxes, recorded in AOCI related to FX forward contracts was $1.1 and $(3.4) as of March 30, 2013 and December 31, 2012, respectively. We anticipate reclassifying approximately $2.6 of an unrealized loss to income over the next 12 months. 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 March 30, 2013 and December 31, 2012, the outstanding notional amount of commodity contracts was 4.1 and 3.3 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 AOCI associated with our commodity contracts to cost of products sold when the forecasted transaction impacts earnings. The unrealized gain (loss), net of taxes, recorded in AOCI was $(0.4) and $0.1 as of March 30, 2013 and December 31, 2012, respectively. We anticipate reclassifying the unrealized loss to income over the next 12 months. The amount of gain/loss recognized during the periods ended March 30, 2013 and March 31, 2012 related to the ineffectiveness of these hedges was not material. The following summarizes the gross and net fair values of our FX forward and commodity contracts by counterparty at March 30, 2013 and December 31, 2012, respectively:
|  | March 30, 2013 |  | December 31, 2012 |
|  | Gross assets |  | Gross liabilities |  | Net assets / liabilities |  | Gross assets |  | Gross liabilities |  | Net assets / liabilities |
FX Forward Contracts: |  |  |  |  |  |  |  |  |  |  |  |  |
Counterparty A |  | $ | 3.0 |  | $ | (0.5 | ) | $ | 2.5 |  | $ | 0.2 |  | $ | (0.3 | ) | $ | (0.1 | )
Counterparty B |  | 4.7 |  | (0.6 | ) | 4.1 |  | 0.1 |  | (0.2 | ) | (0.1 | )
Totals (1) |  | $ | 7.7 |  | $ | (1.1 | ) | $ | 6.6 |  | $ | 0.3 |  | $ | (0.5 | ) | $ | (0.2 | )
Commodity Contracts: |  |  |  |  |  |  |  |  |  |  |  |  |
Counterparty A (2) |  | $ | — |  | $ | (0.9 | ) | $ | (0.9 | ) | $ | 0.3 |  | $ | (0.1 | ) | $ | 0.2 |
(1) We enter into arrangements designed to provide the right of setoff in the event of counterparty default or insolvency, and have elected to offset the fair values of our qualifying financial instruments in our condensed consolidated balance sheets. Amounts presented in our balance sheets are as follows:
|  | March 30, |  | December 31, |
|  | 2013 |  | 2012 |
Designated as hedging instruments: |  |  |  |  |
Other current assets |  | $ | 6.9 |  | $ | 0.1 |
Accrued expenses |  | — |  | (0.3 | )
|  | 6.9 |  | (0.2 | )
Not designated as hedging instruments: |  |  |  |  |
Other current assets |  | (0.3 | ) | 0.1 |
Accrued expenses |  | — |  | (0.1 | )
|  | (0.3 | ) | — |
Net fair value of FX forward contracts in balance sheets |  | $ | 6.6 |  | $ | (0.2 | )
(2) Related contracts are designated as hedging instruments. Net amounts at March 30, 2013 and December 31, 2012 are recorded in “Accrued expenses” and “Other Current Assets,” respectively. The following summarizes the fair value of our FX embedded derivative instruments, which are not designated as hedging instruments, and the related balance sheet classification as of March 30, 2013 and December 31, 2012:
|  | March 30, |  | December 31, |
Balance Sheet Classification |  | 2013 |  | 2012 |
Other current assets |  | $ | 0.8 |  | $ | 0.3 |
Accrued expenses |  | (5.9 | ) | (0.9 | )
Other long-term liabilities |  | (2.2 | ) | (9.8 | )
|  | $ | (7.3 | ) | $ | (10.4 | )
The following summarizes the effects of derivative financial instruments in cash flow hedging relationships on AOCI and the condensed consolidated statements of operations for the three months ended March 30, 2013 and March 31, 2012:
|  | Amount of gain (loss) |  |  |  | Amount of gain (loss) |
|  | recognized in AOCI, |  |  |  | reclassified from AOCI to |
|  | pre-tax (1) |  | Classification of gain (loss) |  | income, pre-tax (1) |
|  | 2013 |  | 2012 |  | reclassified from AOCI |  | 2013 |  | 2012 |
FX forward contracts |  | $ | 6.9 |  | $ | — |  | Cost of products sold |  | $ | (0.6 | ) | $ | 0.5 |
Commodity contracts |  | (1.0 | ) | 1.0 |  | Cost of products sold |  | — |  | (0.6 | )
|  | $ | 5.9 |  | $ | 1.0 |  |  |  | $ | (0.6 | ) | $ | (0.1 | )
(1) Losses of $0.1 relating to derivative ineffectiveness and amounts excluded from effectiveness testing were recognized during the first quarter of 2012 in “Other income, net”. The following summarizes the effect of derivative financial instruments not designated as cash flow hedging relationships on the condensed consolidated statements of operations for the three months ended March 30, 2013 and March 31, 2012:
|  | Classification of gain (loss) |  | Amount of gain (loss) recognized in income |
|  | recognized in income |  | 2013 |  | 2012 |
FX forward contracts |  | Other income, net |  | $ | (3.0 | ) | $ | 0.7 |
FX embedded derivatives |  | Other income, net |  | 3.1 |  | (2.9 | )
|  |  |  | $ | 0.1 |  | $ | (2.2 | )

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. 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