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Financial Instruments | 9 Months Ended
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Sep. 28, 2013
Financial Instruments | (15) Financial Instruments The carrying values of the Company’s debt instruments vary from their fair values. The fair values were determined by reference to the quoted market prices of these securities (Level 2 input based on the GAAP fair value hierarchy). As of September 28, 2013, the aggregate carrying value of the Company’s Notes was $1,057.0 million, as compared to an estimated aggregate fair value of $1,070.6 million. As of December 31, 2012, the aggregate carrying value of the Notes was $626.3 million, as compared to an estimated aggregate fair value of $696.6 million. Derivative Instruments and Hedging Activities The Company has used derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates, interest rates and commodity prices and the resulting variability of the Company’s operating results. The Company is not a party to leveraged derivatives. On the date that a derivative contract is entered into, the Company designates the derivative as either (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), (2) a hedge of the exposure of a forecasted transaction or of the variability in the cash flows of a recognized asset or liability (a cash flow hedge) or (3) a hedge of a net investment in a foreign operation (a net investment hedge). The Company’s derivative financial instruments are subject to master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. Foreign exchange — The Company uses forwards, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates on known foreign currency exposures. Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce exposure to fluctuations in foreign exchange rates. The principal currencies hedged by the Company include the Mexican peso, various European currencies, the Chinese renminbi, Thai baht and the Canadian dollar. As of September 28, 2013 and December 31, 2012, contracts designated as cash flow hedges with $762.2 million and $836.4 million, respectively, of notional amount were outstanding with maturities of less than 18 months and 17 months, respectively. As of September 28, 2013 and December 31, 2012, the fair value of these contracts was approximately $0.2 million and $19.9 million, respectively. As of September 28, 2013 and December 31, 2012, other foreign currency derivative contracts that did not qualify for hedge accounting with $124.2 million and $23.4 million, respectively, of notional amount were outstanding. These foreign currency derivative contracts consist principally of hedges of cash transactions of up to 12 months, hedges of intercompany loans and hedges of certain other balance sheet exposures. As of September 28, 2013 and December 31, 2012, the fair value of these contracts was approximately $1.3 million and approximately zero, respectively. The fair value of outstanding foreign currency derivative contracts and the related classification in the accompanying condensed consolidated balance sheets as of September 28, 2013 and December 31, 2012, are shown below (in millions):
|  | September 28, 2013 |  |  | December 31, 2012 |
Contracts qualifying for hedge accounting: |  |  |  |  |  |  |  |
Other current assets |  | $ | 8.1 |  |  | $ | 22.3 |
Other long-term assets |  |  | 0.9 |  |  |  | 0.5 |
Other current liabilities |  |  | (6.9 | ) |  |  | (2.8 | )
Other long-term liabilities |  |  | (1.9 | ) |  |  | (0.1 | )
|  |  | 0.2 |  |  |  | 19.9 |
Contracts not qualifying for hedge accounting: |  |  |  |  |  |  |  |
Other current assets |  |  | 1.7 |  |  |  | 0.1 |
Other current liabilities |  |  | (0.4 | ) |  |  | (0.1 | )
|  |  | 1.3 |  |  |  | — |
|  | $ | 1.5 |  |  | $ | 19.9 |
Pretax amounts related to foreign currency derivative contracts that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 28, 2013 |  |  | September 29, 2012 |  |  | September 28, 2013 |  |  | September 29, 2012 |
Contracts qualifying for hedge accounting: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains recognized in accumulated other comprehensive loss |  | $ | 1.0 |  |  | $ | 18.3 |  |  | $ | 7.4 |  |  | $ | 48.1 |
(Gains) losses reclassified from accumulated other comprehensive loss |  |  | (8.3 | ) |  |  | (0.3 | ) |  |  | (27.1 | ) |  |  | 5.6 |
Comprehensive income (loss) |  | $ | (7.3 | ) |  | $ | 18.0 |  |  | $ | (19.7 | ) |  | $ | 53.7 |
For the three and nine months ended September 28, 2013, net sales includes gains of $1.3 million and $2.7 million, respectively, reclassified from accumulated other comprehensive loss related to foreign currency derivative contracts. For the three and nine months ended September 29, 2012, net sales includes gains of $0.2 million and $0.7 million, respectively, reclassified from accumulated other comprehensive loss related to foreign currency derivative contracts. For the three and nine months ended September 28, 2013, cost of sales includes gains of $7.0 million and $24.4 million, respectively, reclassified from accumulated other comprehensive loss related to foreign currency derivative contracts. For the three and nine months ended September 29, 2012, cost of sales includes gains (losses) of $0.1 million and ($6.3) million, respectively, reclassified from accumulated other comprehensive loss related to foreign currency derivative contracts. Interest rate — Historically, the Company used interest rate swap and other derivative contracts to manage its exposure to fluctuations in interest rates. As of September 28, 2013 and December 31, 2012, there were no interest rate contracts outstanding. The Company will continue to evaluate, and may use, derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to manage its exposures to fluctuations in interest rates in the future. Commodity prices — Historically, the Company used derivative instruments to reduce its exposure to fluctuations in certain commodity prices. These derivative instruments are utilized to hedge forecasted inventory purchases and to the extent that they qualify and meet hedge accounting criteria, they are accounted for as cash flow hedges. Commodity swap contracts that are not designated as cash flow hedges are marked to market with changes in fair value recognized immediately in the condensed consolidated statements of comprehensive income. As of September 28, 2013 and December 31, 2012, there were no commodity swap contracts outstanding. Pretax amounts related to commodity swap contracts that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):
|  | Nine Months Ended |
|  | September 29, 2012 |
Contracts qualifying for hedge accounting: |  |  |  |
Gains recognized in accumulated other comprehensive loss |  | $ | 0.1 |
Losses reclassified from accumulated other comprehensive loss |  |  | 0.2 |
Comprehensive income |  | $ | 0.3 |
For the nine months ended September 29, 2012, cost of sales includes losses of $0.2 million reclassified from accumulated other comprehensive loss related to commodity swap contracts. As of September 28, 2013 and December 31, 2012, pretax net gains of approximately $0.2 million and $19.9 million, respectively, related to the Company’s derivative instruments and hedging activities were recorded in accumulated other comprehensive loss. During the twelve month period ending September 27, 2014, the Company expects to reclassify into earnings net gains of approximately $1.2 million recorded in accumulated other comprehensive loss as of September 28, 2013. Such gains will be reclassified at the time that the underlying hedged transactions are realized. During the three and nine months ended September 28, 2013 and September 29, 2012, amounts recognized in the accompanying condensed consolidated statements of comprehensive income related to changes in the fair value of cash flow and fair value hedges excluded from the Company’s effectiveness assessments and the ineffective portion of changes in the fair value of cash flow and fair value hedges were not material. Fair Value Measurements GAAP provides that fair value is an exit price, defined as a market-based measurement that represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are based on one or more of the following three valuation techniques:
Market: |  | This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Income: |  | This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations.
Cost: |  | This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).
Further, GAAP prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows:
Level 1: |  | Observable inputs, such as quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2: |  | Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability.
Level 3: |  | Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date.
The Company discloses fair value measurements and the related valuation techniques and fair value hierarchy level for its assets and liabilities that are measured or disclosed at fair value. Items measured at fair value on a recurring basis – Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’s assets and liabilities measured at fair value on a recurring basis as of September 28, 2013 and December 31, 2012, are shown below (in millions):
|  | September 28, 2013 |
|  | Frequency |  | Asset |  |  | Valuation Technique |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Foreign currency derivative contracts, net |  | Recurring |  | $ | 1.5 |  |  | Market/Income |  | $ | — |  |  | $ | 1.5 |  |  | $ | — |
|  | December 31, 2012 |
|  | Frequency |  | Asset |  |  | Valuation Technique |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Foreign currency derivative contracts, net |  | Recurring |  | $ | 19.9 |  |  | Market/Income |  | $ | — |  |  | $ | 19.9 |  |  | $ | — |
The Company determines the fair value of its derivative contracts using quoted market prices to calculate the forward values and then discounts such forward values to the present value. The discount rates used are based on quoted bank deposit or swap interest rates. If a derivative contract is in a net liability position, the Company adjusts these discount rates, if required, by an estimate of the credit spread that would be applied by market participants purchasing these contracts from the Company’s counterparties. To estimate this credit spread, the Company uses significant assumptions and factors other than quoted market rates, which would result in the classification of its derivative liabilities within Level 3 of the fair value hierarchy. As of September 28, 2013 and December 31, 2012, there were no derivative contracts that were classified within Level 3 of the fair value hierarchy. In addition, there were no transfers in or out of Level 3 of the fair value hierarchy during the first nine months of 2013. Items measured at fair value on a non-recurring basis — The Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy. As of September 28, 2013, there were no significant assets or liabilities measured at fair value on a non-recurring basis. As a result of the Guilford acquisition in 2012, Level 3 fair value estimates related to property, plant and equipment of $89.9 million and intangible assets of $56.0 million were recorded in the accompanying condensed consolidated balance sheet as of December 31, 2012. For further information on these fair value measurements, see Note 3, “Acquisition,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. For further information on assets measured at fair value on a non-recurring basis, see Note 2, “Restructuring.”

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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