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Financial Instruments | 9 Months Ended
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Sep. 30, 2012
Financial Instruments | Note 6. Financial Instruments The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and swap agreements. Due to their short-term maturity, the carrying amounts of trade accounts receivable and trade accounts payable approximate their fair market values. The following table summarizes the carrying amounts and estimated fair values of our other financial instruments at September 30, 2012:
|  | Carrying |  |  | Fair |
|  | Amount |  |  | Value |
|  | (Dollars in thousands) |
Assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 422,525 |  |  | $ | 422,525 |
Liabilities: |  |  |  |  |  |  |  |
Bank debt |  |  | 1,489,701 |  |  |  | 1,489,701 |
5% Notes |  |  | 500,000 |  |  |  | 523,750 |
Interest rate swap agreements |  |  | 13,812 |  |  |  | 13,812 |
Natural gas swap agreements |  |  | 13 |  |  |  | 13 |
Fair Value Measurements GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP classifies the inputs used to measure fair value into a hierarchy consisting of three levels. Level 1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs represent unobservable inputs for the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Financial Instruments Measured at Fair Value The financial assets and liabilities that are measured on a recurring basis at September 30, 2012 consist of our cash and cash equivalents, interest rate swap agreements and natural gas swap agreements. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of the swap agreements using the income approach. The fair value of these agreements reflects the estimated amounts that we would pay based on the present value of the expected cash flows derived from market interest rates and prices. As such, these derivative instruments are classified within Level 2. Financial Instruments Not Measured at Fair Value Our bank debt and 5% Notes are recorded at historical amounts in our Condensed Consolidated Balance Sheets, as we have not elected to record them at fair value. For purposes of the table above, we measured the fair value of our variable rate bank debt using Level 2 inputs and the fair value of our 5% Notes using Level 1 inputs. Derivative Instruments and Hedging Activities Our derivative financial instruments are recorded in the Condensed Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. We utilize certain derivative financial instruments to manage a portion of our interest rate and natural gas cost exposures. We limit our use of derivative financial instruments to interest rate and natural gas swap agreements. We do not engage in trading or other speculative uses of these financial instruments. For a financial instrument to qualify as a hedge, we must be exposed to interest rate or price risk, and the financial instrument must reduce the exposure and be designated as a hedge. Financial instruments qualifying for hedge accounting must maintain a high correlation between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. We utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk. Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss. We generally do not utilize external derivative financial instruments to manage our foreign currency exchange rate risk. Our interest rate and natural gas swap agreements are accounted for as cash flow hedges. During the first nine months of 2012, our hedges were fully effective. The fair value of our outstanding swap agreements in effect at September 30, 2012 was recorded in our Condensed Consolidated Balance Sheet as a liability of $13.8 million, of which $5.3 million was included in accrued liabilities and $8.5 million was included in other liabilities. The amount reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the three and nine months ended September 30, 2012 were losses, net of income taxes, of $0.8 million and $2.5 million, respectively. We estimate that we will reclassify losses of $2.9 million, net of income taxes, from the change in fair value of derivatives component of accumulated other comprehensive loss to earnings during the next twelve months. The actual amount that will be reclassified to earnings will vary from this amount as a result of changes in market conditions. Interest Rate Swap Agreements We have entered into U.S. dollar and Euro interest rate swap agreements to manage a portion of our exposure to interest rate fluctuations. At September 30, 2012, the aggregate notional principal amount of our outstanding interest rate swap agreements was $285.6 million (non-U.S. dollar agreements have been translated into U.S. dollars at exchange rates in effect at the balance sheet date). The difference between amounts to be paid or received on our interest rate swap agreements is recorded in interest and other debt expense in our Condensed Consolidated Statements of Income. For the three and nine months ended September 30, 2012, net payments under our interest rate swap agreements were $1.2 million and $3.2 million, respectively. These agreements are with financial institutions which are expected to fully perform under the terms thereof. In April 2012, we entered into three interest rate swap agreements, each for $50.0 million notional principal amount, to fix interest on variable rate debt. The first agreement has a fixed interest rate of 0.75 percent and matures in June 2015. The second agreement has a fixed interest rate of 1.38 percent beginning in June 2013 and matures in June 2017. The third agreement has a fixed interest rate of 1.64 percent beginning in June 2014 and matures in June 2017. Natural Gas Swap Agreements We have entered into natural gas swap agreements with a major financial institution to manage a portion of our exposure to fluctuations in natural gas prices. At September 30, 2012, the aggregate notional principal amount of our natural gas swap agreements was 546,000 MMBtu of natural gas with fixed prices ranging from $3.029 to $4.814 per MMBtu, which hedges approximately 13 percent of our estimated twelve month exposure to fluctuations in natural gas prices. The difference between amounts to be paid or received on our natural gas swap agreements is recorded in cost of goods sold in our Condensed Consolidated Statements of Income. For the three and nine months ended September 30, 2012, net payments under our natural gas swap agreements were $0.2 million and $1.2 million, respectively. These agreements are with a financial institution which is expected to fully perform under the terms thereof. Foreign Currency Exchange Rate Risk In an effort to minimize foreign currency exchange rate risk, we have initially financed acquisitions of foreign operations primarily with loans borrowed under the Credit Agreement denominated in Euros and Canadian dollars. In addition, where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency exchange rate risk related to foreign operations. We have designated substantially all of our Euro denominated borrowings under our Credit Agreement as net investment hedges. Foreign currency (losses) gains related to our net investment hedges included in other comprehensive income (loss) for the three and nine months ended September 30, 2012 were ($15.1) million and $1.1 million, respectively.

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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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