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Derivative Financial Instruments | 6 Months Ended
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Jun. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments The company’s risk management objective is to ensure that business exposures to risks that have been identified and measured and are capable of being controlled are minimized using what it believes to be the most effective and efficient methods to eliminate, reduce, or transfer such exposures. Operating decisions consider associated risks and transactions are structured to minimize or manage risk whenever possible. Use of derivative instruments is consistent with the overall business and risk management objectives of the company. Derivative instruments may be used to manage business risk within limits specified by the company’s risk policy and manage exposures that have been identified through the risk identification and measurement process, provided that they clearly qualify as “hedging” activities as defined in the risk policy. Use of derivative instruments is not automatic, nor is it necessarily the only response to managing pertinent business risk. Use is permitted only after the risks that have been identified are determined to exceed defined tolerance levels and are considered to be unavoidable. The primary risks managed by the company by using derivative instruments are interest rate risk, commodity price risk and foreign currency exchange risk. Interest rate swap and cap instruments are entered into to manage interest rate or fair value risk. Swap contracts on various commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the company’s manufacturing processes. The company also enters into various foreign currency derivative instruments to manage foreign currency risk associated with the company’s projected foreign currency denominated purchases, sales, and receivable and payable balances. ASC Topic 815-10, “Derivatives and Hedging,” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with ASC Topic 815-10, the company designates commodity swaps, foreign currency exchange contracts, and interest rate derivative contracts as cash flow hedges of forecasted purchases of commodities and currencies, and variable rate interest payments. Also in accordance with ASC Topic 815-10, the company designates fixed-to-float interest rate swaps as fair market value hedges of fixed rate debt, which synthetically swap the company’s fixed rate debt to floating rate debt. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of Other Comprehensive Income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings. In the next twelve months the company estimates $1.1 million of unrealized losses net of tax related to commodity price and currency exchange rate hedging will be reclassified from other comprehensive income into earnings. Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for between twelve and twenty-four months, respectively, depending on the type of risk being hedged. The risk management objective for the company’s fair market value interest rate hedges is to effectively change the amount of the underlying debt equal to the notional value of the hedges from a fixed to a floating interest rate based on the benchmark one-month U.S. LIBOR rate. These swaps include an embedded call feature to match the terms of the call schedule embedded in the Senior Notes. Changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the debt due to changes in the U.S. one-month LIBOR benchmark interest rate. As of June 30, 2013 and December 31, 2012, the company had the following outstanding commodity and foreign currency exchange contracts that were entered to hedge forecasted transactions:
|  | Units Hedged |  |  |
Commodity |  | June 30, 2013 |  | December 31, 2012 |  |  | Type
Aluminum |  | 1,851 |  |  | 1,382 |  |  | MT | Cash Flow
Copper |  | 385 |  |  | 515 |  |  | MT | Cash Flow
Natural Gas |  | 200,491 |  |  | 158,670 |  |  | MMBtu | Cash Flow
Steel |  | 9,051 |  |  | 10,041 |  |  | Tons | Cash Flow
|  | Units Hedged |  |
Short Currency |  | June 30, 2013 |  | December 31, 2012 |  | Type
Canadian Dollar |  | 12,875,224 |  |  | 9,351,126 |  |  | Cash Flow
European Euro |  | 62,108,650 |  |  | 66,389,190 |  |  | Cash Flow
South Korean Won |  | 2,160,482,518 |  |  | 2,595,874,455 |  |  | Cash Flow
Singapore Dollar |  | 4,800,000 |  |  | 4,800,000 |  |  | Cash Flow
United States Dollar |  | 680,397 |  |  | 2,398,273 |  |  | Cash Flow
Chinese Renminbi |  | 127,645,962 |  |  | 187,640,472 |  |  | Cash Flow
As of June 30, 2013 and December 31, 2012, the company had outstanding $225.0 million notional amount of 3.00% LIBOR caps related to the term loan portion of the Senior Credit Facility. The remaining unhedged portions of Term Loans A and B continue to bear interest according to the terms of the Senior Credit Facility without the benefit of the interest rate cap. As of December 31, 2012, the company had $100.0 million notional amount of fixed-to-float interest rate swaps outstanding related to the Senior Notes due 2022 that were designated as fair value hedges. In the second quarter of 2013, the company entered into and designated as fair value hedges $75.0 million and $25.0 million notional amount of additional fixed-to-float interest rate swaps relating to the Senior Notes due 2020 and 2022, respectively. As of June 30, 2013, the company had $75.0 million and $125.0 million total notional amount of fixed-to-float interest rate swaps outstanding related to the Senior Notes due 2020 and 2022, respectively, that were designated as fair value hedges. See Note 8, "Debt," for a description of the debt instruments. For derivative instruments that are not designated as hedging instruments under ASC Topic 815-10, the gains or losses on the derivatives are recognized in current earnings within cost of sales or other income, net in the Condensed Consolidated Statements of Operations. As of June 30, 2013 and December 31, 2012, the company had the following outstanding foreign currency exchange contracts that were not designated as hedging instruments:
|  | Units Hedged |  |  |  |
Short Currency |  | June 30, 2013 |  | December 31, 2012 |  | Recognized Location |  | Purpose
Euro |  | 30,541,078 |  |  | 24,540,841 |  |  | Other income, net |  | Accounts Payable and Receivable Settlement
United States Dollar |  | 16,735,000 |  |  | 6,432,000 |  |  | Other income, net |  | Accounts Payable and Receivable Settlement
Pound Sterling |  | 6,502,980 |  |  | 11,100,000 |  |  | Other income, net |  | Accounts Payable and Receivable Settlement
Chinese Renminbi |  | 125,000,000 |  |  | — |  |  | Other income, net |  | Accounts Payable and Receivable Settlement
Indian Rupee |  | 358,108 |  |  | — |  |  | Other income, net |  | Accounts Payable and Receivable Settlement
Mexican Peso |  | 1,032,780 |  |  | — |  |  | Other income, net |  | Accounts Payable and Receivable Settlement
Canadian Dollar |  | 57,246 |  |  | — |  |  | Other income, net |  | Accounts Payable and Receivable Settlement
Japanese Yen |  | 100,000,000 |  |  | — |  |  | Other income, net |  | Accounts Payable and Receivable Settlement
The fair value of outstanding derivative contracts recorded as assets in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 was as follows:
|  |  |  | ASSET DERIVATIVES
|  |  |  | June 30, 2013 |  | December 31, 2012
(in millions) |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Other current assets |  | $ | 1.3 |  |  | $ | 2.6 |
Total derivatives designated as hedging instruments |  |  |  | $ | 1.3 |  |  | $ | 2.6 |
|  |  |  | ASSET DERIVATIVES
|  |  |  | June 30, 2013 |  | December 31, 2012
(in millions) |  | Balance Sheet Location |  | Fair Value
Derivatives NOT designated as hedging instruments |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Other current assets |  | $ | 0.1 |  |  | $ | 0.3 |
Total derivatives NOT designated as hedging instruments |  |  |  | $ | 0.1 |  |  | $ | 0.3 |
Total asset derivatives |  |  |  | $ | 1.4 |  |  | $ | 2.9 |
The fair value of outstanding derivative contracts recorded as liabilities in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 was as follows:
|  |  |  | LIABILITY DERIVATIVES
|  |  |  | June 30, 2013 |  | December 31, 2012
(in millions) |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Accounts payable and accrued expenses |  | $ | 1.9 |  |  | $ | 0.4 |
Commodity contracts |  | Accounts payable and accrued expenses |  | 1.4 |  |  | 0.8 |
Interest rate swap contracts: Fixed-to-float |  | Other non-current liabilities |  | $ | 8.4 |  |  | $ | 1.1 |
Total derivatives designated as hedging instruments |  |  |  | $ | 11.7 |  |  | $ | 2.3 |
|  |  |  | LIABILITY DERIVATIVES
|  |  |  | June 30, 2013 |  | December 31, 2012
(in millions) |  | Balance Sheet Location |  | Fair Value
Derivatives NOT designated as hedging instruments |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Accounts payable and accrued expenses |  | $ | 1.0 |  |  | $ | 0.5 |
Interest rate swap contracts: Float-to-fixed |  | Accounts payable and accrued expenses |  | — |  |  | 0.3 |
Interest rate swap contracts: Fixed-to-float |  | Other non-current liabilities |  | — |  |  | — |
Total derivatives NOT designated as hedging instruments |  |  |  | $ | 1.0 |  |  | $ | 0.8 |
Total liability derivatives |  |  |  | $ | 12.7 |  |  | $ | 3.1 |
The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the three months ended June 30, 2013 and June 30, 2012 for gains or losses initially recognized in Other Comprehensive Income (OCI) in the Condensed Consolidated Balance Sheets was as follows:
|  | Amount of Gain or (Loss) on Derivative Recognized in OCI (Effective Portion, net of tax) |  | Location of Gain or (Loss) Reclassified from Accumulated |  | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships (in millions) |  | June 30, 2013 |  | June 30, 2012 |  | OCI into Income (Effective Portion) |  | June 30, 2013 |  | June 30, 2012
Foreign exchange contracts |  | $ | 0.5 |  |  | $ | (2.4 | ) |  | Cost of sales |  | $ | 0.5 |  |  | $ | (2.5 | )
Interest rate swap & cap contracts |  | — |  |  | (0.1 | ) |  | Interest expense |  | — |  |  | — |
Commodity contracts |  | (0.2 | ) |  | (2.7 | ) |  | Cost of sales |  | (0.6 | ) |  | (0.6 | )
Total |  | $ | 0.3 |  |  | $ | (5.2 | ) |  |  |  | $ | (0.1 | ) |  | $ | (3.1 | )
Derivatives |  | Location of Gain or (Loss) on Derivative Recognized in Income (Ineffective Portion and Amount Excluded from |  | Amount of Gain or (Loss) on Derivative Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Relationships (in millions) |  | Effectiveness Testing) |  | June 30, 2013 |  | June 30, 2012
Commodity contracts |  | Cost of sales |  | $ | (0.1 | ) |  | $ | (0.1 | )
Total |  |  |  | $ | (0.1 | ) |  | $ | (0.1 | )
Derivatives Not Designated as |  | Location of Gain or (Loss) Recognized on Derivative in |  | Amount of Gain or (Loss) on Derivative Recognized in Income
Hedging Instruments (in millions) |  | Income |  | June 30, 2013 |  | June 30, 2012
Foreign exchange contracts |  | Other income |  | $ | (0.6 | ) |  | $ | (0.6 | )
Interest rate swaps |  | Other income |  | — |  |  | 2.4 |
Total |  |  |  | $ | (0.6 | ) |  | $ | 1.8 |
The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the six months ended June 30, 2013 and June 30, 2012 for gains or losses initially recognized in Other Comprehensive Income (OCI) in the Condensed Consolidated Balance Sheets was as follows:
|  | Amount of Gain or (Loss) on Derivative Recognized in OCI (Effective Portion, net of tax) |  | Location of Gain or (Loss) Reclassified from Accumulated |  | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Cash Flow Hedging Relationships (in millions) |  | June 30, 2013 |  | June 30, 2012 |  | OCI into Income (Effective Portion) |  | June 30, 2013 |  | June 30, 2012
Foreign exchange contracts |  | $ | (1.8 | ) |  | $ | (0.2 | ) |  | Cost of sales |  | $ | 0.8 |  |  | $ | (3.3 | )
Interest rate swap & cap contracts |  | — |  |  | (0.2 | ) |  | Interest expense |  | — |  |  | — |
Commodity contracts |  | (0.3 | ) |  | (0.2 | ) |  | Cost of sales |  | (1.1 | ) |  | (1.3 | )
Total |  | $ | (2.1 | ) |  | $ | (0.6 | ) |  |  |  | $ | (0.3 | ) |  | $ | (4.6 | )
Derivatives |  | Location of Gain or (Loss) on Derivative Recognized in Income (Ineffective Portion and Amount Excluded from |  | Amount of Gain or (Loss) on Derivative Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Relationships (in millions) |  | Effectiveness Testing) |  | June 30, 2013 |  | June 30, 2012
Commodity contracts |  | Cost of sales |  | $ | (0.1 | ) |  | $ | (0.2 | )
Total |  |  |  | $ | (0.1 | ) |  | $ | (0.2 | )
Derivatives Not Designated as |  | Location of Gain or (Loss) Recognized on Derivative in |  | Amount of Gain or (Loss) on Derivative Recognized in Income
Hedging Instruments (in millions) |  | Income |  | June 30, 2013 |  | June 30, 2012
Foreign exchange contracts |  | Other income |  | $ | (0.8 | ) |  | $ | (1.4 | )
Interest rate swaps |  | Other income |  | — |  |  | $ | 4.7 |
Total |  |  |  | $ | (0.8 | ) |  | $ | 3.3 |
The effect of Fair Market Value designated derivative instruments on the Condensed Consolidated Statements of Operations for the three months ended June 30, 2013 and June 30, 2012 for gains or losses recognized through income was as follows:
Derivatives Designated as Fair Market Value |  | Location of Gain or (Loss) on Derivative |  | Amount of Gain or (Loss) on Derivative Recognized in Income
Instruments under ASC 815 (in millions) |  | Recognized in Income |  | June 30, 2013 |  | June 30, 2012
Interest rate swap contracts |  | Interest expense |  | $ | (6.0 | ) |  | $ | 15.3 |
Total |  |  |  | $ | (6.0 | ) |  | $ | 15.3 |
The effect of Fair Market Value designated derivative instruments on the Condensed Consolidated Statements of Operations for the six months ended June 30, 2013 and June 30, 2012 for gains or losses recognized through income was as follows:
Derivatives Designated as Fair Market Value |  | Location of Gain or (Loss) on Derivative |  | Amount of Gain or (Loss) on Derivative Recognized in Income
Instruments under ASC 815 (in millions) |  | Recognized in Income |  | June 30, 2013 |  | June 30, 2012
Interest rate swap contracts |  | Interest expense |  | $ | (7.3 | ) |  | $ | 11.5 |
Total |  |  |  | $ | (7.3 | ) |  | $ | 11.5 |

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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 Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 11: 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. 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