Financial Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS

As more fully described below, the Company enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. The amount of the Company’s fixed obligation interest payments may change based upon the expiration dates of its interest rate swap agreements and the level and composition of its debt. The Company also enters into certain foreign currency forward contracts to limit the Company’s exposure to currency fluctuations on the respective hedged items. The Company does not use derivative financial instruments for trading purposes. For additional disclosures on the fair value of financial instruments, also see Note 5 to the interim consolidated financial statements.

Cash Flow Hedges

The Company has an interest rate swap agreement, designated as a cash flow hedge. The agreement is a forward-starting swap which changed the floating rate LIBOR-based interest payments associated with $100 million in forecasted borrowings under the Company’s credit facility to a fixed obligation of 3.24% beginning in October 2010. The swap is recorded in other non-current liabilities in the consolidated balance sheet at its fair value at September 30, 2012 and December 31, 2011 of $9.0 million and $9.2 million, respectively. The effective portion of the loss reclassified from accumulated other comprehensive income (loss) to interest expense was $0.8 million for both the three month periods ended September 30, 2012 and 2011, respectively, and $2.3 million for both the nine month periods ended September 30, 2012 and 2011, respectively. The amount recognized in other comprehensive income (loss) during the three month periods ended September 30, 2012 and 2011 was a gain of $0.2 million and a loss of $2.7 million, respectively, and during the nine month periods ended September 30, 2012 and 2011 was a gain of $0.2 million and loss of $3.6 million, respectively. A derivative loss of $3.1 million ($1.9 million after tax) based upon interest rates at September 30, 2012, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through September 30, 2012 no hedge ineffectiveness has occurred in relation to this hedge.

In July 2012, the Company began entering into foreign currency forward contracts, designated as cash flow hedges, to hedge certain forecasted intercompany sales denominated in euro with its Swiss-based businesses. The notional amount of foreign currency forward contracts outstanding at September 30, 2012 was $76.6 million. The foreign currency forward contracts are recorded in accrued and other liabilities in the consolidated balance sheet at their fair value at September 30, 2012 of $0.6 million. The Company records the effective portion of the cash flow derivative hedging gains and losses in accumulated other comprehensive income (loss), net of tax and reclassifies these amounts into earnings in the period in which the transactions affect earnings. The effective portion of the loss reclassified from accumulated other comprehensive income (loss) to cost of sales was insignificant during the three months ending September 30, 2012. The amount recognized in other comprehensive income (loss) during the three month period ended September 30, 2012 was a loss of $0.6 million. A derivative loss of $0.6 million ($0.5 million after tax) based upon foreign currency rates at September 30, 2012, is expected to be reclassified from other comprehensive income (loss) to earnings in the next twelve months. Through September 30, 2012 no hedge ineffectiveness has occurred in relation to this hedge.

Other Derivatives

The Company enters into foreign currency forward contracts in order to economically hedge short-term intercompany balances largely denominated in Swiss franc and other major European currencies with its foreign businesses. In accordance with U.S. GAAP, these contracts are considered “derivatives not designated as hedging instruments.” Gains or losses on these instruments are reported in current earnings. The foreign currency forward contracts were reported at their fair value in the consolidated balance sheet at September 30, 2012 and December 31, 2011 in other current assets of $0.4 million and $0.5 million, respectively, and other liabilities of $0.5 million and $0.5 million, respectively. The Company recognized in other charges (income), net, a gain of $1.4 million and $1.7 million during both the three month period and nine month period ended September 30, 2012, respectively. The Company recognized a net loss of $3.2 million during the three month period and a gain of $1.2 million during the nine month period ended September 30, 2011. At September 30, 2012 and December 31, 2011, these contracts had a notional value of $154.5 million and $143.6 million, respectively.