FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT

The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under the Derivatives and Hedging topic of the FASB Codification and those not designated as hedging instruments under this guidance. The Company uses interest rate swaps, natural gas swap contracts, and forward exchange contracts. These derivative instruments are designated as cash flow hedges and, to the extent they 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 Accumulated Other Comprehensive Income. These changes in fair value will subsequently be reclassified to earnings.

Interest Rate Risk

The Company uses interest rate swaps to manage interest rate risks on future interest payments caused by interest rate changes on its variable rate term loan facility. The differential to be paid or received under these agreements is recognized as an adjustment to Interest Expense related to debt. At September 30, 2013 and December 31, 2012, the Company had interest rate swap agreements outstanding with a notional amount of $560 million and $460 million, respectively. The swap agreements, under which the Company will pay fixed rates of 0.45% to 0.82% and receive one-month LIBOR rates, expire in April 2016.

Changes in fair value will subsequently be reclassified into earnings as a component of Interest Expense, Net as interest is incurred on amounts outstanding under the term loan facility. Ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs.

During the first nine months of 2013 and 2012, there were minimal amounts of ineffectiveness related to changes in the fair value of interest rate swap agreements. Additionally, there were no amounts excluded from the measure of effectiveness.

Commodity Risk

To manage risks associated with future variability in cash flows and price risk attributable to certain commodity purchases, the Company enters into natural gas swap contracts to hedge prices for a designated percentage of its expected natural gas usage. The Company has hedged a portion of its expected usage for 2013 and 2014. Such contracts are designated as cash flow hedges. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss, and the resulting gain or loss is reclassified into Cost of Sales concurrently with the recognition of the commodity consumed. The ineffective portion of the swap contracts’ change in fair value would be recognized immediately in earnings.

During the first nine months of 2013 and 2012, there were minimal amounts of ineffectiveness related to changes in the fair value of natural gas swap contracts. Additionally, there were no amounts excluded from the measure of effectiveness.

Foreign Currency Risk

The Company enters into forward exchange contracts to manage risks associated with future variability in cash flows resulting from anticipated foreign currency transactions that may be adversely affected by changes in exchange rates. The contracts are carried at fair value with changes in fair value recognized in Accumulated Other Comprehensive Loss and gains/losses related to these contracts are recognized in Other Income, Net when the anticipated transaction affects income.

At September 30, 2013, multiple forward exchange contracts existed that expire on various dates through 2013. Those purchased forward exchange contracts outstanding at September 30, 2013 and December 31, 2012, when aggregated and measured in U.S. dollars at contractual rates at September 30, 2013 and December 31, 2012 had notional amounts totaling $15.4 million and $63.9 million, respectively.

No amounts were reclassified to earnings during the first nine months of 2013 or during 2012 in connection with forecasted transactions that were no longer considered probable of occurring, and there was no amount of ineffectiveness related to changes in the fair value of foreign currency forward contracts. Additionally, there were no amounts excluded from the measure of effectiveness.

Derivatives not Designated as Hedges

The Company enters into forward exchange contracts to effectively hedge substantially all of its accounts receivable resulting from sales transactions denominated in foreign currencies in order to manage risks associated with foreign currency transactions adversely affected by changes in exchange rates. At September 30, 2013 and December 31, 2012, multiple foreign currency forward exchange contracts existed, with maturities ranging up to three months. Those foreign currency exchange contracts outstanding at September 30, 2013 and December 31, 2012, when aggregated and measured in U.S. dollars at exchange rates at September 30, 2013 and December 31, 2012, had net notional amounts totaling $38.1 million and $19.5 million, respectively. Unrealized gains and losses resulting from these contracts are recognized in Other Income, Net and approximately offset corresponding recognized but unrealized gains and losses on these accounts receivable.

Fair Value of Financial Instruments

The Company’s derivative instruments are carried at fair value. The Company has determined that the inputs to the valuation of these derivative instruments are level 2 in the fair value hierarchy. Level 2 inputs are defined as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. The Company uses valuation techniques based on discounted cash flow analyses, which reflect the terms of the derivatives and use observable market-based inputs, including forward rates and use market price quotations obtained from independent derivatives brokers, corroborated with information obtained from independent pricing service providers.

As of September 30, 2013, there has not been any significant impact to the fair value of the Company’s derivative liabilities due to its own credit risk. Similarly, there has not been any significant adverse impact to the Company’s derivative assets based on evaluation of the Company’s counterparties’ credit risks.

The fair value of the Company’s derivative instruments is as follows:



	Derivative Assets					Derivative Liabilities
In millions	Balance Sheet Location	September 30, 2013		December 31, 2012		Balance Sheet Location	September 30, 2013		December 31, 2012
Derivative Contracts Designated as Hedging Instruments
Commodity Contracts	Other Current Assets	$	—	$	—	Other Accrued Liabilities	$	1.3	$	0.2
Foreign Currency Contracts	Other Current Assets	0.4		0.1		Other Accrued Liabilities	0.2		0.2
Interest Rate Swap Agreements	Other Current Assets	—		—		Other Accrued Liabilities, Other Noncurrent Liabilities and Interest Payable	3.7		6.0
Derivative Contracts Not Designated as Hedging Instruments
Foreign Currency Contracts	Other Current Assets	—		—		Other Accrued Liabilities	0.2		—
Total Derivative Contracts		$	0.4	$	0.1		$	5.4	$	6.4

The fair values of the Company’s other financial assets and liabilities at September 30, 2013 and December 31, 2012 approximately equal the carrying values reported on the Consolidated Balance Sheets except for Long-Term Debt. The fair value of the Company’s Long-Term Debt (excluding capital leases) was $2,240.0 million and $2,399.1 million as compared to the carrying amounts of $2,226.5 million and $2,325.5 million as of September 30, 2013 and December 31, 2012, respectively. The fair value of the Company’s Long-Term Debt, including the Senior Notes, are based on quoted market prices (Level 2 inputs). Level 2 valuation techniques for Long-Term Debt are based on quotations obtained from independent pricing service providers.

Effect of Derivative Instruments

The pre-tax effect of derivative instruments in cash flow hedging relationships on the Company’s Consolidated Statements of Operations is as follows:



	Amount of Loss (Gain) Recognized in Accumulated Other Comprehensive Loss					Location in Statement of Operations (Effective Portion)	Amount of (Gain) Loss Recognized in Statement of Operations (Effective Portion)						Location in Statement of Operations (Effective Portion)	Amount Recognized in Statement of Operations (Ineffective Portion)

	Three Months Ended						Three Months Ended							Three Months Ended
	September 30,						September 30,							September 30,
In millions	2013		2012				2013			2012				2013		2012
Commodity Contracts	$	1.0	$	(0.7	)	Cost of Sales	$	0.5		$	(0.1	)	Cost of Sales	$	0.1	$	—
Foreign Currency Contracts	0.8		0.3			Other (Income) Expense, Net	(0.8		)	(0.7		)	Other (Income) Expense, Net	—		—
Interest Rate Swap Agreements	2.2		3.3			Interest Expense, Net	0.8			0.7			Interest Expense, Net	—		—
Total	$	4.0	$	2.9			$	0.5		$	(0.1	)		$	0.1	$	—



	Amount of Loss (Gain) Recognized in Accumulated Other Comprehensive Loss						Location in Statement of Operations (Effective Portion)	Amount of Loss (Gain) Recognized in Statement of Operations (Effective Portion)						Location in Statement of Operations (Effective Portion)	Amount Recognized in Statement of Operations (Ineffective Portion)

	Nine Months Ended							Nine Months Ended							Nine Months Ended
	September 30,							September 30,							September 30,
In millions	2013			2012				2013			2012				2013		2012
Commodity Contracts	$	1.9		$	0.3		Cost of Sales	$	0.8		$	2.9		Cost of Sales	$	0.1	$	(0.1	)
Foreign Currency Contracts	(1.9		)	(0.8		)	Other (Income) Expense, Net	(1.7		)	(0.6		)	Other (Income) Expense, Net	—		—
Interest Rate Swap Agreements	(0.1		)	7.1			Interest Expense, Net	2.3			4.1			Interest Expense, Net	—		—
Total	$	(0.1	)	$	6.6			$	1.4		$	6.4			$	0.1	$	(0.1	)

The effect of derivative instruments not designated as hedging instruments on the Company’s Condensed Consolidated Statements of Operations is as follows:



		Three Months Ended				Nine Months Ended
		September 30,				September 30,
In millions		2013		2012		2013		2012
Foreign Currency Contracts	Other Expense (Income), Net	$	1.5	$	1.0	$	0.5	$	0.5

Accumulated Derivative Instruments (Loss) Income

The following is a rollforward of pre-tax Accumulated Derivative Instruments (Loss) Income which is included in the Company’s Condensed Consolidated Balance Sheets:



In millions
Balance at December 31, 2012	$	(5.7	)
Reclassification to Earnings	1.4
Current Period Change in Fair Value	0.1
Balance at September 30, 2013	$	(4.2	)

At September 30, 2013, the Company expects to reclassify approximately $3 million of loss in the next twelve months from Accumulated Other Comprehensive Loss to earnings, contemporaneously with and offsetting changes in the related hedged exposure. The actual amount that will be reclassified to future earnings may vary from this amount as a result of changes in market conditions.