Derivative Financial Instruments and Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Derivative Financial Instruments and Fair Value Measurements [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company manages the volatility of cash flows caused by fluctuations in currency rates by entering into foreign exchange forward contracts and options. These derivative instruments may be designated as cash flow hedges that hedge portions of the Company’s anticipated third-party purchases and forecasted sales denominated in foreign currencies. The Company also enters into foreign exchange contracts that are not intended to qualify for hedge accounting, but are intended to offset the effect on earnings of foreign currency movements on short and long-term intercompany transactions. Gains and losses on these derivative instruments are recorded through earnings. The Company has not historically and does not anticipate trading in derivatives.

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1 – Quoted prices in active markets for identical assets or liabilities.

• Level 2 – Observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The carrying value of short-term debt approximates fair value due to its short maturity (Level 2 input). The fair value of long-term debt is based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities (Level 2 input). In addition to debt, other assets measured at fair value on a recurring basis consisted of cash and cash equivalents and restricted cash. The carrying amounts of cash and cash equivalents and restricted cash approximate fair value because of the short-term maturity and highly liquid nature of these instruments.

For assets and liabilities measured at fair value on a recurring basis, the Company uses an income approach to value the assets and liabilities for outstanding derivative contracts, which include interest rate swaps and foreign currency forward contracts. The income approach consists of a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contracts using current market information as of the reporting date, such as prevailing interest rates and foreign currency spot and forward rates. The following table provides a summary of the fair values of assets and liabilities:

	Fair Value Measurements at March 31, 2012
($ in millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Assets
Derivatives	$	0.2	$	—	$	0.2	$	—
Liabilities
Derivatives	$	0.4	$	—	$	0.4	$	—
	Fair Value Measurements at December 31, 2011
	Total		Quoted Prices  in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives	$	0.1	$	—	$	0.1	$	—
Liabilities
Derivatives	$	0.8	$	—	$	0.8	$	—

At March 31, 2012 and December 31, 2011, the fair value of the Company’s derivative instruments was recorded as follows:

	Asset Derivatives March 31, 2012			Liability Derivatives March 31, 2012
($ in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange	Other current assets	$	—	Other current liabilities	$	0.4
Total derivatives designated as hedging instruments			—			0.4
Derivatives not designated as hedging instruments:
Foreign exchange	Accounts receivable, net		0.2	Other current liabilities		—
Total derivatives not designated as hedging instruments			0.2			—
Total derivatives		$	0.2		$	0.4
	Asset Derivatives December 31, 2011			Liability Derivatives December 31, 2011
($ in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange	Other current assets	$	—	Other current liabilities	$	0.8
Total derivatives designated as hedging instruments			—			0.8
Derivatives not designated as hedging instruments:
Foreign exchange	Accounts receivable, net		0.1	Other current liabilities		—
Total derivatives not designated as hedging instruments			0.1			—
Total derivatives		$	0.1		$	0.8

The effect of derivative instruments on the condensed consolidated statement of operations for the three months ended March 31, 2012 and 2011, respectively ($ in millions) was as follows:

2012 Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI  on Derivative (Effective Portion)		Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of  Gain Reclassified from Accumulated OCI into Income (Effective Portion)
Foreign exchange	$	0.3	Net sales	$	0.1
Total	$	0.3		$	0.1

Derivatives not Designated as Hedging Instruments	Location of Gain Recognized  in Income on Derivative	Amount of  Loss Recognized in Income on Derivative
Foreign exchange	Other expense	$	(0.1	)
Total		$	(0.1	)

2011 Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI  on Derivative (Effective Portion)		Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain Reclassified from Accumulated OCI into Income (Effective Portion)
Foreign exchange	$	0.2	Net sales	$	0.1
Total	$	0.2		$	0.1

Derivatives not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative	Amount of  Loss Recognized in Income on Derivative
Foreign exchange	Other expense	$	(0.6	)
Total		$	(0.6	)

At March 31, 2012 and December 31, 2011, accumulated other comprehensive loss associated with foreign exchange contracts qualifying for hedge accounting treatment was $0.2 million and $0.6 million, net of income tax effects, respectively. The Company expects $0.5 million of pre-tax net gain on cash flow hedges that are reported in accumulated other comprehensive loss as of March 31, 2012 to be reclassified into earnings within the next twelve months as the respective hedged transactions affect earnings. The Company’s foreign currency contracts typically do not extend beyond a year.

The following table summarizes the carrying amounts and fair values of the Company’s financial instruments:

	March 31, 2012					December 31, 2011
($ in millions)	Notional Amount		Fair Value			Notional Amount		Fair Value
Short-term debt	$	2.8	$	2.8		$	9.0	$	9.0
Long-term debt (1)		232.8		232.8			214.2		212.5
Foreign exchange contracts (2)		20.0		(0.2	)		21.8		(0.7	)

(1) Long-term debt includes current portions of long-term debt and capital lease obligations and $0.9 million of financial service borrowings at December 31, 2011, which is included in discontinued operations.

(2) Foreign exchange contracts are primarily denominated in USD, GBP, and Euro.