Derivatives

6 Months Ended

Jun. 30, 2011

Derivatives

Derivatives

15. Derivatives

All derivatives are recorded as other current or noncurrent assets or other current or noncurrent liabilities on the Condensed Consolidated Balance Sheets at their respective fair values. Unrealized gains and losses related to derivatives are recorded in other comprehensive income (loss), net of applicable income taxes, or in the Condensed Consolidated Statements of Operations, depending on the purpose for which the derivative is held. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in the Condensed Consolidated Statements of Operations. Changes in the fair value of derivatives that do not meet the criteria for designation as a hedge at inception, or fail to meet the criteria thereafter, are recognized currently in the Condensed Consolidated Statements of Operations. At the inception of a hedge transaction, the Company formally documents the hedge relationship and the risk management objective for undertaking the hedge. In addition, the Company assesses both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been highly effective in offsetting changes in fair value or cash flows of the hedged item and whether the derivative is expected to continue to be highly effective. The impact of any ineffectiveness is recognized currently in the Condensed Consolidated Statements of Operations.

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in most countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the operating unit, the Company is exposed to currency risk. Periodically, the Company uses foreign exchange forward contracts and cross-currency swaps to hedge exposures resulting from foreign exchange fluctuations. Accordingly, the implied gains and losses associated with the fair values of foreign currency exchange contracts and cross-currency swaps are generally offset by gains and losses on underlying payables, receivables and net investments in foreign subsidiaries. The Company does not use derivative financial instruments for trading or speculative purposes.

The Company has entered into foreign exchange forward contracts in order to manage the currency exposure of certain receivables and liabilities. The foreign exchange forward contracts were not designated as hedges, and accordingly, the fair value gains or losses from these foreign currency derivatives are recognized currently in the Condensed Consolidated Statements of Operations, generally offsetting the foreign exchange gains or losses on the exposures being managed. The aggregate notional value of the forward contracts at June 30, 2011 and December 31, 2010 was $102.5 million and $100.9 million, respectively. The fair values of foreign exchange forward contracts were determined to be Level 2 under the fair value hierarchy and are valued using market exchange rates.

On April 9, 2010, the Company entered into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap agreements effectively changed the interest rate on $600 million of its fixed-rate senior notes to floating rate LIBOR plus a basis point spread. These interest rate swaps, with a notional value of $600 million, are designated as fair value hedges against changes in the value of the Company's 4.95% senior notes due April 1, 2014, which are attributable to changes in the benchmark interest rate. The Company evaluates the credit value adjustments of the interest rate swap agreements, which take into account the possibility of counterparty and the Company's own default, on at least a quarterly basis. The Company's agreements with each of its counterparties contain a provision where the Company could be declared in default on its derivative obligations if it either defaults or, in certain cases, is capable of being declared in default on any of its indebtedness greater than specified thresholds. These agreements also contain a provision where the Company could be declared in default subsequent to a merger or restructuring type event if the creditworthiness of the resulting entity is materially weaker. The fair values of the interest rate swaps were determined to be Level 2 under the fair value hierarchy and are valued using market interest rates.

At June 30, 2011 and December 31, 2010, the total fair value of the Company's forward contracts, which were the only derivatives not designated as hedges, and fair value hedges and the accounts on the Condensed Consolidated Balance Sheets in which the fair value amounts are included are shown in the table below:

	June 30, 2011		December 31, 2010
Derivatives not designated as hedges
Prepaid expenses and other current assets	$	0.3	$	0.5
Accrued liabilities		0.3		0.3
Derivatives designated as fair value hedges
Other noncurrent assets	$	20.2	$	16.8

The pre-tax gains (losses) related to derivatives not designated as hedges recognized in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 are shown in the table below:

	Classification of Gain (Loss) Recognized in the Condensed Consolidated Statements of Operations	Three months ended June  30,					Six months ended June  30,
		2011		2010			2011		2010
Derivatives not designated as hedges
Foreign exchange forward contracts	Selling, general and administrative expenses	$	0.1	$	(8.5	)	$	1.7	$	(4.4	)
Total gain (loss) recognized in the condensed consolidated statements of operations	Selling, general and administrative expenses	$	0.1	$	(8.5	)	$	1.7	$	(4.4	)

For derivatives designated as fair value hedges, the pre-tax gains (losses) related to the hedged items, attributable to changes in the hedged benchmark interest rate, and the offsetting gain or loss on the related interest rate swaps for the three and six months ended June 30, 2011 and 2010 are shown in the table below:

	Classification of Gain (Loss) Recognized in the Condensed Consolidated Statements of  Operations	Three months ended June  30,						Six months ended June  30,
		2011			2010			2011			2010
Fair Value Hedges
Interest rate swaps	Investment and other income (expense)	$	7.2		$	14.2		$	3.3		$	14.2
Hedged items	Investment and other income (expense)		(6.7	)		(13.0	)		(2.6	)		(13.0	)
Total gain recognized as ineffectiveness in the condensed consolidated statements of operations	Investment and other income (expense)	$	0.5		$	1.2		$	0.7		$	1.2

The Company also recognized a net reduction to interest expense of $2.5 million and $5.1 million for the three and six months ended June 30, 2011, respectively, and $2.2 million in each respective period for the three and six months ended June 30, 2010, related to the Company's fair value hedges, which includes interest accruals on the derivatives and amortization of the basis in the hedged items.

The pre-tax losses related to derivatives designated as cash flow hedges for the three months ended June 30, 2011 and 2010 are shown in the table below:

	Loss Recognized in OCI (Effective Portion)				Classification of Loss Reclassified from AOCI into Income (Effective Portion)	Loss Reclassified from AOCI into Income (Effective Portion)						Classification of Loss Recognized in Income (Ineffective Portion)	Loss Recognized in Income (Ineffective Portion)
	2011		2010			2011			2010				2011			2010
Cash Flow Hedges
Interest rate lock	$	—	$	—	Interest expense—net	$	(0.1	)	$	(0.1	)	Loss on debt extinguishment	$	(0.5	)	$	—

The pre-tax losses related to derivatives designated as cash flow hedges for the six months ended June 30, 2011 and 2010 are shown in the table below:

	Loss Recognized in OCI (Effective Portion)				Classification of Loss Reclassified from AOCI into Income (Effective Portion)		Loss Reclassified from AOCI into Income (Effective Portion)						Classification of Loss Recognized in Income (Ineffective Portion)	Loss Recognized in Income (Ineffective Portion)
	2011		2010				2011			2010				2011			2010
Cash Flow Hedges
Interest rate lock	$	—	$	—		Interest expense—net	$	(0.3	)	$	(0.3	)	Loss on debt extinguishment	$	(0.5	)	$	—

Terminated Derivatives

In May 2005, the Company terminated its interest rate lock agreements which were designated as cash flow hedges and used to hedge against fluctuations in interest rates. This termination resulted in a loss of $12.9 million recorded in accumulated other comprehensive loss, which was being recognized in interest expense over the term of the hedged forecasted interest payments. On June 15, 2011, the Company repurchased $100 million of the 5.50% senior notes due May 15, 2015 which were hedged as part of the interest rate lock agreements. Pre-tax losses of $0.5 million were reclassified from accumulated other comprehensive loss to loss on debt extinguishment in the Consolidated Statement of Operations as a result of the change in expected forecasted interest payments. In addition, during the third quarter of 2009, the Company repurchased $174.2 million of the 4.95% senior notes due May 15, 2010 which were also hedged as part of the interest rate lock agreements. Pre-tax losses of $2.7 million were reclassified from accumulated other comprehensive loss to loss on debt extinguishment in the Consolidated Statement of Operations as a result of the change in expected forecasted interest payments. At June 30, 2011, a balance of $1.2 million remained in accumulated other comprehensive loss, of which $0.3 million is expected to be reclassified to earnings over the next twelve months.