Derivatives and Hedging Activities

9 Months Ended

Sep. 30, 2011

Derivatives and Hedging Activities [Abstract]

Derivatives and Hedging Activities

Note 18. Derivatives and Hedging Activities

Cash Flow Hedges

The Company has subsidiaries that conduct a substantial portion of their business in Great Britain Pounds Sterling, Euros, Canadian Dollars, Indian Rupees and Polish Zlotys but have significant sales contracts that are denominated primarily in U.S. Dollars. Periodically, the Company enters into forward contracts to exchange U.S. Dollars for these currencies to hedge a portion of the Company’s exposure from U.S. Dollar sales.

The forward contracts described above are used to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the Company’s U.S. Dollar sales for certain foreign operations. The forward contracts are accounted for as cash flow hedges and are recorded in the Company’s condensed consolidated balance sheet at fair value, with the offset reflected in Accumulated Other Comprehensive Income (AOCI), net of deferred taxes. The gain or loss on the forward contracts is reported as a component of other comprehensive income (loss) (OCI) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The notional value of the forward contracts at September 30, 2011 and December 31, 2010 was $2,086.4 million and $2,286.5 million, respectively. As of September 30, 2011 and December 31, 2010, the total fair value before taxes of the Company’s forward contracts and the accounts in the condensed consolidated balance sheet in which the fair value amounts are included are shown below:

	September 30,		December 31,
	2011		2010
	(Dollars in millions)
Prepaid expenses and other assets	$	14.8	$	20.3
Other assets		22.2		44.6
Accrued expenses		15.1		22.7
Other non-current liabilities		22.2		11.6

The amounts recognized in OCI and reclassified from AOCI into earnings are shown below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
				(Dollars in millions)
Amount of gain/(loss) recognized in OCI, net of tax for the three and nine months ended September 30, 2011 of $35.7 and $6.0, respectively; net of tax for the three and nine months ended September 30, 2010 of $(37.7) and $6.6, respectively	$	(82.4	)	$	75.9		$	(20.4	)	$	(12.6	)
Amount of gain/(loss) reclassified from AOCI into earnings	$	5.4		$	(9.9	)	$	13.3		$	(26.8	)

The total fair value of the Company’s forward contracts of a $0.3 million net liability (before deferred taxes of $0.1 million) at September 30, 2011, combined with $1.8 million of losses on previously matured hedges of intercompany sales and gains from forward contracts terminated prior to the original maturity dates, is recorded in AOCI and will be reflected in income as earnings are affected by the hedged items. As of September 2011, the portion of the net $0.3 million liability that would be reclassified into earnings to offset the effect of the hedged item in the next 12 months is a loss of $0.3 million. These forward contracts mature on a monthly basis with maturity dates that range from October 2011 to September 2016. There was a de minimis amount of both ineffectiveness and hedge components excluded from the assessment of effectiveness during the three and nine months ended September 30, 2011 and 2010.

Fair Value Hedges

The Company enters into interest rate swaps to increase the Company’s exposure to variable interest rates. The settlement and maturity dates on each swap are the same as those on the referenced notes. The interest rate swaps are accounted for as fair value hedges and the carrying value of the notes is adjusted to reflect the fair values of the interest rate swaps. At September 30, 2011 and December 31, 2010, the Company had no outstanding interest rate swaps. Previously terminated swaps are amortized over the life of the underlying debt and recorded as a reduction to interest expense.

Other Forward Contracts

As a supplement to the foreign exchange cash flow hedging program, the Company enters into forward contracts to manage its foreign currency risk related to the translation of monetary assets and liabilities denominated in currencies other than the relevant functional currency. These forward contracts generally mature monthly and the notional amounts are adjusted periodically to reflect changes in net monetary asset balances. Since these contracts are not designated as hedges, the gains or losses on these forward contracts are recorded in selling and administrative costs or cost of sales, as appropriate. These contracts are utilized to mitigate the earnings impact of the translation of net monetary assets and liabilities.

During the three months ended September 30, 2011, the Company recorded a transaction gain on its net monetary assets of $19.7 million, which was offset by losses on the other forward contracts described above of $23.2 million. During the three months ended September 30, 2010, the Company recorded a transaction loss on its monetary assets of $23.6 million, which was partially offset by gains on the other forward contracts described above of $16 million.

During the nine months ended September 30, 2011, the Company recorded a transaction loss on its net monetary assets of $3.4 million, in addition to losses on the other forward contracts described above of $9 million. During the nine months ended September 30, 2010, the Company recorded a transaction gain on its monetary assets of $15.7 million, which was partially offset by losses on the other forward contracts described above of $16.5 million.