Risk Management And Derivative Financial Instruments

6 Months Ended

Jun. 30, 2011

Risk Management And Derivative Financial Instruments

Risk Management And Derivative Financial Instruments

12. RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Strategy & Objectives

We are subject to market and financial risks related to interest rates, foreign currency, and commodities. In the normal course of business, we utilize derivative instruments (individually or in combinations) to manage these risks. We seek to use derivative contracts that qualify for hedge accounting treatment; however, some instruments may not qualify for this treatment. It is our policy not to speculate using derivative instruments.

We have recorded the following assets and liabilities representing the fair value for our most significant derivative financial instruments. The fair values of the derivatives reflect the change in the market value of the derivative from the date of the trade execution, and do not consider the offsetting underlying hedged item.

	Total USD Equivalent Notional Amount		As of June 30, 2011
Derivatives designated as hedging instruments			Assets				Liabilities
			Other Current Assets		Sundry		Other Current Liabilities		Other Long-Term Liabilities
Cash flow hedges:
Commodity hedges	$	7.6	$	—	$	—	$	.6	$	.1
Interest rate hedges		200.0		—		1.0		—		3.8
Currency Hedges:
- Future USD sales of Canadian subsidiaries		3.1		.3		—		—		—
- Future USD cost of goods sold of Canadian subsidiaries		5.2		—		—		.3		—
- Future USD cost of goods sold of European subsidiary		1.4		—		—		.1		—
Total cash flow hedges				.3		1.0		1.0		3.9
Fair value hedges:
USD inter-company note receivable on a Canadian subsidiary		6.0		—		—		.1		—
USD inter-company note receivable on a Swiss subsidiary		14.5		—		—		—		.1
USD inter-company note receivable on an European subsidiary		3.5		—		—		.2		—
Total fair value hedges				—		—		.3		.1
Derivatives not designated as hedging instruments
Hedge of EUR cash on a UK subsidiary		3.5		—		—		.1		—
Hedge of EUR inter-company note receivable from a European subsidiary		28.0		—		—		—		.4
			$	.3	$	1.0	$	1.4	$	4.4

	Total USD Equivalent Notional Amount		As of December 31, 2010
Derivatives designated as hedging instruments			Assets				Liabilities
			Other Current Assets		Sundry		Other Current Liabilities		Other Long-Term Liabilities
Cash flow hedges:
Commodity hedges	$	7.3	$	—	$	—	$	.9	$	.2
Interest rate hedges		200.0		—		3.1		—		—
Currency hedges:
-Future USD cost of goods sold of Canadian subsidiaries		5.1		—		—		.1		—
-Future USD sales of a Chinese subsidiary		3.0		—		—		.1		—
-Future USD sales of Canadian subsidiaries		6.1		.4		—		—		—
Total cash flow hedges				.4		3.1		1.1		.2
Fair value hedges:
USD inter-company note receivable on a Canadian subsidiary		6.0		.1		—		—		—
Total fair value hedges				.1		—		—		—
Derivatives not designated as hedging instruments
Hedge of EUR inter-company note receivable from a European subsidiary		28.0		—		1.7		—		—
			$	.5	$	4.8	$	1.1	$	.2

Cash Flow Hedges

At June 30, 2011 and December 31, 2010, we had outstanding derivative financial instruments that hedged forecasted transactions and anticipated cash flows. The effective changes in fair value of unexpired contracts are recorded in accumulated other comprehensive income and reclassified to income or expense in the period in which earnings are impacted and are presented as operating cash flows when the contracts are settled.

Commodity Cash Flow Hedges

The commodity cash flow hedges manage natural gas commodity price risk. All commodity hedges at June 30, 2011 had maturities of less than two years. We routinely hedge commodity price risk up to 36 months.

Foreign Currency Cash Flow Hedges

The foreign currency hedges manage risk associated with exchange rate volatility of various currencies. The foreign currency cash flow hedges outstanding at June 30, 2011 and December 31, 2010 had maturity dates within one year. In general, foreign currency cash flow hedges have maturities within two years.

Interest Rate Cash Flow Hedges

In anticipation of long-term debt maturing in April 2013, we entered into forward starting interest swaps in 2010. The swap contracts manage benchmark interest rate risk associated with $200 of future debt issuance, and mature in August 2012. The swaps have a weighted average interest rate of 4.0% and hedge the benchmark rate of the future issuance of $200 of debt. The credit spread over the benchmark bonds will continue to fluctuate until the contracts are settled (either upon an issuance of debt or upon their expiration).

Fair Value Hedges

Our fair value hedges manage foreign currency risk associated with third party and subsidiaries' inter-company assets and liabilities. Hedges designated as fair value hedges recognize gain or loss currently in earnings and are presented as operating cash flows when the contracts are settled. These fair value hedges generally have a maturity date within one year.

Hedge Effectiveness

We have determined all ineffectiveness to be immaterial, and as a result, have not recorded any amounts for ineffectiveness. If a hedge was not highly effective, the portion of the change in fair value considered to be ineffective would be recognized immediately in the consolidated condensed statements of operations.

Derivatives Not Designated as Hedging Instruments

At June 30, 2011 and December 31, 2010, we had two derivative transactions that did not qualify for hedge accounting treatment. Gains or losses on these transactions are recorded directly to income and expense in the period impacted, and economically offset the gains or losses on the underlying Euro inter-company debt.

The following table sets forth the pre-tax gains (losses) from continuing operations for our hedging activities for the periods presented. This schedule includes reclassifications from accumulated other comprehensive income as well as derivative settlements recorded directly to income or expense.

Derivatives designated as hedging instruments	Income Statement Caption		Amount of Gain (Loss) Recorded in Income Six Months  Ended June 30						Amount of Gain (Loss) Recorded in Income Three Months  Ended June 30
			2011			2010			2011			2010
Commodity cash flow hedges		Cost of goods sold	$	(.6	)	$	(.5	)	$	(.2	)	$	(.3	)
Foreign currency cash flow hedges		Net Sales		.2			.4			.1			.3
Total cash flow hedges				(.4	)		(.1	)		(.1	)		—
Fair value hedges		Other expense (income), net		(.2	)		.1			(.2	)		(.3	)
Derivatives not designated as hedging instruments
Hedge of EUR cash- UK subsidiary		Other expense (income), net		(.1)			—			(.1	)		—
Hedge of EUR inter-company note receivable- European subsidiary		Other expense (income), net		(2.1	)		5.1			(.6	)		2.4
Hedge of EUR inter-company note receivable- European subsidiary		Interest expense		(.1	)		(.1	)		—			(.1	)
Total derivative instruments			$	(2.9	)	$	5.0		$	(1.0	)	$	2.0