RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2012

RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS

14. 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, 2012
			Assets				Liabilities
			Other Current Assets		Sundry		Other Current Liabilities		Other Long-Term Liabilities
Derivatives designated as hedging instruments
Cash flow hedges:
Commodity hedges	$	4.4	$	—	$	—	$	1.3	$	.2
Interest rate hedges		200.0		—		—		40.6		—
Currency Hedges:
- Future USD sales of Canadian subsidiaries		29.9		.1		—		.2		—
- Future USD cost of goods sold of Canadian subsidiaries		4.1		.2		—		—		—
- Future USD cost of goods sold of European subsidiary		6.3		.2		—		—		—
Total cash flow hedges				.5		—		42.1		.2
Fair value hedges:
USD inter-company note receivable on a Canadian subsidiary		11.5		—		—		.2		—
USD inter-company note receivables on a Swiss subsidiary		14.5		—		—		1.8		—
Total fair value hedges				—		—		2.0		—
			$	.5	$	—	$	44.1	$	.2

	Total USD Equivalent Notional Amount		As of December 31, 2011
			Assets				Liabilities
			Other Current Assets		Sundry		Other Current Liabilities		Other Long-Term Liabilities
Derivatives designated as hedging instruments
Cash flow hedges:
Commodity hedges	$	6.2	$	—	$	—	$	1.9	$	.3
Interest rate hedges		200.0		—		—		32.4		—
Currency hedges—Future USD cost of goods sold of Canadian subsidiaries		7.6		.5		—		—		—
-Future USD sales of a Chinese subsidiary		44.1		.1		—		—		—
-Future MXP cost of goods sold of a US subsidiary		1.1		—		—		.1		—
-Future EUR cost of goods sold of a US branch		1.6		—		—		.1		—
-Future USD sales of Canadian subsidiaries		33.4		.1		—		.5		—
Total cash flow hedges				.7		—		35.0		.3
Fair value hedges:
USD inter-company note receivable on a Canadian subsidiary		11.5		—		—		.1		—
USD inter-company note receivable on a Switzerland subsidiary		14.5		—		—		1.6		—
Total fair value hedges				—		—		1.7		—
Derivatives not designated as hedging instruments
Hedge of EUR inter-company note receivable from a European subsidiary		28.0		2.5		—		—		—
			$	3.2	$	—	$	36.7	$	.3

Cash Flow Hedges

Derivative financial instruments that we use to hedge forecasted transactions and anticipated cash flows are as follows:

• Commodity Cash Flow Hedges—The commodity cash flow hedges manage natural gas commodity price risk. All commodity hedges at June 30, 2012 had maturities of less than two years. We are no longer hedging our commodity price risk so these hedges will continue to get smaller until all of the current hedges expire.

• 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 planned debt issuance in August 2012. The swaps have a weighted average interest rate of 4.0% and hedge the benchmark rate of an expected issuance of $200 of debt. The credit spread over the benchmark bonds will continue to fluctuate until the time of issuance.

• Currency Cash Flow Hedges—The currency hedges manage risk associated with exchange rate volatility of various foreign currencies. The currency cash flow hedges outstanding at June 30, 2012 had maturity dates within two years.

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.

Fair Value Hedges

Our fair value hedges manage foreign currency risk associated with 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 deemed 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 Qualifying for Hedge Accounting Treatment

At December 31, 2011, we had 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 offset the majority of gains and 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 years presented. This schedule includes reclassifications from accumulated other comprehensive income as well as derivative settlements recorded directly to income or expense.

	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
		2012			2011			2012			2011
Derivatives designated as hedging instruments
Commodity cash flow hedges	Cost of goods sold	$	(1.5	)	$	(.6	)	$	(.7	)	$	(.2	)
Currency cash flow hedges	Net Sales		.2			.2			.1			.1
Currency cash flow hedges	Cost of goods sold		.2			—			.2			—
Currency cash flow hedges	Other expense (income), net		(.1	)		—			—			—
Total cash flow hedges			(1.2	)		(.4	)		(.4	)		(.1	)
Fair value hedges	Other expense (income), net		—			(.2	)		(.6	)		(.2	)
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		.8			(2.1	)		1.4			(.6	)
Hedge of EUR inter-company note receivable- European subsidiary	Interest expense		(.1	)		(.1	)		(.1	)		—
Total derivative instruments		$	(.5	)	$	(2.9	)	$	.3		$	(1.0	)