FINANCIAL INSTRUMENTS AND DERIVATIVES

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements [Abstract]

FINANCIAL INSTRUMENTS AND DERIVATIVES

FINANCIAL INSTRUMENTS AND DERIVATIVES

Derivative Instruments and Hedging Activities

The Company's activities expose it to a variety of market risks, which primarily include the risks related to the effects of changes in foreign currency exchange rates, interest rates and commodity prices. These financial exposures are monitored and managed by the Company as part of its overall risk management program. The objective of this risk management program is to reduce the volatility that these market risks may have on the Company's operating results and equity. The Company employs derivative financial instruments to hedge certain anticipated transactions, firm commitments, or assets and liabilities denominated in foreign currencies. Additionally, the Company utilizes interest rate swaps to convert variable rate debt to fixed rate debt and to convert fixed rate debt to variable rate debt, cross currency basis swaps to convert debt denominated in one currency to another currency and commodity swaps to fix its variable raw materials.

Derivative instruments not designated as hedging

The Company enters into derivative financial instruments to hedge the foreign exchange revaluation risk associated with recorded assets and liabilities that are denominated in a non-functional currency. The gains and losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional currency balances and are recorded in “Other expense (income), net” on the consolidated statements of operations. The Company primarily uses forward foreign exchange contracts and cross currency basis swaps to hedge these risks. The Company's significant contracts outstanding as of March 31, 2012 are summarized in the tables that follow.

The Company wrote DIO equity option contracts ("equity options") to the original sellers of the DIO investment for the remaining DIO common shares held by the sellers. The equity options provide the sellers the ability to require the Company to purchase their remaining shares on hand at a price based on an agreed-upon formula at specific time frames in the future. The sellers are also allowed to sell their remaining shares on the open market. Changes in the fair value of the equity options are reported in “Other expense (income), net” on the consolidated statements of operations. This derivative is further discussed in Note 11, Fair Value Measurement.

Cash Flow Hedges

Foreign Exchange Risk Management

The Company uses a layered hedging program to hedge select anticipated foreign currency cash flows to reduce volatility in both cash flows and reported earnings of the consolidated Company. The Company accounts for the foreign exchange forward contracts as cash flow hedges. As a result, the Company records the fair value of the contract primarily through AOCI based on the tested effectiveness of the foreign exchange forward contracts. The Company measures the effectiveness of cash flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be deferred in AOCI and released and recorded on the consolidated statements of operations in the same period that the hedged transaction is recorded. Any time value component of the hedge fair value is deemed ineffective and will be reported currently in “Other expense (income), net” on the consolidated statements of operations in the period which it is applicable. Any cash flows associated with these instruments are included in cash from operations in accordance with the Company's policy of classifying the cash flows from these instruments in the same category as the cash flows from the items being hedged.

These foreign exchange forward contracts generally have maturities up to eighteen months and the counterparties to the transactions are typically large international financial institutions. The Company's significant contracts outstanding as of March 31, 2012 are summarized in the tables that follow.

Interest Rate Risk Management

The Company uses interest rate swaps to convert a portion of its variable interest rate debt to fixed interest rate debt. As of March 31, 2012, the Company has two groups of significant interest rate swaps. One of the groups of swaps has notional amounts totaling 12.6 billion Japanese yen, and effectively converts the underlying variable interest rates to an average fixed interest rate of 0.2% for a term of three- years, ending in September 2014. Another swap has a notional amount of 65.0 million Swiss francs, and effectively converts the underlying variable interest rates to a fixed interest rate of 0.7% for a term of five- years, ending in September 2016.

The Company enters into interest rate swap contracts infrequently as they are only used to manage interest rate risk on long-term debt instruments and not for speculative purposes. The Company's significant contracts outstanding as of March 31, 2012 are summarized in the tables that follow.

Commodity Risk Management

The Company selectively enters into commodity swaps to effectively fix certain variable raw material costs. These swaps are used purely to stabilize the cost of components used in the production of certain of the Company's products. The Company generally accounts for the commodity swaps as cash flow hedges. As a result, the Company records the fair value of the swap primarily through AOCI based on the tested effectiveness of the commodity swap. The Company measures the effectiveness of cash flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be deferred in AOCI and released and recorded on the consolidated statements of operations in the same period that the hedged transaction is recorded. Any time value component of the hedge fair value is deemed ineffective and will be reported currently in “Interest expense” in the period which it is applicable. Any cash flows associated with these instruments are included in cash from operations in accordance with the Company's policy of classifying the cash flows from these instruments in the same category as the cash flows from the items being hedged.

At March 31, 2012, the Company had swaps in place to purchase 834 troy ounces of platinum bullion for use in production at an average fixed rate of $1,497 per troy ounce.  In addition, the Company had swaps in place to purchase 97,250 troy ounces of silver bullion for use in production at an average fixed rate of $28 per troy ounce.

The following tables summarize the notional amounts and fair value of the Company's cash flow hedges and non-designated derivatives at March 31, 2012:

Foreign Exchange Forward Contracts	Notional Amounts Maturing in the Year						Fair Value Net Asset (Liability)
(in thousands)	2012			2013			March 31, 2012
Forward sale, 12.1 million Australian dollars	$	9,443		$	2,721		$	(134	)
Forward purchase, 7.5 million British pounds	(11,729		)	(197		)	265
Forward sale, 39.7 million Canadian dollars	26,062			13,882			449
Forward purchase, 22.2 million Danish kroner	(3,970		)	—			(29		)
Forward sale, 91.6 million euros	40,912			81,079			2,169
Forward purchase, 0.3 billion Japanese yen	1,342			(5,229		)	(268		)
Forward sale, 160.7 million Mexican pesos	12,541			—			207
Forward purchase, 19.4 million Norwegian kroner	(3,413		)	—			(21		)
Forward sale, 3.7 million Polish zlotys	1,196			—			(33		)
Forward sale, 2.6 million Singapore dollars	2,071			—			49
Forward sale, 5.6 billion South Korean won	4,914			—			77
Forward purchase, 1.0 billion Swedish kronor	(105,035		)	(48,487		)	2,554
Forward sale, 16.5 million Swiss francs	4,461			13,468			(258		)
Forward sale, 77.1 million Taiwanese dollars	2,615			—			32
Total foreign exchange forward contracts	$	(18,590	)	$	57,237		$	5,059

Interest Rate Swaps	Notional Amounts Maturing in the Year										Fair Value Net Asset (Liability)
(in thousands)	2012		2013		2014		2015		2016 and Beyond		March 31, 2012
Euro	$	944	$	1,259	$	963	$	963	$	2,167	$	(591	)
Japanese yen	—		—		151,490		—		—		495
Swiss francs	—		—		—		—		71,990		(842		)
Total interest rate swaps	$	944	$	1,259	$	152,453	$	963	$	74,157	$	(938	)

Commodity Swap Contracts	Notional Amounts Maturing in the Year				Fair Value Net  Asset (Liability)
(in thousands)	2012		2013		March 31, 2012
Silver swap - U.S. dollar	$	2,801	$	376	$	397
Platinum swap - U.S. dollar	1,272		101		124
Total commodity contracts	$	4,073	$	477	$	521

Cross Currency Basis Swap	Notional Amounts Maturing in the Year		Fair Value Net Asset (Liability)
(in thousands)	2014		March 31, 2012
Euro 449.8 million @ $1.45  pay USD 3 mth. LIBOR receive EUR 3 mth. EURIBOR	$	599,694	$	(49,844	)
Total cross currency basis swaps	$	599,694	$	(49,844	)

At March 31, 2012, deferred net gains on derivative instruments of $2.5 million, which were recorded in AOCI, are expected to be reclassified to current earnings during the next twelve months. This reclassification is primarily due to the sale of inventory that includes previously hedged purchases and interest rate swaps. The maximum term over which the Company is hedging exposures to variability of cash flows (for all forecasted transactions, excluding interest payments on variable interest rate debt) is eighteen months. Overall, the derivatives designated as cash flow hedges are highly effective. Any cash flows associated with these instruments are included in cash from operations in accordance with the Company's policy of classifying the cash flows from these instruments in the same category as the cash flows from the items being hedged.

Hedges of Net Investments in Foreign Operations

The Company has numerous investments in foreign subsidiaries. The net assets of these subsidiaries are exposed to volatility in currency exchange rates. Currently, the Company uses both non-derivative financial instruments, including foreign currency denominated debt held at the parent company level and derivative financial instruments to hedge some of this exposure. Translation gains and losses related to the net assets of the foreign subsidiaries are offset by gains and losses in the non-derivative and derivative financial instruments designated as hedges of net investments, which are included in AOCI.

At March 31, 2012 and December 31, 2011, the Company had Swiss franc-denominated and Japanese yen-denominated debt and cross currency basis swaps denominated in euro and Swiss franc to hedge the currency exposure related to a designated portion of the net assets of its European, Swiss and Japanese subsidiaries. The fair value of the cross currency interest rate swap agreements is the estimated amount the Company would (pay) receive at the reporting date, taking into account the effective interest rates and foreign exchange rates. As of March 31, 2012 and December 31, 2011, the estimated net fair values of the cross currency interest rate swap agreements was a liability of $162.0 million and a liability of $111.9 million, respectively, which are recorded in AOCI, net of tax effects. At March 31, 2012 and December 31, 2011, the accumulated translation gain (loss) on investments in foreign subsidiaries, primarily denominated in euros, Swiss francs, Japanese yen and Swedish krona, net of these net investment hedges, were $49.2 million in losses and $134.2 million in losses, respectively, which were included in AOCI, net of tax effects.

The following tables summarize the notional amounts and fair value of the Company's cross currency basis swaps that are designated as hedges of net investments in foreign operations at March 31, 2012:

Cross Currency Basis Swaps	Notional Amounts Maturing in the Year						Fair Value Net Asset (Liability)
(in thousands)	2012		2013		2014		March 31, 2012
Swiss franc 592.5 million @ $1.12 pay CHF 3 mth. LIBOR rec. USD 3 mth. LIBOR	$	62,687	$	504,486	$	89,046	$	(125,313	)
Euro 618.0 million @ $1.27 pay EUR 3 mth. EURIBOR rec. USD 3 mth. LIBOR	—		824,010		—		(36,706		)
Total cross currency basis swaps	$	62,687	$	1,328,496	$	89,046	$	(162,019	)

Fair Value Hedges

Effective April 4, 2011, the Company entered into a group of U.S. dollar denominated interest rate swaps with an initial total notional value of $150.0 million to effectively convert the underlying fixed interest rate of 4.1% on the Company's $250.0 million Private Placement Notes ("PPN") to variable rate for a term of five years, ending February 2016. The notional value of the swaps will decline proportionately as portions of the PPN mature. These interest rate swaps are designated as fair value hedges of the interest rate risk associated with the hedged portion of the fixed rate PPN. Accordingly, the Company will carry the portion of the hedged debt at fair value, with the change in debt and swap offsetting each other in the income statement. At March 31, 2012, the estimated net fair value of these interest rate swaps was $4.8 million.

The following tables summarize the notional amounts and fair value of the Company's fair value hedges at March 31, 2012:

Interest Rate Swap	Notional Amounts Maturing in the Year						Fair Value Net Asset (Liability)
(in thousands)	2014		2015		2016 and Beyond		March 31, 2012
U.S. dollars	$	45,000	$	60,000	$	45,000	$	4,757
Total interest rate swaps	$	45,000	$	60,000	$	45,000	$	4,757

The following tables summarize the fair value and consolidated balance sheet location of the Company's derivatives at March 31, 2012 and December 31, 2011:

	March 31, 2012
(in thousands)	Prepaid Expenses and Other Current Assets		Other Noncurrent Assets, Net		Accrued Liabilities		Other Noncurrent Liabilities
Designated as Hedges
Foreign exchange forward contracts	$	3,880	$	380	$	1,210	$	332
Commodity contracts	521		—		—		—
Interest rate swaps	2,521		3,223		—		1,334
Cross currency basis swaps	—		4,160		70,671		95,508
Total	$	6,922	$	7,763	$	71,881	$	97,174
Not Designated as Hedges
Foreign exchange forward contracts	$	3,428	$	—	$	1,087	$	—
DIO equity option contracts	—		—		—		706
Interest rate swaps	—		—		112		479
Cross currency basis swaps	—		—		—		49,844
Total	$	3,428	$	—	$	1,199	$	51,029

	December 31, 2011
(in thousands)	Prepaid Expenses and Other Current Assets		Other Noncurrent Assets, Net		Accrued Liabilities		Other Noncurrent Liabilities
Designated as Hedges
Foreign exchange forward contracts	$	5,464	$	896	$	641	$	107
Commodity contracts	—		15		257		2
Interest rate swaps	2,539		3,160		—		1,050
Cross currency basis swaps	—		19,838		13,790		117,974
Total	$	8,003	$	23,909	$	14,688	$	119,133
Not Designated as Hedges
Foreign exchange forward contracts	$	1,943	$	—	$	3,150	$	—
Commodity contracts	—		—		—		419
Interest rate swaps	—		—		105		476
Cross currency basis swaps	—		—		—		67,690
Total	$	1,943	$	—	$	3,255	$	68,585

The following tables summarize the statements of operations impact of the Company's cash flow hedges for the three months ended March 31, 2012 and March 31, 2011:

Three Months Ended March 31, 2012
Derivatives in Cash Flow Hedging
(in thousands)	Gain (Loss) in AOCI			Classification of Gains (Losses)	Effective Portion Reclassified from AOCI into Income
Interest rate contracts	$	(672	)	Interest expense	$	(905	)
Foreign exchange forward contracts	(1,434		)	Cost of products sold	1,150
Foreign exchange forward contracts	(89		)	SG&A expenses	231
Commodity contracts	839			Cost of products sold	(46		)
Total	$	(1,356	)		$	430

Derivatives in Cash Flow Hedging
	Classification of Gains (Losses)	Ineffective portion Recognized in Income
(in thousands)
Foreign exchange forward contracts	Other expense, net	200
Commodity contracts	Interest expense	(17		)
Total		$	183

Three Months Ended March 31, 2011

Derivatives in Cash Flow Hedging
(in thousands)	Gain (Loss) in AOCI			Classification of Gains (Losses)	Effective Portion Reclassified from AOCI into Income
Interest rate swaps	$	(281	)	Interest expense	$	(1,251	)
Foreign exchange forward contracts	(932		)	Cost of products sold	467
Foreign exchange forward contracts	(266		)	SG&A expenses	105
Commodity contracts	27			Cost of products sold	105
Total	$	(1,452	)		$	(574	)

Derivatives in Cash Flow Hedging
(in thousands)	Classification of Gains (Losses)	Ineffective Portion Recognized in Income
Interest rate swaps	Other expense, net	$	102
Foreign exchange forward contracts	Interest expense	(216		)
Commodity contracts	Interest expense	(3		)
Total		$	(117	)

The following tables summarize the statements of operations impact of the Company's hedges of net investments for the three months ended March 31, 2012 and March 31, 2011:

Three Months Ended March 31, 2012
Derivatives in Net Investment Hedging
(in thousands)	Gain (Loss) in AOCI			Classification of Gains (Losses)	Gain (Loss) Recognized in Income
Cross currency interest rate swaps	$	(25,464	)	Interest income	$	771
Cross currency interest rate swaps	(24,905		)	Interest expense	(1,206		)
Total	$	(50,369	)		$	(435	)

Three Months Ended March 31, 2011
Derivatives in Net Investment Hedging
(in thousands)	Gain (Loss) in AOCI			Classification of Gains (Losses)	Gain (Loss) Recognized in Income
Cross currency interest rate swaps	$	(12,948	)	Interest income	$	199
				Interest expense	(25		)
Cross currency interest rate swaps	(29,732		)	Interest expense	(957		)
Total	$	(42,680	)		$	(783	)

The following tables summarize the statements of operations impact of the Company's hedges of fair value for the three months ended March 31, 2012 and March 31, 2011:

Derivatives in Fair Value Hedging
(in thousands)	Classification of Gains (Losses)	Three Months Ended March 31, 2012		Three Months Ended March 31, 2011
Interest rate contracts	Interest expense	$	839	$	—
Total		$	839	$	—

The following table summarizes the statements of operations impact of the Company's hedges not designated as hedging for the three months ended March 31, 2012 and March 31, 2011:

Derivatives Not Designated as Hedging
(in thousands)	Classification of Gains (Losses)	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011
Foreign exchange forward contracts	Other expense, net	$	2,851		$	1,704
DIO equity option contracts	Other expense, net	(273		)	—
Interest rate contracts	Interest expense	(41		)	(55		)
Cross currency interest rate contracts (a)	Other expense, net	18,126			—
Cross currency interest rate contracts	Interest income	419			—
Total		$	21,082		$	1,649

(a) The gains and losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying intercompany loans and are recorded in “Other expense (income), net” on the consolidated statements of operations.

Amounts recorded in AOCI related to cash flow hedging instruments at:

	Three Months Ended
(in thousands, net of tax)	March 31, 2012			March 31, 2011
Beginning balance	$	(12,737	)	$	(1,468	)
Changes in fair value of derivatives	(777		)	(1,036		)
Reclassifications to earnings from equity	(430		)	229
Total activity	(1,207		)	(807		)
Ending balance	$	(13,944	)	$	(2,275	)

Amounts recorded in AOCI related to hedges of net investments in foreign operations at:

	Three Months Ended
(in thousands, net of tax)	March 31, 2012			March 31, 2011
Beginning balance	$	(143,730	)	$	45,417
Foreign currency translation adjustment	126,808			86,438
Changes in fair value of:
Foreign currency debt	5,324			1,014
Derivative hedge instruments	(30,926		)	(26,205		)
Total activity	101,206			61,247
Ending balance	$	(42,524	)	$	106,664