Derivative Instruments

6 Months Ended

Jul. 02, 2011

Derivative Instruments

Derivative Instruments

14. DERIVATIVE INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk, currency exchange, and interest rate risk. Forward contracts on certain commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the Company's manufacturing process. Forward contracts on certain currencies are entered into to manage forecasted cash flows in certain foreign currencies. Interest rate swaps are entered into to manage interest rate risk associated with the Company's floating rate borrowings.

The Company must recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. Accordingly, the Company designates commodity forward contracts as cash flow hedges of forecasted purchases of commodities, currency forward contracts as cash flow hedges of forecasted foreign currency cash flows and interest rate swaps as cash flow hedges of forecasted LIBOR-based interest payments. There were no significant collateral deposits on derivative financial instruments as of July 2, 2011.

Cash flow hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income or loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or changes in market value of derivatives not designated as hedges are recognized in current earnings.

At July 2, 2011, the Company had an additional $3.4 million, net of tax, of derivative gains on closed hedge instruments in AOCI that will be realized in earnings when the hedged items impact earnings. At July 3, 2010, the Company had an additional ($0.4) million, net of tax, of derivative losses on closed hedge instruments in AOCI that was realized in earnings when the hedged items impacted earnings.

As of July 2, 2011, the Company had outstanding the following commodity forward contracts (with maturities extending through September 2012) to hedge forecasted purchases of commodities (in millions):

	Notional Amount
Copper	$	145.0
Aluminum		3.0
Zinc		0.2
Natural Gas		0.5

As of July 2, 2011, the Company had outstanding the following currency forward contracts (with maturities extending through December 2013) to hedge forecasted foreign currency cash flows (in millions):

	Notional Amount
Mexican Peso	$	95.7
Indian Rupee		36.8
Chinese Renminbi		10.5
Australian Dollar		9.5
Thai Baht		3.6

As of July 2, 2011, the total notional amount of the Company's receive-variable/pay-fixed interest rate swaps was $250.0 million (with maturities extending to August 2017).

Fair values of derivative instruments as of July 2, 2011 and January 1, 2011 were (in millions):

	July 2, 2011
	Prepaid		Other Noncurrent		Accrued		Hedging
	Expenses		Assets		Expenses		Obligations
Designated as hedging instruments:
Interest rate swap contracts	$	—	$	—	$	—	$	38.4
Foreign exchange contracts		9.4		2.6		0.4
Commodity contracts		14.6		0.2		0.1		—
Not designated as hedging instruments:
Foreign exchange contracts		—		—		0.3		—
Commodity contracts		0.1		—		—		—
Total Derivatives:	$	24.1	$	2.8	$	0.8	$	38.4

	January 1, 2011
	Prepaid		Other Noncurrent		Accrued		Hedging
	Expenses		Assets		Expenses		Obligations
Designated as hedging instruments:
Interest rate swap contracts	$	—	$	—	$	—	$	39.1
Foreign exchange contracts		7.1		1.4		0.1		0.1
Commodity contracts		24.7		4.2		0.1		—
Not designated as hedging instruments:
Foreign exchange contracts		0.2		—		—		—
Commodity contracts		0.2		—		—		—
Total Derivatives:	$	32.2	$	5.6	$	0.2	$	39.2

The effect of derivative instruments on the condensed consolidated statements of equity and earnings for the three and six months ended July 2, 2011 and July 3, 2010, was (in millions):

Derivatives Designated as Cash Flow Hedging Instruments

	Three Months Ended										Three Months Ended
	July 2, 2011										July 3, 2010
					Interest												Interest
	Commodity		Currency		Rate						Commodity			Currency			Rate
	Forwards		Forwards		Swaps			Total			Forwards			Forwards			Swaps			Total
Gain (Loss) recognized in
Other Comprehensive Income (Loss)	$	1.7	$	3.3	$	(6.4	)	$	(1.4	)	$	(8.9	)	$	(6.1	)	$	(12.7	)	$	(27.7	)
Amounts reclassified from Other
Comprehensive Income (Loss) were:
Gain recognized in Net Sales		—		0.2		—		$	0.2			—			—			—		$	—
Gain (Loss) recognized in Cost of Sales		8.9		2.4		—		$	11.3			2.2			(0.5	)		—		$	1.7
Loss recognized in Interest Expense		—		—		(3.2	)	$	(3.2	)		—			—			(2.8	)	$	(2.8	)

Derivatives Designated as Cash Flow Hedging Instruments

	Six Months Ended											Six Months Ended
	July 2, 2011											July 3, 2010
						Interest												Interest
	Commodity			Currency		Rate						Commodity			Currency			Rate
	Forwards			Forwards		Swaps			Total			Forwards			Forwards			Swaps			Total
Gain (Loss) recognized in Other Comprehensive Income (Loss)	$	(0.2	)	$	8.6	$	(5.7	)	$	2.7		$	(4.9	)	$	1.8		$	(16.9	)	$	(20.0	)
Amounts reclassified from Other Comprehensive Income (Loss) were:
Gain (Loss) recognized in Net Sales		—			0.4		—		$	0.4			—			(0.1	)		—		$	(0.1	)
Gain (Loss) recognized in Cost of Sales		17.1			2.9		—		$	20.0			5.5			(1.7	)		—		$	3.8
Loss recognized in Interest Expense		—			—		(6.4	)	$	(6.4	)		—			—			(6.0	)	$	(6.0	)

The ineffective portion of hedging instruments recognized during the three and six months ended July 2, 2011 and July 3, 2010 was immaterial.

Derivatives Not Designated as Cash Flow Hedging Instruments

	Three Months Ended									Three Months Ended									Six Months Ended									Six Months Ended
	July 2, 2011									July 3, 2010									July 2, 2011									July 3, 2010
	Commodity			Currency						Commodity			Currency						Commodity			Currency						Commodity			Currency
	Forwards			Forwards			Total			Forwards			Forwards			Total			Forwards			Forwards			Total			Forwards			Forwards			Total
Loss recognized in Cost of Sales	$	(0.2	)	$	(0.6	)	$	(0.8	)	$	(0.5	)	$	(0.1	)	$	(0.6	)	$	(0.2	)	$	(0.9	)	$	(1.1	)	$	(0.6	)	$	(0.1	)	$	(0.7	)

The net AOCI hedging component balance of ($4.1) million loss at July 2, 2011 includes $8.1 million of net current deferred gains expected to be realized in the next twelve months.