Derivative Financial Instruments

12 Months Ended

Dec. 31, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

10. Derivative Financial Instruments

From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes.

Interest Rate Contracts

The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company uses fixed and floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps are used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Fixed rate swaps are used to reduce the Company's risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision.

Fair Values Hedges

During 2011, the Company terminated $350 notional amount outstanding in swap agreements that exchange a fixed rate of interest for a variable rate (LIBOR) of interest and received $8.4 in net proceeds. These floating rate swaps, which were to mature in 2017, were designated as fair value hedges against $350 of principal on the 7 ¹/2% senior subordinated notes due 2017. The gain on the termination of these swaps is deferred and is being amortized over the remaining contractual term of the terminated swaps.

Cash Flow Hedges

During 2011, the Company entered into an aggregate $350 notional amount of interest rate swaps that exchange a variable rate of interest (LIBOR) for an average fixed rate of interest the term of the agreements, which mature on December 31, 2015. These swaps are forward-starting and are effective commencing December 31, 2013. The Company has designated these swaps as a cash flow hedges of the interest rate risk attributable to forecasted variable interest (LIBOR) payments.

At December 31, 2011, the Company had $750 notional amount outstanding in swap agreements, which include $350 notional amount of forward-starting swaps that become effective commencing December 31, 2013, that exchange variable rates of interest (LIBOR) for fixed interest rates over the terms of the agreements and are designated as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments and have maturity dates through December 2015. At December 31, 2011, the weighted average fixed rate of interest on these swaps, excluding the forward-starting swap, was approximately 1.6%. The effective portion of the after-tax fair value gains or losses on these swaps is included as a component of AOCI.

During 2011, the Company terminated a $250 notional amount outstanding swap agreement that exchanged a variable rates of interest (LIBOR) for a fixed interest rate. This fixed rate swap, which was to mature on December 31, 2011, was designated as cash flow hedge of the interest rate risk attributable to forecasted variable interest.

Foreign Currency Contracts

The Company uses foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales and have maturity dates through September 2013. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a component of AOCI and is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements of operations as the underlying hedged item. At December 31, 2011, the Company had approximately $477 notional amount of foreign currency contracts outstanding that are designated as cash flow hedges of forecasted inventory purchases and sales.

At December 31, 2011, the Company had outstanding approximately $159 notional amount of foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through December 2012. Fair market value gains or losses are included in the results of operations and are classified in SG&A.

Commodity Contracts

The Company enters into commodity-based derivatives in order to mitigate the risk that the rising price of these commodities could have on the cost of certain of the Company's raw materials. These commodity-based derivatives provide the Company with cost certainty, and in certain instances allow the Company to benefit should the cost of the commodity fall below certain dollar thresholds. At December 31, 2011, the Company had outstanding approximately $18.8 notional amount of commodity-based derivatives that are not designated as effective hedges for accounting purposes and have maturity dates through March 2014. Fair market value gains or losses are included in the results of operations and are classified in SG&A.

The following table presents the fair value of derivative financial instruments as of December 31, 2011 and 2010:

	2011				2010				Weighted  Average Remaining Term (years)
	Fair Value of Derivatives				Fair Value of Derivatives
(in millions)	Asset(a)		Liability(a)		Asset(a)		Liability(a)
Derivatives designated as effective hedges:
Cash flow hedges:
Interest rate swaps	$	—	$	8.4	$	—	$	5.3		2.9
Foreign currency contracts		12.2		8.1		4.5		18.9		0.6
Fair value hedges:
Interest rate swaps		—		—		—		10.2		—
Cross-currency swaps		—		—		—		4.1		—
Subtotal		12.2		16.5		4.5		38.5
Derivatives not designated as effective hedges:
Foreign currency contracts		1.1		1.7		1.3		2.6		0.5
Commodity contracts		1.0		0.3		0.9		—		0.7
Subtotal		2.1		2.0		2.2		2.6
Total	$	14.3	$	18.5	$	6.7	$	41.1

(a)

	Consolidated balance sheet location:
Asset:	Other non-current assets
Liability:	Other non-current liabilities

The following table presents gain and loss activity (on a pretax basis) for 2011, 2010 and 2009 related to derivative financial instruments designated as effective hedges:

	2011									2010									2009
	Gain/(Loss)									Gain/(Loss)									Gain/(Loss)
(in millions)	Recognized in OCI(a)			Reclassified from AOCI to Income			Recognized in  Income(b)			Recognized in OCI (a)			Reclassified from AOCI to Income			Recognized in  Income(b)			Recognized in OCI(a)			Reclassified from AOCI to Income		Recognized in Income(b)
Derivatives designated as effective hedges:
Cash flow hedges:
Interest rate swaps	$	(3.1	)	$	—		$	—		$	9.9		$	1.9		$	—		$	14.1		$	4.8	$	—
Foreign currency contracts		2.5			(19.6	)		(1.3	)		(14.4	)		(10.2	)		(2.7	)		(10.1	)		20.1		(7.6	)
Total	$	(0.6	)	$	(19.6	)	$	(1.3	)	$	(4.5	)	$	(8.3	)	$	(2.7	)	$	4.0		$	24.9	$	(7.6	)
Location of gain/(loss) in the consolidated results of operations:
Net sales				$	(1.0	)	$	—					$	(0.7	)	$	—					$	0.2	$	—
Cost of sales					(18.6	)		—						(9.5	)		—						19.9		—
SG&A					—			(1.3	)					—			(2.7	)					—		(7.6	)
Interest expense					—			—						1.9			—						4.8		—
Total				$	(19.6	)	$	(1.3	)				$	(8.3	)	$	(2.7	)				$	24.9	$	(7.6	)

(a) Represents effective portion recognized in Other Comprehensive Income ("OCI").

(b) Represents portion excluded from effectiveness testing.

At December 31, 2011, deferred net gains of $8.7 within AOCI are expected to be reclassified to earnings over the next twelve months.

The following table presents gain and loss activity (on a pretax basis) for 2011, 2010 and 2009 related to derivative financial instruments not designated as effective hedges:

	Gain/(Loss) Recognized in Income(a)
(in millions)	2011			2010			2009
Derivatives not designated as effective hedges:
Cash flow derivatives:
Interest rate swaps	$	(1.0	)	$	0.9		$	1.2
Foreign currency contracts		(0.3	)		(10.5	)		0.1
Commodity contracts		0.1			1.6			7.6
Subtotal		(1.2	)		(8.0	)		8.9
Fair value derivatives:
Interest rate swaps		0.5			18.6			(10.5	)
Total	$	(0.7	)	$	10.6		$	(1.6	)

(a) Classified in SG&A