Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities [Text Block]

Derivative Instruments and Hedging Activities

We are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to foreign customers not denominated in the seller’s functional currency, foreign operations, and purchases from foreign suppliers. We actively manage the exposure of our foreign currency exchange rate market risk and market fluctuations in commodity prices by entering into various hedging instruments, authorized under our policies that place controls on these activities, with counterparties that are highly rated financial institutions. We are exposed to credit-related losses in the event of non-performance by these counterparties; however, our exposure is generally limited to the unrealized gains in our contracts should any of the counterparties fail to perform as contracted.

Our hedging activities primarily involve use of foreign currency forward exchange contracts and commodity futures contracts. These contracts are designated as cash flow hedges at the inception of the contract. We use derivative instruments only in an attempt to limit underlying exposure from foreign currency exchange rate fluctuations and commodity price fluctuations to minimize earnings and cash flow volatility associated with these risks. Decisions on whether to use such contracts are made based on the amount of exposure to the currency or commodity involved and an assessment of the near-term market value for each risk. Our policy is not to allow the use of derivatives for trading or speculative purposes. Our primary foreign currency exchange rate exposures are with the Brazilian Real, the Euro, and the Indian Rupee, against the U.S. Dollar. Our primary commodity risk is the price risk associated with forecasted purchases of materials used in our manufacturing process.

Cash flow hedges. We recognize all derivative instruments as either assets or liabilities at fair value on the consolidated balance sheet and formally document relationships between cash flow hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking hedge transactions at the inception of the contract. This process includes linking all derivatives to the forecasted exposure, such as sales to third parties denominated in a non-local currency or a commodity purchase. For derivative instruments that are designated and qualify as a cash flow hedge, all changes in fair values of outstanding cash flow hedge derivatives, except the ineffective portion, are recorded in accumulated other comprehensive income (“AOCI”), until the hedged exposure affects earnings. The effective portions of gains or losses on hedging instruments are reclassified from AOCI into earnings in the same line item associated with the forecasted transaction. Gains and losses on the derivative representing either ineffective hedges or hedge components excluded from the assessment of effectiveness are recognized immediately in earnings. In either case, the derivatives affect cash flow at the time the contract is settled. The consolidated statement of operations classification of effective hedge results is the same as that of the underlying exposure. The maximum amount of time we hedge our exposure to the variability in future cash flows for forecasted trade sales and purchases is eighteen months.

We assess the effectiveness of our futures and forwards contracts using the dollar offset method and de-designate the derivative if it is determined that the derivative will no longer be highly effective at offsetting the cash flows of the hedged item. At the time a derivative is de-designated, any losses recorded in other comprehensive income are recognized in our Consolidated Statements of Operations while gains remain in AOCI on our Consolidated Balance Sheets until the forecasted cash flows occur. All subsequent gains and losses related to the de-designated derivatives are recognized in our Consolidated Statements of Operations.

The notional amount outstanding of derivative contracts designated as cash flow hedges was $50.9 million and $170.8 million at December 31, 2012 and 2011, respectively. The notional amount outstanding of de-designated derivative contracts was $20.4 million at December 31, 2012. We had no de-designated derivative contracts at December 31, 2011.

We recognized $0.3 million of losses associated with the derivative contracts that have been de-designated during the year ended December 31, 2012. We had gains of $0.2 million in “Other comprehensive income” at December 31, 2012, for derivative contracts that have been de-designated. These gains will be recognized as the forecasted cash flows occur.

The following table presents the fair value of our derivatives designated as hedging instruments in our Consolidated Balance Sheets as of December 31, 2012 and 2011:

	Asset (Liability) Derivatives
	December 31, 2012				December 31, 2011
(in millions)	Financial Position Location	Fair Value			Financial Position Location	Fair Value
Commodity futures contracts	Fair value of derivative asset	$	0.3		Fair value of derivative asset	$	0.2
Commodity futures contracts	Fair value of derivative liability	—			Fair value of derivative liability	(3.5		)
Foreign currency derivatives	Fair value of derivative asset	0.2			Fair value of derivative asset	—
Foreign currency derivatives	Fair value of derivative liability	(0.7		)	Fair value of derivative liability	(13.1		)
Total		$	(0.2	)		$	(16.4	)

The following table presents the fair value of our derivatives that have been de-designated as hedging instruments in our Consolidated Balance Sheets as of December 31, 2012 and 2011:

	Asset (Liability) Derivatives
	December 31, 2012				December 31, 2011
(in millions)	Financial Position Location	Fair Value			Financial Position Location	Fair Value
Commodity futures contracts	Fair value of derivative asset	$	0.1		Fair value of derivative asset	$	—
Commodity futures contracts	Fair value of derivative liability	—			Fair value of derivative liability	—
Foreign currency derivatives	Fair value of derivative asset	0.1			Fair value of derivative asset	—
Foreign currency derivatives	Fair value of derivative liability	(0.2		)	Fair value of derivative liability	—
Total		$	0.0			$	—

The following table presents the impact of derivatives designated as hedging instruments on our Consolidated Statements of Operations and AOCI for our derivatives designated as cash flow hedging instruments for the years ended December 31, 2012, 2011 and 2010.

(in millions)	Amount of Gain (Loss) Recognized in AOCI (Effective Portion)							Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)							Location of Gain (Loss) Recognized in Income (Ineffective Portion)	Amount of Gain (Loss) Recognized in Income (Ineffective Portion)
	Years Ended December 31,								Years Ended December 31,								Years Ended December 31,
	2012		2011			2010			2012			2011		2010			2012		2011			2010
Commodity	$	1.3	$	(4.5	)	$	10.4	Cost of Sales	$	(2.2	)	$	5.8	$	8.8	Cost of Sales	$	—	$	(1.3	)	$	—
Currency	1.1		(10.9		)	6.6		Cost of Sales	(11.3		)	6.7		7.5		Cost of Sales	—		(0.7		)	—
Total	$	2.4	$	(15.4	)	$	17.0		$	(13.5	)	$	12.5	$	16.3		$	—	$	(2.0	)	$	—

As of December 31, 2012, we estimate that we will reclassify into earnings during the next twelve months approximately $0.1 million of losses from the pretax amount recorded in AOCI as the anticipated cash flows occur. In addition, decreases in spot prices below our hedged prices may require us to post cash collateral with our hedge counterparties. At December 31, 2012 and December 31, 2011, we were required to post $0.6 million and $5.6 million respectively, of cash collateral on our hedges, which is recorded in “Restricted cash and cash equivalents” in our Consolidated Balance Sheets.