Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

NOTE 14. 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 plant operations, and purchases from 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.

Premiums paid on options are initially recorded as deferred charges. The Company assesses the effectiveness of options based on the total cash flow method and records changes in the options’ fair value to other comprehensive income to the degree they are effective.

Our hedging activities involve the use of foreign currency forward exchange contracts, options and commodity futures contracts. These contracts are designated as cash flow hedges. 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.

At September 30, 2011 and December, 31 2010, there were no gains or losses on contracts reclassified into earnings as a result of the discontinuance of cash flow hedges. The notional amount outstanding of forward contracts designated as cash flow hedges was $147.3 million and $109.6 million at September 30, 2011 and December 31, 2010, respectively.

The following table presents the fair value of the Company’s derivatives designated as hedging instruments in our consolidated balance sheet as of September 30, 2011 and December 31, 2010:

	Asset (Liability) Derivatives
	September 30, 2011				December 31, 2010
(In Millions)	Financial Position Location	Fair Value			Financial Position Location	Fair Value
Derivatives designated as hedging instruments
Commodity futures contracts	Fair value of hedge- asset	$	0.2		Fair value of hedge- asset	$	7.3
Commodity futures contracts	Fair value of hedge- liability		(7.1	)	Fair value of hedge- liability		—
Foreign currency derivatives	Fair value of hedge-asset		—		Fair value of hedge- asset		5.2
Foreign currency derivatives	Fair value of hedge- liability		(13.2	)	Fair value of hedge- liability		—
Total		$	(20.1	)		$	12.5

The following table presents the impact of derivatives designated as hedging instruments on our consolidated financial statements for the three and nine months ended September 30, 2011 and 2010:

	Amount of Gain (Loss) recognized in OCI (Effective Portion)					Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain reclassified from AOCI into Income (Effective Portion)
(In Millions)
Three Months Ended	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Commodity futures contracts	$	(7.7	)	$	4.1	Cost of sales	$	1.6		$	2.0
Foreign currency derivatives		(14.7	)		5.9	Cost of sales		2.7			0.9
Total	$	(22.4	)	$	10.0		$	4.3		$	2.9
Nine Months Ended	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Commodity futures contracts	$	(6.0	)	$	4.2	Cost of sales	$	6.9		$	5.4
Foreign currency derivatives		(9.2	)		4.5	Cost of sales		7.7			5.6
Total	$	(15.2	)	$	8.7		$	14.6		$	11.0
	Amount of Loss recognized in OCI (Ineffective Portion)					Location of Gain (Loss) Reclassified from AOCI into Income (Ineffective Portion)	Amount of Loss reclassified from AOCI into Income (Ineffective Portion)
(In Millions)
Three Months Ended	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Commodity futures contracts	$	(1.3	)	$	—	Cost of sales	$	(1.3	)	$	—
Foreign currency derivatives		(2.1	)		—	Cost of sales		(1.0	)		—
Total	$	(3.4	)	$	—		$	(2.3	)	$	—
Nine Months Ended	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Commodity futures contracts	$	(1.3	)	$	—	Cost of sales	$	(1.3	)	$	—
Foreign currency derivatives		(0.6	)		—	Cost of sales		(0.6	)		—
Total	$	(1.9	)	$	—		$	(1.9	)	$	—

As of September 30, 2011, the Company estimates that it will reclassify into earnings during the next 12 months approximately $14.5 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 require us to post cash collateral with our hedge counterparties. At September 30, 2011, we were required to post $5.9 million of cash collateral on our hedges.