2.2.0.7 false Derivative Instruments and Hedging Activities 0209 - Disclosure - Derivative Instruments and Hedging Activities true false false false 1 USD false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDEPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 Derivative Instruments and Hedging Activities [Abstract] 0 us-gaap_DerivativeInstrumentsAndHedgesAbstract us-gaap true na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 Derivative Instruments and Hedging Activities 1 us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0   <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>9. Derivative Instruments and Hedging Activities</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b><i>Interest Rate Risk Management</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company engages in an interest rate hedging strategy for which the hedged transactions are forecasted interest payments on the Company’s variable rate term loan. The hedged risk is the variability of forecasted interest rate cash flows, where the hedging strategy involves the purchase of interest rate swaps. For the outstanding cash flow hedges on interest rate exposures at June 30, 2010, the maximum length of time over which the Company is hedging certain of these exposures is less than four years. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During August 2009, the Company entered into four interest rate swap agreements with an effective date of December 31, 2009. The agreements collectively provide for the Company to pay interest for less than a four-year period at a weighted average fixed rate of 2.78% on notional amounts aggregating to $140.0 million while receiving interest for the same period at the one month LIBOR rate on the same notional amounts. These agreements will expire in July 2013. These swaps have been designated as cash flow hedges against the variability in the LIBOR interest rate on the term loan at LIBOR plus 1.50%, thereby fixing the Company’s weighted average effective rate on the notional amounts at 4.28%. The Company formally assesses both at inception and at least quarterly thereafter, whether the derivatives used in hedging transactions are effective in offsetting changes in cash flows of the hedged item. As of June 30, 2010, the hedge relationships qualified as effective hedges under FASB ASC Topic 815, <i>Derivatives and Hedging</i>, or ASC 815. Consequently, all changes in the fair value of the derivatives are deferred and recorded in other comprehensive income (loss) until the related forecasted transactions are recognized in the consolidated statements of income. The fair value of the interest rate swap agreements are based on third-party bank quotes. As of June 30, 2010 and December 31, 2009, the Company recorded the interest rate swaps as liabilities at their fair value of $6.7 million and $2.6 million, respectively. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b><i>Foreign Currency Instruments</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company also designates certain derivatives, such as certain foreign currency forward and option contracts, as freestanding derivatives for which hedge accounting does not apply. The changes in the fair market value of the derivatives are included in selling, general and administrative expenses in the Company’s consolidated statements of income. The Company uses foreign currency forward contracts to hedge foreign-currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The Company also uses foreign currency option contracts to partially mitigate the impact of foreign currency fluctuations. The fair value of the forward and option contracts are based on third-party bank quotes. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company also purchases foreign currency forward contracts in order to hedge forecasted inventory purchases and intercompany management fees that are designated as cash-flow hedges and are subject to foreign currency exposures. The Company applied the hedge accounting rules as required by ASC 815 for these hedges. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. As of June 30, 2010, the aggregate notional amounts of these contracts outstanding were approximately $80.5 million and were expected to mature over the next fifteen months. The Company’s derivative financial instruments are recorded on the consolidated balance sheet at fair value based on quoted market rates. Forward contracts are used to hedge forecasted inventory purchases over specific months. Changes in the fair value of these forward contracts, excluding forward points, designated as cash-flow hedges are recorded as a component of accumulated other comprehensive income (loss) within shareholders’ equity, and are recognized in cost of sales in the consolidated statement of income during the period which approximates the time the hedged inventory is sold. The Company also hedges forecasted intercompany management fees over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within shareholders’ equity, and are recognized in selling, general and administrative expenses in the consolidated statement of income during the period when the hedged item and underlying transaction affect earnings. As of June 30, 2010, and December 31, 2009, the Company recorded assets at fair values of $9.3 million and $2.3 million, respectively, relating to all outstanding foreign currency contracts designated as cash-flow hedges. The Company assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly. During the quarter ended June 30, 2010, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of June 30, 2010. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of June 30, 2010, substantially all of the Company’s outstanding foreign currency forward contracts have maturity dates of less than fifteen months with the majority of derivatives expiring within one year. There were no foreign currency option contracts outstanding as of June 30, 2010. See Part I, Item 3 — <i>Quantitative and Qualitative Disclosures About Market Risk </i>in this Quarterly Report on Form 10-Q for foreign currency instruments outstanding as of June 30, 2010. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b><i>Gains and Losses on Derivative Instruments</i></b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes gains (losses) relating to derivative instruments recorded in other comprehensive income (loss) during the three and six months ended June 30, 2010 and 2009: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="44%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>Amount of Gain (Loss) Recognized</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>in Other Comprehensive Income (Loss)</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>For the Three Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>For the Six Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2009</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(In millions)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Derivatives designated as hedging instruments:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Foreign exchange currency contracts relating to inventory and intercompany management fee hedges </div></td> <td> </td> <td align="left">$</td> <td align="right">8.3</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(1.8</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">13.3</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">0.6</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Interest rate swaps </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(3.3</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(5.9</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> </tr>  </table> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes gains (losses) relating to derivative instruments recorded to income during the three and six months ended June 30, 2010 and 2009: </div> <div align="center"> <table style="font-size: 8pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="30%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>Amount of Gain (Loss)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>Recognized in Income</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>For the Three Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>For the Six Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Location of Gain (Loss)</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Recognized in Income</b></td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(In millions)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="3"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Derivatives designated as hedging instruments:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Foreign exchange currency contracts relating to inventory hedges and intercompany management fee hedges (1) </div></td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.2</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.1</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td colspan="3" align="left">Selling, general and administrative expenses</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Derivatives not designated as hedging instruments:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Foreign exchange currency contracts </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(1.7</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(9.5</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(9.2</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(9.8</td> <td nowrap="nowrap">)</td> <td> </td> <td colspan="3" align="left">Selling, general and administrative expenses</td> </tr>  </table> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"> <div align="justify"> <div style="font-size: 3pt; margin-top: 13pt; width: 18%; border-bottom: 1px solid #000000">  </div> </div> </div> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr style="font-size: 6pt"> <td width="3%"> </td> <td width="1%"> </td> <td width="96"> </td> </tr> <tr valign="top"> <td nowrap="nowrap" align="left">(1)</td> <td> </td> <td> <div style="text-align: justify">For foreign exchange contracts designated as hedging instruments, the amounts recognized in income (loss) represent the amounts excluded from the assessment of hedge effectiveness. There were no ineffective amounts reported for derivatives designated as hedging instruments. </div></td> </tr> </table> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes gains (losses) relating to derivative instruments reclassified from accumulated other comprehensive loss into income during the three and six months ended June 30, 2010 and 2009: </div> <div align="center"> <table style="font-size: 8pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="30%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>Amount of Gain (Loss) Reclassified</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Location of Gain (Loss)</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>from Accumulated</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Reclassified</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>Other Comprehensive</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>from Accumulated</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>Loss into Income</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Other Comprehensive</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>For the Three Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>For the Six Months Ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Loss into Income</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>June 30, 2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Effective Portion)</b></td> <td> </td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(In millions)</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"> </td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Derivatives designated as hedging instruments:</b> </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Foreign exchange currency contracts relating to inventory hedges </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.1</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">0.4</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.7</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">0.4</td> <td> </td> <td> </td> <td colspan="3" align="left">Cost of sales</td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Foreign exchange currency contracts relating to intercompany management fee hedges </div></td> <td> </td> <td align="left">$</td> <td align="right">2.9</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">4.6</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td colspan="3" align="left">Selling, general and administrative expenses</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Interest rate contracts </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.9</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.4</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(1.8</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(0.8</td> <td nowrap="nowrap">)</td> <td> </td> <td colspan="3" nowrap="nowrap" align="left">Interest expense, net</td> </tr>  </table> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company reports its derivatives at fair value as either assets or liabilities within its consolidated balance sheet. See Note 12, <i>Fair Value Measurements</i>, for information on derivative fair values and their consolidated balance sheet location as of June 30, 2010, and December 31, 2009. </div> </div>  <!-- Begin Block Tagged Note false false false us-types:textBlockItemType textblock This element can be used to disclose the entity's entire derivative instruments and hedging activities disclosure as a single block of text. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising there from, and the amounts of and methodologies and assumptions used in determining the amounts of such items. 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