2.2.0.25falsefalse0209 - Disclosure - Derivative Instruments and Hedging Activitiestruefalsefalse1falsefalseUSDfalsefalse1/1/2011 - 3/31/2011
USD ($)
USD ($) / shares
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<!-- Begin Block Tagged Note 9 - us-gaap:DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock-->
<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="justify" 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 credit facility. 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
March 31, 2011, the Company is hedging certain of its monthly interest rate exposures over approximately two years and four months.
</div>
<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 at
inception were designated as cash flow hedges against the variability in the LIBOR interest rate on
the Company’s prior term loan or against the variability in the LIBOR interest rate on the replacement debt. The Company’s prior term loan was terminated in March 2011 and refinanced with
the New Credit Facility as discussed further in Note 3, <i>Long-Term Debt</i>.
The Company’s swaps remain effective and continue to be designated as cash flow hedges against the
variability in certain LIBOR interest rate borrowings under the New Credit Facility at LIBOR plus 1.50% to 2.50%,
thereby now fixing the Company’s weighted average effective rate on the notional amounts at 4.28%
to 5.28%. There was no hedge ineffectiveness recorded as result of this refinancing event.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company formally assesses both at inception and at least quarterly thereafter, whether
derivatives used in hedging transactions are effective in offsetting changes in cash flows of the
hedged item. As of March 31, 2011, the hedge relationships continued to qualify 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. At March 31, 2011 and December 31, 2010, the Company recorded the interest rate swaps
as liabilities at their fair value of $5.7 million and $6.6 million, respectively.
</div>
<!-- Folio -->
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</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" 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 foreign currency 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 March 31, 2011, and December 31, 2010, the
aggregate notional amounts of these contracts outstanding were approximately $21.6 million and
$32.1 million, respectively. At March 31, 2011, the outstanding contracts were expected to mature
over the next nine months. The Company’s derivative financial instruments are recorded on the
consolidated balance sheet at fair value based on third-party bank quotes. 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 March 31, 2011, the Company recorded
liabilities at fair value of $2.1 million relating to all outstanding foreign currency contracts
designated as cash-flow hedges. As of December 31, 2010, the Company recorded assets at fair value
of $0.6 million and liabilities at fair value of $0.8 million 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 three months ended March 31, 2011 and
2010, the ineffective portion relating to these hedges was immaterial and the hedges remained
effective as of March 31, 2011.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of March 31, 2011, and December 31, 2010, the majority of the Company’s outstanding foreign
currency forward contracts had maturity dates of less than nine months with the majority of
freestanding derivatives expiring within two months. There were no foreign currency option
contracts outstanding as of March 31, 2011, and December 31, 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 March 31, 2011.
</div>
<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 months ended March 31, 2011 and 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </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="6"><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="6" 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>
</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>March 31, 2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>March 31, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In millions)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="top" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Derivatives designated as cash flow hedging instruments:</b>
</div></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 nowrap="nowrap" align="left">$</td>
<td align="right">(1.9</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">5.1</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest rate swaps
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(2.5</td>
<td nowrap="nowrap">)</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<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%">The following table summarizes gains (losses) relating to derivative instruments recorded to
income during the three months ended March 31, 2011 and 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="23%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Amount of Gain (Loss)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"> </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>Recognized in Income</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Location of Gain</b></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"><b>(Loss)</b></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>March 31, 2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>March 31, 2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Recognized in Income</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In millions)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="top" style="background: #cceeff">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px"><b>Derivatives designated as cash flow hedging instruments:</b>
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom">
<td valign="top">
<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 nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">0.1</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">(0.1</td>
<td nowrap="nowrap" valign="bottom">)</td>
<td> </td>
<td align="left" valign="top">Selling, general
and administrative
expenses</td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td valign="top">
<div style="margin-left:0px; text-indent:-0px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px"><b>Derivatives not designated as hedging instruments:</b>
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom">
<td valign="bottom">
<div style="margin-left:0px; text-indent:-0px">Foreign exchange currency contracts
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">2.9</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">(7.5</td>
<td nowrap="nowrap" valign="bottom">)</td>
<td> </td>
<td align="left" valign="top">Selling, general
and administrative
expenses</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left">
<div style="font-size: 3pt; margin-top: 10pt; width: 18%; border-top: 1px solid #000000"> 
</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 recorded 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 months ended March 31, 2011
and 2010:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="23%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Location of Gain</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Amount of Gain (Loss) Reclassified</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>(Loss)</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>from Accumulated</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Reclassified</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Other Comprehensive</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>from Accumulated</b></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>Loss into Income</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Other Comprehensive</b></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"><b>Loss into Income</b></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>March 31, 2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>March 31, 2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>(Effective Portion)</b></td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In millions)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="top" style="background: #cceeff">
<td valign="top">
<div style="margin-left:15px; text-indent:-15px"><b>Derivatives designated as cash flow hedging instruments:</b>
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom">
<td valign="top">
<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" valign="bottom">$</td>
<td align="right" valign="bottom">(0.2</td>
<td nowrap="nowrap" valign="bottom">)</td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">(0.6</td>
<td nowrap="nowrap" valign="bottom">)</td>
<td> </td>
<td align="left" valign="bottom">Cost of sales</td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td valign="top">
<div style="margin-left:0px; text-indent:-0px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td valign="top">
<div style="margin-left:15px; text-indent:-15px">Foreign exchange currency contracts relating to intercompany
management fee hedges
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">(0.6</td>
<td nowrap="nowrap" valign="bottom">)</td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">1.6</td>
<td nowrap="nowrap" valign="bottom"> </td>
<td> </td>
<td align="left" valign="top">Selling, general
and administrative
expenses</td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td valign="top">
<div style="margin-left:0px; text-indent:-0px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom"> </td>
<td align="right" valign="bottom"> </td>
<td valign="bottom"> </td>
<td> </td>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Interest rate contracts
</div></td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">(0.9</td>
<td nowrap="nowrap" valign="bottom">)</td>
<td> </td>
<td nowrap="nowrap" align="left" valign="bottom">$</td>
<td align="right" valign="bottom">(0.9</td>
<td nowrap="nowrap" valign="bottom">)</td>
<td> </td>
<td align="left" valign="top">Interest expense, net</td>
</tr>
<!-- End Table Body -->
</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
condensed consolidated balance sheet. See Note 12, <i>Fair Value Measurements</i>, for information on derivative
fair values and their condensed consolidated balance sheet location as of March 31, 2011, and December 31,
2010.
</div>
</div>
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-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 45
Reference 2: http://www.xbrl.org/2003/role/presentationRef
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-Name Statement of Financial Accounting Standard (FAS)
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