DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS

DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS

Derivatives

The Company is exposed to market risk due to changes in currency exchange rates and interest rates. To manage that risk, the Company enters into certain derivative financial instruments, when available on a cost-effective basis, to hedge its underlying economic exposure. These financial instruments are in Level 2 of the fair value hierarchy for both periods presented. For the nine months ended September 30, 2013 and 2012, there were no transfers between levels in the fair value hierarchy. Derivative financial instruments are not used for speculative purposes.

The following table summarizes the Company’s fair value of outstanding derivatives designated as hedging instruments:

(In millions)
Cash flow hedges:	Balance Sheet Location	September 30, 2013			December 31, 2012
Foreign exchange contracts	Other assets	$	5.8		$	—
Foreign exchange contracts	Accrued expenses	(0.5		)	(5.1		)
Net asset/(liability) of derivatives designated as hedging instruments		$	5.3		$	(5.1	)

The Company’s derivative financial instruments present certain market and counterparty risks; however, concentration of counterparty risk is mitigated as the Company uses a variety of major banks worldwide whose long-term debt is rated A or higher by Standard & Poor’s Rating Service, Fitch Ratings, or Moody’s Investors Service, Inc. In addition, only conventional derivative financial instruments are used. The Company would not be materially impacted if any of the counterparties to the derivative financial instruments outstanding at September 30, 2013 failed to perform according to the terms of its agreement. At this time, the Company does not require collateral or any other form of securitization to be furnished by the counterparties to its derivative financial instruments.

Cash Flow Hedges-Foreign Exchange Contracts

The Company uses foreign exchange contracts to hedge forecasted transactions, primarily intercompany purchases for up to 18 months, on certain foreign currencies and designates these derivative instruments as foreign currency cash flow hedges when appropriate. For the contracts that qualify as hedges of probable forecasted transactions, the effective portion of changes in fair value is temporarily reported in accumulated other comprehensive loss and recognized in earnings when the hedged item affects earnings.

The Company assesses hedge effectiveness at inception and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of the change in fair value is included in current period earnings. For the three and nine months endedSeptember 30,2013 and 2012, the impact of hedge ineffectiveness on earnings was not significant.

The Company will discontinue cash flow hedge accounting when the forecasted transaction is no longer probable to occur on the originally forecasted date, or 60 days thereafter, or when the hedge is no longer effective. During the three and nine months endedSeptember 30,2013 and 2012, the Company did not discontinue any cash flow hedges.

The effective portion of changes in the fair value of foreign exchange contracts is recognized in earnings when the hedged item affects earnings, in cost of products sold, or deemed ineffective, in other expenses/(income)—net. All of the Company’s foreign exchange contracts qualify as hedges of probable forecasted cash flows.

As of September 30, 2013, the notional value of the Company’s outstanding foreign exchange forward contracts designated as hedging instruments was $201.1 million, with a fair value of $5.3 million in net assets. As of December 31, 2012, the notional value of the Company’s outstanding foreign exchange forward contracts designated as hedging instruments was $207.2 million, with a fair value of $5.1 million in net liabilities. The fair value of all foreign exchange forward contracts is based on quarter-end forward currency rates. The fair value of foreign exchange forward contracts should be viewed in relation to the fair value of the underlying hedged transactions and the overall reduction in exposure to fluctuations in foreign currency exchange rates.

The change in accumulated other comprehensive loss and the impact on earnings from foreign exchange contracts that qualified as cash flow hedges were as follows: 

(In millions)	2013			2012
Balance—January 1	$	(4.1	)	$	4.3
Derivatives qualifying as cash flow hedges deferred in other comprehensive income	5.2			(9.5		)
Derivatives qualifying as cash flow hedges reclassified to cost of products sold (effective portion)	5.7			(0.9		)
Change in deferred taxes	(3.0		)	3.1
Balance—September 30	$	3.8		$	(3.0	)

At September 30, 2013, the balance of the effective portion of changes in fair value on foreign exchange forward contracts that qualified for cash flow hedge accounting included in accumulated other comprehensive income was $3.8 million, $3.6 million of which is expected to be reclassified into earnings within the next 12 months.

Fair Value Hedges

The Company may, from time to time, enter into fixed-to-floating interest rate swaps as part of its interest rate management strategy. The gain or loss on these swaps that are designated and qualify as fair value hedges will be recognized in current earnings and offset by the loss or gain on the hedged item. These swaps are recorded at fair value. The fair value of the interest rate swaps is the present value of the future cash flows calculated based on forecasted LIBOR rates from a third party bank including credit value adjustments.

In November 2009, the Company executed several interest rate swaps to convert $700.0 million of the Company’s newly-issued fixed rate debt to be paid in 2014 and 2019 to variable rate debt. In November 2010, the Company terminated $200.0 million notional amount of fixed-to-floating interest rate swaps in exchange for cash of $15.6 million. In July 2011, the Company terminated the remaining $500.0 million notional amount of fixed-to-floating interest rate swaps in exchange for cash of $23.5 million. The related basis adjustments of the underlying hedged items are being recognized as a reduction of interest expense over the remaining life of the underlying debt. There were no interest rate swaps outstanding at September 30, 2013.

The earnings impact and decrease in interest expense from interest rate swaps was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2013		2012		2013		2012
Amortization of basis adjustment for terminated interest rate swaps recognized in interest expense	(2.3	)	(2.3	)	(6.9	)	(7.0	)

See Note 15 for discussion of the Company’s long-term debt.

Other Financial Instruments

The Company does not hedge the interest rate risk associated with money market funds which totaled $314.7 million and $520.7 million as of September 30, 2013 and December 31, 2012, respectively. Money market funds are classified as Level 2 in the fair value hierarchy and are included in cash and cash equivalents on the balance sheet. The money market funds have quoted market prices that are generally equivalent to par.