Derivative Financial Instruments and Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Derivative Financial Instruments and Fair Value Measurements [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

5. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company manages the volatility of cash flows caused by fluctuations in currency rates by entering into foreign exchange forward contracts and options. These derivative instruments may be designated as cash flow hedges that hedge portions of the Company’s anticipated third-party purchases and forecasted sales denominated in foreign currencies. The Company also enters into foreign exchange contracts that are not intended to qualify for hedge accounting, but are intended to offset the effect on earnings of foreign currency movements on short and long term intercompany transactions. Gains and losses on these derivative instruments are recorded through earnings.

For assets and liabilities measured at fair value on a recurring basis, the Company uses an income approach to value the assets and liabilities for outstanding derivative contracts, which include interest rate swap and foreign currency forward contracts. The income approach consists of a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contracts using current market information as of the reporting date, such as prevailing interest rates and foreign currency spot and forward rates. The following table provides a summary of the fair values of assets and liabilities:

			Fair Value Measurements at September 30, 2011
($ in millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Assets
Derivatives	$	0.1	$	—	$	0.1	$	—
Liabilities
Derivatives	$	0.6	$	—	$	0.6	$	—

			Fair Value Measurements at December 31, 2010
($ in millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
Assets
Derivatives	$	—	$	—	$	—	$	—
Liabilities
Derivatives	$	0.6	$	—	$	0.6	$	—

At September 30, 2011 and December 31, 2010, the fair value of the Company’s derivative instruments was recorded as follows:

	Asset Derivatives September 30, 2011			Liability Derivatives September 30, 2011
($ in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange	Other current assets	$	—	Other accrued liabilities	$	0.6
Total derivatives designated as hedging instruments			—			0.6
Derivatives not designated as hedging instruments:
Foreign exchange	Accounts receivable, net		0.1	Other accrued liabilities		—
Total derivatives not designated as hedging instruments			0.1			—
Total derivatives		$	0.1		$	0.6

	Asset Derivatives December 31, 2010			Liability Derivatives December 31, 2010
($ in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange	Other current assets	$	—	Other current Liabilities	$	0.2
Total derivatives designated as hedging instruments			—			0.2
Derivatives not designated as hedging instruments:
Foreign exchange	Accounts receivable, net		—	Other accrued liabilities		0.4
Total derivatives not designated as hedging instruments			—			0.4
Total derivatives		$	—		$	0.6

The effect of derivative instruments on the condensed consolidated statement of operations for the three months ended September 30, 2011, was as follows:

($ in millions) Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion)			Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of  Gain Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate contracts	$	—		Interest expense	$	—
Foreign exchange		(0.9	)	Net sales		0.1
Total	$	(0.9	)		$	0.1

Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivatives	Amount of Gain Recognized in Income on Derivatives
Foreign exchange	Other income (expense)	$	0.2
Total		$	0.2

The effect of derivative instruments on the condensed consolidated statement of operations for the nine months ended September 30, 2011 was as follows:

($ in millions) Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion)			Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of  Gain Reclassified from Accumulated OCI into Income (Effective Portion)
Interest rate contracts	$	—		Interest expense	$	—
Foreign exchange		(0.4	)	Net sales		0.3
Total	$	(0.4	)		$	0.3

Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivatives	Amount of Loss Recognized in Income on Derivatives
Foreign exchange	Other income (expense)	$	(0.7	)
Total		$	(0.7	)

At September 30, 2011 and December 31, 2010, accumulated other comprehensive income (loss) associated with interest rate swaps and foreign exchange contracts qualifying for hedge accounting treatment was $(0.6) million and $0.5 million, net of income tax effects, respectively. The Company expects $0.7 million of pre-tax net loss on cash flow hedges that are reported in accumulated other comprehensive loss as of September 30, 2011 to be reclassified into earnings within the next 12 months as the respective hedged transactions affect earnings.

The following table summarizes the carrying amounts and fair values of the Company’s financial instruments:

	September 30, 2011					December 31, 2010
($ in millions)	Notional Amount		Fair Value			Notional Amount		Fair Value
Short-term debt	$	8.0	$	8.0		$	1.8	$	1.8
Long-term debt (1)		221.1		219.1			262.1		259.9
Foreign exchange (2)		31.3		(0.6	)		28.3		(0.6	)

(1) Long-term debt includes financial service borrowings for all periods presented, which is included in discontinued operations. Long-term debt above includes current maturities of $187.4 million.

(2) Foreign exchange contracts are denominated in USD, GBP, and Euro.

The carrying value of short-term debt approximates fair value due to its short maturity. The fair value of long-term debt is based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities.