FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 29, 2013

FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS

(11) FINANCIAL INSTRUMENTS

Currency Forward Contracts

We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency exchange rates. Our objective is to preserve the economic value of non-functional currency-denominated cash flows and to minimize their impact. Our principal currency exposures relate to the Euro, South African Rand, CNY and GBP.

From time to time, we enter into currency protection agreements (“FX forward contracts”) to manage the exposure on contracts with forecasted transactions denominated in non-functional currencies and to manage the risk of transaction gains and losses associated with assets/liabilities denominated in currencies other than the functional currency of certain subsidiaries. In addition, some of our contracts contain currency forward embedded derivatives (“FX embedded derivatives”), as the currency of exchange is not “clearly and closely” related to the functional currency of either party to the transaction. Certain of our FX forward contracts are designated as cash flow hedges, as deemed appropriate. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings, but are included in AOCI. These changes in fair value will subsequently be reclassified into earnings as a component of revenues or cost of products sold, as applicable, when the forecasted transaction impacts earnings. In addition, if the forecasted transaction is no longer probable, the cumulative change in the derivatives’ fair value will be recorded as a component of “Other income (expense), net” in the period it occurs. To the extent a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs.

We had FX forward contracts with an aggregate notional amount of $128.5 and $107.3 outstanding as of June 29, 2013 and December 31, 2012, respectively. These FX forward contracts typically have maturity dates ranging from one to two years. We also had FX embedded derivatives with an aggregate notional amount of $103.3 and $96.3 at June 29, 2013 and December 31, 2012, respectively. The unrealized losses, net of taxes, recorded in AOCI related to FX forward contracts were $3.2 and $3.4 as of June 29, 2013 and December 31, 2012, respectively. We anticipate reclassifying approximately $3.4 of an unrealized loss to income over the next 12 months.

Commodity Contracts

From time to time, we enter into commodity contracts to manage the exposure on forecasted purchases of commodity raw materials (“commodity contracts”). At June 29, 2013 and December 31, 2012, the outstanding notional amount of commodity contracts was 3.9 and 3.3 pounds of copper, respectively. We designate and account for these contracts as cash flow hedges and, to the extent these commodity contracts are effective in offsetting the variability of the forecasted purchases, the change in fair value is included in AOCI. We reclassify AOCI associated with our commodity contracts to cost of products sold when the forecasted transaction impacts earnings. The unrealized gain (loss), net of taxes, recorded in AOCI was $(1.2) and $0.1 as of June 29, 2013 and December 31, 2012, respectively. We anticipate reclassifying the unrealized loss to income over the next 12 months.  The amount of gain/loss recognized during the periods ended June 29, 2013 and June 30, 2012 related to the ineffectiveness of these hedges was not material.

The following summarizes the gross and net fair values of our FX forward and commodity contracts by counterparty at June 29, 2013 and December 31, 2012, respectively:

	June 29, 2013								December 31, 2012
	Gross assets		Gross liabilities			Net assets /  liabilities			Gross assets		Gross liabilities			Net assets / liabilities
FX Forward Contracts:
Counterparty A	$	0.2	$	(0.1	)	$	0.1		$	0.2	$	(0.3	)	$	(0.1	)
Counterparty B	0.3		—			0.3			0.1		(0.2		)	(0.1		)
Aggregate of other counterparties	0.1		—			0.1			—		—			—
Totals (1)	$	0.6	$	(0.1	)	$	0.5		$	0.3	$	(0.5	)	$	(0.2	)
Commodity Contracts:
Counterparty A (2)	$	—	$	(1.5	)	$	(1.5	)	$	0.3	$	(0.1	)	$	0.2

(1) We enter into arrangements designed to provide the right of setoff in the event of counterparty default or insolvency, and have elected to offset the fair values of our qualifying financial instruments in our condensed consolidated balance sheets. Amounts presented in our balance sheets are as follows:

	June 29,		December 31,
	2013		2012
Designated as hedging instruments:
Other current assets	$	0.2	$	0.1
Accrued expenses	—		(0.3		)
	0.2		(0.2		)
Not designated as hedging instruments:
Other current assets	0.3		0.1
Accrued expenses	—		(0.1		)
	0.3		—
Net fair value of FX forward contracts in balance sheets	$	0.5	$	(0.2	)

(2) Related contracts are designated as hedging instruments. Net amounts at June 29, 2013 and December 31, 2012 are recorded in “Accrued expenses” and “Other current assets,” respectively.

The following summarizes the fair value of our FX embedded derivative instruments, which are not designated as hedging instruments, and the related balance sheet classification as of June 29, 2013 and December 31, 2012:

	June 29,			December 31,
Balance Sheet Classification	2013			2012
Other current assets	$	0.5		$	0.3
Accrued expenses	(3.8		)	(0.9		)
Other long-term liabilities	(1.0		)	(9.8		)
	$	(4.3	)	$	(10.4	)

The following summarizes the pre-tax gain (loss) recognized in AOCI resulting from derivative financial instruments designated as cash flow hedging relationships for the three and six months ended June 29, 2013 and June 30, 2012:

	Three months ended						Six months ended
	June 29, 2013			June 30, 2012			June 29, 2013			June 30, 2012
FX forward contracts	$	(11.0	)	$	(0.6	)	$	(4.1	)	$	(0.6	)
Commodity contracts	(1.3		)	(0.8		)	(2.3		)	0.2
	$	(12.3	)	$	(1.4	)	$	(6.4	)	$	(0.4	)

The following summarizes the pre-tax gain (loss) related to derivative financial instruments designated as cash flow hedging relationships reclassified from AOCI to income through ‘‘Cost of products sold’’ for the three and six months ended June 29, 2013 and June 30, 2012:

	Three months ended (1)						Six months ended (1)
	June 29, 2013			June 30, 2012			June 29, 2013			June 30, 2012
FX forward contracts	$	(0.2	)	$	(0.9	)	$	(0.8	)	$	(0.4	)
Commodity contracts	0.1			(0.4		)	0.1			(1.0		)
	$	(0.1	)	$	(1.3	)	$	(0.7	)	$	(1.4	)

(1) During the three and six months ended June 29, 2013, losses of $0.2 were recognized in “Other income (expense), net” relating to derivative ineffectiveness and amounts excluded from effectiveness testing. Losses of $0.1 relating to derivative ineffectiveness and amounts excluded from effectiveness testing were recognized in “Other income (expense), net” during the six months ended June 30, 2012.

The following summarizes the gain (loss) recognized in ‘‘Other income (expense), net’’ for the three and six months ended June 29, 2013 and June 30, 2012 related to derivative financial instruments not designated as cash flow hedging relationships:

	Three months ended					Six months ended
	June 29, 2013		June 30, 2012			June 29, 2013			June 30, 2012
FX forward contracts	$	1.1	$	(0.5	)	$	(1.9	)	$	0.2
FX embedded derivatives	2.6		1.6			5.7			(1.3		)
	$	3.7	$	1.1		$	3.8		$	(1.1	)