FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 28, 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 British Pound (“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”), because 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. 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 are 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 is recorded as a component of “Other income (expense), net” in the period in which 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 in which it occurs.

We had FX forward contracts with an aggregate notional amount of $138.7 and $107.3 outstanding as of September 28, 2013 and December 31, 2012, respectively. These FX forward contracts had maturity dates ranging, primarily, from one to two years. We also had FX embedded derivatives with an aggregate notional amount of $128.9 and $96.3 at September 28, 2013 and December 31, 2012, respectively. The unrealized losses, net of taxes, recorded in AOCI related to FX forward contracts were $1.7 and $3.4 as of September 28, 2013 and December 31, 2012, respectively. We anticipate reclassifying approximately $1.3 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 September 28, 2013 and December 31, 2012, the outstanding notional amount of commodity contracts was 3.7 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 $(0.4) and $0.1 as of September 28, 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 September 28, 2013 and September 29, 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 September 28, 2013 and December 31, 2012, respectively:

	September 28, 2013								December 31, 2012
	Gross assets		Gross liabilities			Net assets / liabilities			Gross assets		Gross liabilities			Net assets / liabilities
FX Forward Contracts:
Counterparty A	$	0.5	$	—		$	0.5		$	0.2	$	(0.3	)	$	(0.1	)
Counterparty B	0.1		(0.6		)	(0.5		)	0.1		(0.2		)	(0.1		)
Totals (1)	$	0.6	$	(0.6	)	$	—		$	0.3	$	(0.5	)	$	(0.2	)
Commodity Contracts:
Counterparty A (2)	$	0.1	$	—		$	0.1		$	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:

	September 28,			December 31,
	2013			2012
Designated as hedging instruments:
Other current assets	$	0.1		$	0.1
Accrued expenses	—			(0.3		)
	0.1			(0.2		)
Not designated as hedging instruments:
Other current assets	0.4			0.1
Accrued expenses	(0.5		)	(0.1		)
	(0.1		)	—
Net fair value of FX forward contracts in balance sheets	$	—		$	(0.2	)

(2) Related contracts are designated as hedging instruments. Net amounts at September 28, 2013 and December 31, 2012 are recorded in “Other current assets”.

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 September 28, 2013 and December 31, 2012:

	September 28,			December 31,
Balance Sheet Classification	2013			2012
Other current assets	$	0.6		$	0.3
Other noncurrent assets	0.8			—
Accrued expenses	(6.1		)	(0.9		)
Other long-term liabilities	(0.6		)	(9.8		)
	$	(5.3	)	$	(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 nine months ended September 28, 2013 and September 29, 2012:

	Three months ended						Nine months ended
	September 28,			September 29,			September 28,			September 29,
	2013			2012			2013			2012
FX forward contracts	$	(0.2	)	$	(0.6	)	$	(4.2	)	$	(1.2	)
Commodity contracts	0.8			0.8			(1.5		)	1.0
	$	0.6		$	0.2		$	(5.7	)	$	(0.2	)

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 ‘‘Revenues’’ for FX forward contracts and ‘‘Cost of products sold’’ for commodity contracts for the three and nine months ended September 28, 2013 and September 29, 2012 :

	Three months ended (1)						Nine months ended (1)
	September 28,			September 29,			September 28,			September 29,
	2013			2012			2013			2012
FX forward contracts	$	(2.1	)	$	(0.8	)	$	(3.0	)	$	(1.2	)
Commodity contracts	(0.6		)	0.3			(0.5		)	(0.7		)
	$	(2.7	)	$	(0.5	)	$	(3.5	)	$	(1.9	)

(1) During the nine months ended September 28, 2013, losses of $0.2 were recognized in “Other income (expense), net” relating to derivative ineffectiveness and amounts excluded from effectiveness testing. During the three and nine months ended September 29, 2012, losses of $0.2 and $0.3 were recognized in other income (expense), net relating to derivative ineffectiveness and amounts excluded from effectiveness testing.

The following summarizes the gain (loss) recognized in ‘‘Other income (expense), net’’ for the three and nine months ended September 28, 2013 and September 29, 2012 related to derivative financial instruments not designated as cash flow hedging relationships:

	Three months ended						Nine months ended
	September 28,			September 29,			September 28,			September 29,
	2013			2012			2013			2012
FX forward contracts	$	0.9		$	1.8		$	(1.0	)	$	2.0
FX embedded derivatives	(0.8		)	(1.8		)	4.9			(3.1		)
	$	0.1		$	—		$	3.9		$	(1.1	)