Derivative Instruments and Hedging Activities | 6 Months Ended |
Jun. 30, 2014 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Derivative Instruments and Hedging Activities | ' |
Derivative Instruments and Hedging Activities |
Our risk management and derivative accounting policies are presented in Notes 1 and 17 of the Notes included in our Annual Report and did not significantly change during the first half of 2014. As noted in Note 17 of the Notes included in our Annual Report, due to the nature of our counterparty agreements, and the fact that we are not subject to master netting arrangements, we are not able to net positions with the same counterparty and therefore present our derivative positions gross in our unaudited condensed consolidated balance sheets. Our significant derivative/hedge positions have not changed significantly since year-end, except as noted below. |
Interest Rate Swaps |
In the second quarter of 2014, we entered into interest rate swaps with an aggregate notional of $300 million to economically convert that portion of our fixed rate $500 million 3.5% notes due 2022 ("$500 million notes") to floating rate debt. We will receive fixed interest payments semi-annually at a rate of 3.5% per annum and pay a rate to our counterparties based on a credit spread plus the three month LIBOR rate, thereby effectively exchanging a fixed interest obligation for a floating interest obligation. Subsequent to June 30, 2014, we entered into incremental interest rate swaps with an aggregate notional of $200 million thus economically converting all of the $500 million notes to floating rate debt. |
We entered into these interest rate swap agreements to minimize exposure to changes in the fair value of our $500 million notes that results from fluctuations in the benchmark interest rate, specifically LIBOR, and have designated these swaps as fair value hedges and determined that there is zero ineffectiveness. The changes in fair value of derivatives designated as fair value hedges and the offsetting changes in fair value of the hedged item are recognized in earnings. For each of the three and six months ended June 30, 2014, the changes in fair value of the interest rate swaps and the offsetting changes in fair value of the $500 million notes attributable to the benchmark interest rate was a gain of $1.2 million and a loss of $1.2 million respectively, both recorded in interest expense in our unaudited condensed consolidated statement of operations. Accordingly, as of June 30, 2014, such adjustments had increased the carrying value of our $500 million notes by $1.2 million. See Note 11, "Debt" for additional details. |
Forward Starting Interest Rate Swaps |
In the second quarter of 2014, we began to enter into forward starting interest rate swaps to manage our exposure to the volatility of the interest rates associated with future interest payments on a forecasted debt issuance. As of June 30, 2014, we had entered into one swap agreement having a total notional of CAD 40 million with a fixed interest rate of 3.11%. Subsequent to June 30, 2014, we entered into additional forward starting interest rate swaps totaling CAD 120 million and we intend to enter into multiple additional forward starting interest rate swaps up to the date of the forecasted issuance. The forward starting interest rate swaps have an effective date of September 2015 and a termination date of September 2025 mirroring the terms of the forecasted debt issuance. Under the agreements we are required to early terminate these swaps in 2015 at the time we expect to issue the forecasted debt. We have designated these contracts as cash flow hedges. |
Cross Currency Swaps |
In the first quarter of 2014, we early settled the final remaining CAD 241 million notional of our outstanding currency swaps designated as a net investment hedge of our Canadian operations for $65.2 million. As of June 30, 2014, we do not have any cross currency swap positions outstanding. |
Derivative Fair Value Measurements |
We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk adjustments to account for our counterparties' credit risk, as well as our own non-performance risk. The table below summarizes our derivative assets and liabilities that were measured at fair value as of June 30, 2014, and December 31, 2013. |
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| | | Fair value measurements as of June 30, 2014 | |
| Total at June 30, 2014 | | Quoted prices in | | Significant other | | Significant | |
active markets | observable inputs | unobservable | |
(Level 1) | (Level 2) | inputs (Level 3) | |
| (In millions) | |
Interest rate swaps | $ | 0.9 | | | $ | — | | | $ | 0.9 | | | $ | — | | |
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Foreign currency forwards | 10.6 | | | — | | | 10.6 | | | — | | |
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Commodity swaps | (4.1 | ) | | — | | | (4.1 | ) | | — | | |
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Total | $ | 7.4 | | | $ | — | | | $ | 7.4 | | | $ | — | | |
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| | | Fair value measurements as of December 31, 2013 | |
| Total at December 31, 2013 | | Quoted prices in | | Significant other | | Significant | |
active markets | observable inputs | unobservable | |
(Level 1) | (Level 2) | inputs (Level 3) | |
| (In millions) | |
Cross currency swaps | $ | (71.7 | ) | | $ | — | | | $ | (71.7 | ) | | $ | — | | |
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Foreign currency forwards | 19.7 | | | — | | | 19.7 | | | — | | |
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Commodity swaps | (4.9 | ) | | — | | | (4.9 | ) | | — | | |
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Total | $ | (56.9 | ) | | $ | — | | | $ | (56.9 | ) | | $ | — | | |
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As of June 30, 2014, we had no significant transfers between Level 1 and Level 2. New derivative contracts transacted during the three and six months ended June 30, 2014, were all included in Level 2. |
Results of Period Derivative Activity |
The tables below include the year to date results of our derivative activity in the unaudited condensed consolidated balance sheets as of June 30, 2014, and December 31, 2013, and the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2014, and June 29, 2013. |
Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheet (in millions, except for certain commodity swaps with notional amounts measured in Metric Tonnes, as noted) |
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| June 30, 2014 | |
| | | | Asset derivatives | | Liability derivatives | |
| Notional amount | | Balance sheet location | | Fair value | | Balance sheet location | | Fair value | |
Derivatives designated as hedging instruments: | | | | | | | | | |
Interest rate swaps | USD | 337.5 | | | Other non-current assets | | $ | 1.2 | | | Other liabilities | | $ | (0.3 | ) | |
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Foreign currency forwards | USD | 413.6 | | | Other current assets | | 8.3 | | | Accounts payable and other current liabilities | | (0.1 | ) | |
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| | | | Other non-current assets | | 3.9 | | | Other liabilities | | (1.5 | ) | |
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Total derivatives designated as hedging instruments | | | | | $ | 13.4 | | | | | $ | (1.9 | ) | |
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Derivatives not designated as hedging instruments: | | | | | | | | | |
Commodity swaps - Natural Gas | kWh | 744.3 | | | Other current assets | | $ | 0.5 | | | Accounts payable and other current liabilities | | $ | (0.9 | ) | |
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| | | | Other non-current assets | | 0.1 | | | Other liabilities | | (0.4 | ) | |
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Commodity swaps - Other | Metric tonnes (actual) | 48,657 | | | Other current assets | | 0.3 | | | Accounts payable and other current liabilities | | (1.7 | ) | |
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| | | | Other non-current assets | | 0.4 | | | Other liabilities | | (2.4 | ) | |
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Total derivatives not designated as hedging instruments | | | | | $ | 1.3 | | | | | $ | (5.4 | ) | |
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| December 31, 2013 | |
| | | | Asset derivatives | | Liability derivatives | |
| Notional amount | | Balance sheet location | | Fair value | | Balance sheet location | | Fair value | |
Derivatives designated as hedging instruments: | | | | | | | | | |
Cross currency swaps | CAD | 240.7 | | | Other current assets | | $ | — | | | Accounts payable and other current liabilities | | $ | (71.7 | ) | |
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Foreign currency forwards | USD | 476.1 | | | Other current assets | | 11.5 | | | Accounts payable and other current liabilities | | — | | |
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| | | | Other non-current assets | | 8.2 | | | Other liabilities | | — | | |
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Commodity swaps | kWh | 848.8 | | | Other current assets | | 0.2 | | | Accounts payable and other current liabilities | | (0.2 | ) | |
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| | | | Other non-current assets | | 0.1 | | | Other liabilities | | (0.3 | ) | |
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Total derivatives designated as hedging instruments | | | | | $ | 20 | | | | | $ | (72.2 | ) | |
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Derivatives not designated as hedging instruments: | | | | | | | | | |
Commodity swaps | Metric tonnes (actual) | 55,653 | | | Other current assets | | $ | — | | | Accounts payable and other current liabilities | | $ | (2.0 | ) | |
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| | | | Other non-current assets | | — | | | Other liabilities | | (2.7 | ) | |
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Total derivatives not designated as hedging instruments | | | | | $ | — | | | | | $ | (4.7 | ) | |
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The Pretax Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations (in millions) |
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For the Three Months Ended June 30, 2014 |
Derivatives in cash flow hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized | reclassified from AOCI into | (loss) recognized | recognized in income on | recognized in income |
in OCI on | income (effective portion) | from AOCI on | derivative (ineffective portion | on derivative |
derivative | | derivative | and amount excluded from | (ineffective portion and |
(effective | | (effective portion) | effectiveness testing) | amount excluded from |
portion) | | | | effectiveness testing) |
Forward starting interest rate swaps | | $ | (0.3 | ) | | Interest expense, net | | $ | (0.4 | ) | | Interest expense, net | | $ | — | |
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Foreign currency forwards | | (15.1 | ) | | Other income (expense), net | | 0.7 | | | Other income (expense), net | | — | |
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| | | | | Cost of goods sold | | 3 | | | Cost of goods sold | | — | |
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Commodity swaps | | 0.2 | | | Cost of goods sold | | 0.2 | | | Cost of goods sold | | — | |
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Total | | $ | (15.2 | ) | | | | $ | 3.5 | | | | | $ | — | |
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For the Three Months Ended June 30, 2014 | | | | | | | | | | |
Derivatives in fair value hedge relationships | | Amount of gain (loss) recognized in income on derivative | | Location of gain (loss) | | | | | | | | | | |
recognized in income | | | | | | | | | | |
Interest rate swaps | | $ | 1.2 | | | Interest expense, net | | | | | | | | | | |
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Total | | $ | 1.2 | | | | | | | | | | | | | |
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For the Three Months Ended June 29, 2013 |
Derivatives in cash flow hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized | reclassified from AOCI into | (loss) recognized | recognized in income on | recognized in income |
in OCI on | income (effective portion) | from AOCI on | derivative (ineffective portion | on derivative |
derivative | | derivative | and amount excluded from | (ineffective portion and |
(effective | | (effective portion) | effectiveness testing) | amount excluded from |
portion) | | | | effectiveness testing) |
Forward starting interest rate swaps | | $ | — | | | Interest expense, net | | $ | (0.4 | ) | | Interest expense, net | | $ | — | |
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Foreign currency forwards | | 14.8 | | | Other income (expense), net | | 0.5 | | | Other income (expense), net | | — | |
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| | | | | Cost of goods sold | | 1.2 | | | Cost of goods sold | | — | |
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Commodity swaps | | (0.6 | ) | | Cost of goods sold | | 0.2 | | | Cost of goods sold | | — | |
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Total | | $ | 14.2 | | | | | $ | 1.5 | | | | | $ | — | |
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For the Three Months Ended June 29, 2013 |
Derivatives and non-derivative financial instruments in net investment hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized in | reclassified from AOCI into | (loss) recognized | recognized in income | recognized in income |
OCI (effective portion) | income (effective portion) | from AOCI | (ineffective portion | (ineffective portion and |
| | (effective portion) | and amount excluded from | amount excluded from |
| | | effectiveness testing) | effectiveness testing) |
Cross currency swaps | | $ | 15.3 | | | Other income (expense), net | | $ | — | | | Other income (expense), net | | $ | — | |
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€120 million term loan due 2016 | | (1.7 | ) | | Other income (expense), net | | — | | | Other income (expense), net | | — | |
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Total | | $ | 13.6 | | | | | $ | — | | | | | $ | — | |
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For the Six Months Ended June 30, 2014 |
Derivatives in cash flow hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized | reclassified from AOCI into | (loss) recognized | recognized in income on | recognized in income |
in OCI on | income (effective portion) | from AOCI on | derivative (ineffective portion | on derivative |
derivative | | derivative | and amount excluded from | (ineffective portion and |
(effective | | (effective portion) | effectiveness testing) | amount excluded from |
portion) | | | | effectiveness testing) |
Forward starting interest rate swaps | | $ | (0.3 | ) | | Interest expense, net | | $ | (0.8 | ) | | Interest expense, net | | $ | — | |
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Foreign currency forwards | | (0.4 | ) | | Other income (expense), net | | 2.3 | | | Other income (expense), net | | — | |
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| | | | | Cost of goods sold | | 6.3 | | | Cost of goods sold | | — | |
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Commodity swaps | | 0.5 | | | Cost of goods sold | | 0.4 | | | Cost of goods sold | | — | |
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Total | | $ | (0.2 | ) | | | | $ | 8.2 | | | | | $ | — | |
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For the Six Months Ended June 30, 2014 |
Derivatives and non-derivative financial instruments in net investment hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized in | reclassified from AOCI into | (loss) recognized | recognized in income | recognized in income |
OCI (effective portion) | income (effective portion) | from AOCI | (ineffective portion | (ineffective portion and |
| | (effective portion) | and amount excluded from | amount excluded from |
| | | effectiveness testing) | effectiveness testing) |
Cross currency swaps | | $ | 6.5 | | | Other income (expense), net | | $ | — | | | Other income (expense), net | | $ | — | |
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Total | | $ | 6.5 | | | | | $ | — | | | | | $ | — | |
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For the Six Months Ended June 30, 2014 | | | | | | | | | | |
Derivatives in fair value hedge relationships | | Amount of gain (loss) recognized in income on derivative | | Location of gain (loss) | | | | | | | | | | |
recognized in income | | | | | | | | | | |
Interest rate swaps | | $ | 1.2 | | | Interest expense, net | | | | | | | | | | |
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Total | | $ | 1.2 | | | | | | | | | | | | | |
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For the Six Months Ended June 29, 2013 |
Derivatives in cash flow hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized | reclassified from AOCI into | (loss) recognized | recognized in income on | recognized in income |
in OCI on | income (effective portion) | from AOCI on | derivative (ineffective portion | on derivative |
derivative | | derivative | and amount excluded from | (ineffective portion and |
(effective | | (effective portion) | effectiveness testing) | amount excluded from |
portion) | | | | effectiveness testing) |
Forward starting interest rate swaps | | $ | — | | | Interest expense, net | | $ | (0.8 | ) | | Interest expense, net | | $ | — | |
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Foreign currency forwards | | 23.7 | | | Other income (expense), net | | 0.4 | | | Other income (expense), net | | — | |
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| | | | | Cost of goods sold | | 1.7 | | | Cost of goods sold | | — | |
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Commodity swaps | | — | | | Cost of goods sold | | — | | | Cost of goods sold | | — | |
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Total | | $ | 23.7 | | | | | $ | 1.3 | | | | | $ | — | |
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For the Six Months Ended June 29, 2013 |
Derivatives and non-derivative financial instruments in net investment hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized in | reclassified from AOCI into | (loss) recognized | recognized in income | recognized in income |
OCI (effective portion) | income (effective portion) | from AOCI | (ineffective portion | (ineffective portion and |
| | (effective portion) | and amount excluded from | amount excluded from |
| | | effectiveness testing) | effectiveness testing) |
Cross currency swaps | | $ | 29.5 | | | Other income (expense), net | | $ | — | | | Other income (expense), net | | $ | — | |
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€120 million term loan due 2016 | | 2 | | | Other income (expense), net | | — | | | Other income (expense), net | | — | |
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Total | | $ | 31.5 | | | | | $ | — | | | | | $ | — | |
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During the periods presented we recorded no significant ineffectiveness related to these cash flow, net investment and fair value hedges. |
We expect net gains of approximately $8 million (pre-tax) recorded in AOCI at June 30, 2014, will be reclassified into earnings within the next 12 months. For derivatives designated in cash flow hedge relationships, the maximum length of time over which forecasted transactions are hedged at June 30, 2014, is 3.8 years. |
Other Derivatives (in millions) |
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For the Three Months Ended June 30, 2014 | | | | | | | | | | |
Derivatives not in hedging relationships | | Location of gain (loss) recognized in | | Amount of gain (loss) recognized in | | | | | | | | | | |
income on derivative | income on derivative | | | | | | | | | | |
Commodity swaps | | Cost of goods sold | | $ | 0.7 | | | | | | | | | | | |
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Total | | | | $ | 0.7 | | | | | | | | | | | |
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For the Three Months Ended June 29, 2013 | | | | | | | | | | |
Derivatives not in hedging relationships | | Location of gain (loss) recognized in | | Amount of gain (loss) recognized in | | | | | | | | | | |
income on derivative | income on derivative | | | | | | | | | | |
Equity conversion feature of debt | | Interest expense, net | | $ | 3.2 | | | | | | | | | | | |
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| | Other income (expense), net | | (0.5 | ) | | | | | | | | | | |
Commodity Swaps | | Cost of goods sold | | (1.5 | ) | | | | | | | | | | |
Foreign currency forwards | | Other income (expense), net | | 3.9 | | | | | | | | | | | |
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Total | | | | $ | 5.1 | | | | | | | | | | | |
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For the Six Months Ended June 30, 2014 | | | | | | | | | | |
Derivatives not in hedging relationships | | Location of gain (loss) recognized in | | Amount of gain (loss) recognized in | | | | | | | | | | |
income on derivative | income on derivative | | | | | | | | | | |
Commodity swaps | | Cost of goods sold | | $ | (0.6 | ) | | | | | | | | | | |
Total | | | | $ | (0.6 | ) | | | | | | | | | | |
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For the Six Months Ended June 29, 2013 | | | | | | | | | | |
Derivatives not in hedging relationships | | Location of gain (loss) recognized in | | Amount of gain (loss) recognized in | | | | | | | | | | |
income on derivative | income on derivative | | | | | | | | | | |
Equity conversion feature of debt | | Interest expense, net | | $ | (26.5 | ) | | | | | | | | | | |
| | Other income (expense), net | | (0.3 | ) | | | | | | | | | | |
Commodity Swaps | | Cost of goods sold | | (1.5 | ) | | | | | | | | | | |
Foreign currency forwards | | Other income (expense), net | | (6.7 | ) | | | | | | | | | | |
Total | | | | $ | (35.0 | ) | | | | | | | | | | |