Derivatives:

Objectives and Strategies for Using Derivative Instruments

Commodity Price Risk

We utilize a cash flow hedging program to mitigate our exposure to volatility in the prices of metal commodities used in our production processes. The hedging program includes the use of futures contracts, which we enter into using a dollar cost average hedging strategy. As part of this strategy, a higher percentage of commodity price exposures are hedged near term with lower percentages hedged at future dates. This strategy provides us with protection against near-term price volatility while allowing us to adjust to market price movements over time. Upon entering into futures contracts, we lock in prices and are subject to derivative losses should the metal commodity prices decrease and gains should the prices increase.

Interest Rate Risk

A portion of our debt bears interest at variable interest rates, and therefore, we are subject to variability in the cash paid for

interest. In order to mitigate a portion of the risk, we used an interest rate swap hedging strategy to eliminate the variability of cash flows in the interest payments associated with the first $100 million of the total variable-rate debt outstanding under our revolving credit facility that is solely due to changes in the benchmark interest rate. This strategy allowed us to fix a portion of our variable interest payments. Under the terms of the interest rate swap, the variable portion of the interest rate swap was tied to the 1-Month LIBOR (the benchmark interest rate). On a monthly basis, the interest rates for both the interest rate swap and the underlying debt were reset, the swap was settled with the counterparty, and the interest was paid. The interest rate swap was accounted for as a cash flow hedge. On October 12, 2012, our interest rate swap expired and, subsequently, we were no longer hedged against interest rate risk.

Foreign Currency Risk

Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of assets and liabilities arising in foreign currencies. Our objective for entering into foreign currency forward contracts is to mitigate the impact of short-term currency exchange rate movements on certain short-term intercompany transactions. In order to meet that objective, we periodically enter into foreign currency forward contracts that act as economic hedges against changes in foreign currency exchange rates. These forward contracts are not designated as hedges and generally expire during the quarter that we enter into them. By entering into these forward contracts, we lock in exchange rates that would otherwise cause losses should the U.S. dollar appreciate and gains should the U.S. dollar depreciate.

Cash Flow Hedges

We include gains or losses in accumulated other comprehensive income (“AOCI”) in connection with our commodity cash flow hedges. The gains or losses related to commodity price hedges are expected to be reclassified into earnings within the next 18 months based on the prices of the commodities at the settlement dates. Assuming that commodity prices remain constant, $0.9 million of derivative gains are expected to be reclassified into earnings within the next 12 months. Commodity futures contracts that are designated as cash flow hedges and that are in place as of December 31, 2012 are scheduled to mature through June 2014.

Before our interest rate swap expired on October 12, 2012, we also included gains or losses in AOCI. As of December 31, 2012, all previous derivative gains and losses included in AOCI had been reclassified into earnings.

We recorded the following amounts related to our cash flow hedges (in millions):



	As of December 31,
	2012			2011
Commodity Price Hedges:
(Gains) losses included in AOCI, net of tax	$	(1.1	)	$	6.1
Expense for (benefit from) income taxes	0.7			(3.5		)
Interest Rate Swap:
Losses included in AOCI, net of tax	$	—		$	1.1
Benefit from income taxes	—			(0.6		)

We had the following outstanding commodity futures contracts designated as cash flow hedges (in millions):



	As of December 31,
	2012	2011
	(pounds)	(pounds)
Copper	22.8	23.3

Derivatives not Designated as Cash Flow Hedges

For commodity derivatives not designated as cash flow hedges, we follow the same hedging strategy as derivatives designated as cash flow hedges except that we elect not to designate these derivatives as cash flow hedges at the inception of the arrangement. We had the following outstanding commodity futures contracts not designated as cash flow hedges (in millions):



	As of December 31,
	2012	2011
	(pounds)	(pounds)
Copper	2.1	2.8
Aluminum	2.8	3.0

We had the following outstanding foreign currency forward contracts not designated as cash flow hedges (in millions):



	As of December 31,
	2012	2011
Notional amounts:
Brazilian Real	10.8	4.5
Mexican Peso	220.2	199.0
Euro	1.3	7.8
British Pound	5.4	6.5
Indian Rupee	19.5	—
Polish Zloty	12.4	—

Information About the Locations and Amounts of Derivative Instruments

The following table provides the locations and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and losses in the Consolidated Statements of Operations (in millions):



	Fair Values of Derivative Instruments⁽¹⁾
	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
	As of December 31,				As of December 31,
	2012		2011		2012		2011
Current Assets:
Other Assets
Commodity futures contracts	$	1.6	$	—	$	0.2	$	—
Foreign currency forward contracts	—		—		0.1		1.2
Non-Current Assets:
Other Assets, net
Commodity futures contracts	0.3		0.1		—		—
Total Assets	$	1.9	$	0.1	$	0.3	$	1.2
Current Liabilities:
Accrued Expenses
Commodity futures contracts	$	—	$	9.4	$	—	$	1.8
Interest rate swap	—		1.8		—		—
Foreign currency forward contracts	—		—		0.1		0.1
Non-Current Liabilities:
Other Liabilities
Commodity futures contracts	—		0.3		—		0.2
Interest rate swap	—		—		—		—
Total Liabilities	$	—	$	11.5	$	0.1	$	2.1

⁽¹⁾ All derivative instruments are classified as Level 2 within the fair value hierarchy. See Note 20 for more information.



Derivatives in Cash Flow Hedging Relationships
	For the Years Ended December 31,
	2012			2011			2010
Amount of Loss (Gain) Reclassified from AOCI into Income (Effective Portion):
Commodity futures contracts⁽¹⁾	$	6.0		$	(12.1	)	$	(11.2	)
Interest rate swap⁽²⁾	1.9			2.5			2.4
	$	7.9		$	(9.6	)	$	(8.8	)
Amount of (Gain) Loss Recognized in Income on Derivatives (Ineffective Portion):
Commodity futures contracts⁽³⁾	$	(0.1	)	$	0.1		$	(0.4	)



Derivatives Not Designated as Hedging Instruments
	For the Years Ended December 31,
	2012			2011		2010
Amount of (Gain) Loss Recognized in Income on Derivatives:
Commodity futures contracts⁽³⁾	$	(0.5	)	$	3.5	$	(1.7	)
Foreign currency forward contracts⁽³⁾	0.4			0.3		(0.2		)
	$	(0.1	)	$	3.8	$	(1.9	)

⁽¹⁾ The loss (gain) is recorded in Cost of goods sold in the accompanying Consolidated Statements of Operations.

⁽²⁾ The loss is recorded in Interest expense, net in the accompanying Consolidated Statements of Operations.

⁽³⁾ The (gain) loss is recorded in Losses and other expenses, net in the accompanying Consolidated Statements of Operations.