Derivative Instruments and Hedging Activities

Our risk management and derivative accounting policies are presented in Notes 1 and 18 of the Notes included in our Annual Report and did not significantly change during the first quarter of 2012.

Significant Derivative/Hedge Positions

Cross Currency Swaps

We historically designated the cross currency swap contracts as cash flow hedges of the variability of cash flows related to British Pound ("GBP") denominated principal and interest payments on intercompany notes of GBP 530 million. In September 2011, we cash settled approximately 25% of our GBP 530 million/$774 million and CAD 1.2 billion/GBP 530 million cross currency swaps. As a result of the settlement, we extinguished $98.7 million of the outstanding liability. Simultaneously with the settlement of the swaps, we paid down an equal portion of the outstanding principal of the intercompany notes in the amount of GBP 132 million.

In October 2011, we simultaneously extended both the terms of approximately half of the original intercompany notes and cross currency swaps, such that the new maturities are March 2014. The remaining approximate 25% was left unadjusted and continued to be due in May 2012. Following this extension, in November 2011, we dedesignated all of the remaining swaps as cash flow hedges and designated the aggregate swaps as a net investment hedge of our Canadian business.

In March 2012, we cash settled the remaining approximate 25% of our original cross currency swaps that was not refinanced in October 2011 as discussed above. As a result of the settlement, we extinguished $110.6 million of the outstanding liability, resulting in a net liability of $220.1 million classified as non-current at March 31, 2012.

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. As of March 31, 2012, and December 31, 2011, these adjustments resulted in deferred net gains in AOCI of $1.1 million and $1.1 million, respectively, as the fair value of our derivatives were in net liability positions at both period ends.

The table below summarizes our derivative assets and liabilities that were measured at fair value as of March 31, 2012, and December 31, 2011.



				March 31, 2012
	Total at March 31, 2012			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
	(In millions)
Cross currency swaps	$	(220.1	)	$	—	$	(220.1	)	$	—
Foreign currency forwards	(4.4		)	—		(4.4		)	—
Commodity swaps	(5.3		)	—		(5.3		)	—
Total	$	(229.8	)	$	—	$	(229.8	)	$	—



				December 31, 2011
	Total at December 31, 2011			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
	(In millions)
Cross currency swaps	$	(311.9	)	$	—	$	(311.9	)	$	—
Foreign currency forwards	2.2			—		2.2			—
Commodity swaps	(6.9		)	—		(6.9		)	—
Total	$	(316.6	)	$	—	$	(316.6	)	$	—

During 2011, we settled all of our option contracts that were classified as Level 3. As of March 31, 2012, we had no significant transfers between Level 1 and 2. New derivative contracts transacted during the first quarter of 2012 are 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 Condensed Consolidated Balance Sheets as of March 31, 2012, and December 31, 2011, and the Condensed Consolidated Statements of Operations for the quarters ended March 31, 2012, and March 26, 2011.

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)



	March 31, 2012
			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	601.3	Other current assets	$	—	Current derivative hedging instruments	$	—
			Other assets	—		Long term derivative hedging instruments	(220.1		)
Foreign currency forwards	USD	440.2	Other current assets	1.5		Current derivative hedging instruments	(6.0		)
			Other assets	2.1		Long term derivative hedging instruments	(2.0		)
Commodity swaps	Gigajoules	1.3	Other current assets	0.5		Current derivative hedging instruments	(1.4		)
			Other assets	0.1		Long term derivative hedging instruments	(0.3		)
Total derivatives designated as hedging instruments				$	4.2		$	(229.8	)
Derivatives not designated as hedging instruments:
Aluminum swaps	Metric tonnes (actual)	7,750.0	Other current assets	$	—	Current derivative hedging instruments	$	(3.4	)
			Other assets	—		Long term derivative hedging instruments	—
Diesel swaps	Metric tonnes (actual)	8,050.0	Other current assets	—		Current derivative hedging instruments	(0.6		)
			Other assets	—		Long term derivative hedging instruments	(0.2		)
Total derivatives not designated as hedging instruments				$	—		$	(4.2	)



	December 31, 2011
			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	901.3	Other current assets	$	—	Current derivative hedging instruments	$	(103.2	)
			Other assets	—		Long term derivative hedging instruments	(208.7		)
Foreign currency forwards	USD	464.6	Other current assets	—		Current derivative hedging instruments	(1.3		)
			Other assets	3.4		Long term derivative hedging instruments	—
Commodity swaps	Gigajoules	2.2	Other current assets	—		Current derivative hedging instruments	(1.8		)
			Other assets	—		Long term derivative hedging instruments	(0.5		)
Total derivatives designated as hedging instruments				$	3.4		$	(315.5	)
Derivatives not designated as hedging instruments:
Aluminum swaps	Metric tonnes (actual)	8,825.0	Other current assets	$	—	Current derivative hedging instruments	$	(1.3	)
			Other assets	—		Long term derivative hedging instruments	(3.3		)
Diesel swaps	Metric tonnes (actual)	9,668.0	Other current assets	0.1		Current derivative hedging instruments	—
Total derivatives not designated as hedging instruments				$	0.1		$	(4.6	)

MCBC allocates the current and non-current portion of each contract to the corresponding derivative account above.

The following summarizes the change in derivative related Accumulated other comprehensive income within the Condensed Consolidated Balance Sheet for the first quarter of 2012 (in millions):



Balance at December 31, 2011	$	1.7
Unrealized gain (loss) on derivative instruments	(27.2		)
Reclassification adjustment on derivative instruments	2.4
Tax benefit (expense)	8.8
Balance at March 31, 2012	$	(14.3	)

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations (in millions)



For the Thirteen Weeks Ended March 31, 2012
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Forward starting interest rate swaps	—			Interest expense, net	(0.4		)	Interest expense, net	—
Foreign currency forwards	8.0			Other income (expense), net	(0.6		)	Other income (expense), net	—
				Cost of goods sold	(1.1		)	Cost of goods sold	—
Commodity swaps	(1.3		)	Cost of goods sold	(0.3		)	Cost of goods sold	—
Total	$	6.7			$	(2.4	)		$	—



For the Thirteen Weeks Ended March 31, 2012
Derivatives in net investment hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)		Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)		Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Cross currency contracts	$	20.5	Other income (expense), net	$	—	Other income (expense), net	$	—
Total	$	20.5		$	—		$	—

Note: Amounts recognized in AOCI related to cash flow and net investment hedges are presented gross of taxes

During the period we recorded no significant ineffectiveness related to these cash flow and net investment hedges.



For the Thirteen Weeks Ended March 26, 2011
Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Cross currency swaps(1)	$	(3.1	)	Other income (expense), net	$	(23.5	)	Other income (expense), net	$	—
				Interest expense, net	(3.4		)	Interest expense, net	—
Forward starting interest rate swaps	0.3			Interest expense, net	(0.3		)	Interest expense, net	—
Foreign currency forwards	(8.7		)	Other income (expense), net	(1.7		)	Other income (expense), net	—
				Cost of goods sold	(2.4		)	Cost of goods sold	—
Commodity swaps	3.9			Cost of goods sold	0.2			Cost of goods sold	—
Total	$	(7.6	)		$	(31.1	)		$	—

Note: Amounts recognized in AOCI are presented gross of taxes


(1)	The foreign exchange gain (loss) component of these cross currency swaps is offset by the corresponding gain (loss) on the hedged forecasted transactions in Other income (expense), net and Interest expense, net.

During the period we recorded no significant ineffectiveness related to these cash flow hedges.

We expect net losses of approximately $5.8 million (pre-tax) recorded in AOCI at March 31, 2012 will be reclassified into earnings within the next 12 months. The maximum length of time over which forecasted transactions are hedged is three years, and such transactions relate to foreign exchange, interest rate and commodity exposures.

Other Derivatives (in millions)



For the Thirteen Weeks Ended March 26, 2011
Derivatives Not In Hedging Relationship	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
Cash settled total return swaps	Other income (expense), net	$	(0.6	)
Option contracts	Other income (expense), net	1.5
Foreign currency forwards	Other income (expense), net	(0.1		)
		$	0.8

For the Thirteen Weeks Ended March 31, 2012

Derivatives Not In Hedging Relationship

Location of Gain (Loss) Recognized in
Income on Derivative

Amount of Gain (Loss) Recognized in
Income on Derivative

Commodity swaps

Cost of goods sold