Derivatives

9 Months Ended

Sep. 30, 2011

Derivatives [Abstract]

Derivatives

5. 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. We enter into these contracts based on our hedging strategy, a dollar cost averaging 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. 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 cash paid for interest expense. In order to mitigate a portion of the risk, we use a hedging strategy to eliminate the variability of cash flows in the interest payments associated with the first $100 million outstanding under our revolving credit facility that is solely due to changes in the benchmark interest rate. This strategy allows us to fix a portion of our variable interest payments.

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 within three months. 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 from our commodity cash flow hedges in accumulated other comprehensive income (“AOCI”). The gains or losses related to commodity price hedges are expected to be reclassified into earnings based on the prices of the commodities at the settlement dates. Assuming that commodity prices remain constant, $8.8 million of derivative losses are expected to be reclassified into earnings within the next 12 months. Commodity futures contracts that are designated as cash flow hedges and are in place as of September 30, 2011 are scheduled to mature through February 2013.

     We also include gains or losses in AOCI from our $100 million pay-fixed, receive-variable interest rate swap with a financial institution at a fixed interest rate of 2.66%. The variable portion of the interest rate swap is tied to 1-Month LIBOR (the benchmark interest rate). On a monthly basis, the interest rates under both the interest rate swap and the underlying debt are reset, the swap is settled with the counterparty, and interest is paid. Assuming that the interest rate environment remains constant, $1.4 million of derivative losses are expected to be reclassified into earnings within the next 12 months. The interest rate swap expires October 12, 2012.

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

	As of			As of
	September 30,			December 31,
	2011			2010
Commodity Price Hedges:
Losses (gains) included in AOCI, net of tax	$	10.0		$	(11.7	)
(Benefit from) provision for income taxes		(5.7	)		6.7
Interest Rate Swap:
Losses included in AOCI, net of tax	$	1.5		$	2.3
Benefit from income taxes		(0.8	)		(1.3	)

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

	As of
	September 30,		As of December 31,
	2011		2010
	(pounds)		(pounds)
Copper		20.4		18.5

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. 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		As of
	September 30,		December 31,
	2011		2010
	(pounds)		(pounds)
Copper		2.8		1.4
Aluminum		2.6		1.4

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

	As of		As of
	September 30,		December 31,
	2011		2010
Notional amounts:
Brazilian Real		3.6		5.6
Mexican Peso		170.0		138.0
Euros		7.8		15.6
British Pounds		7.0		2.0

Information About the Location and Amounts of Derivative Instruments

     The following table provides the location 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				Derivatives Not Designated as
	Hedging Instruments				Hedging Instruments
	As of September 30,		As of December 31,		As of September 30,		As of December 31,
	2011		2010		2011		2010
Current Assets:
Other Assets
Commodity futures contracts	$	—	$	17.4	$	—	$	1.4
Foreign currency forward contracts		—		—		0.5		0.2
Non-Current Assets:
Other Assets, net
Commodity futures contracts		—		1.3		—		0.1
Total Assets	$	—	$	18.7	$	0.5	$	1.7
Current Liabilities:
Accrued Expenses
Commodity futures contracts	$	13.9	$	—	$	2.9	$	—
Interest rate swap		2.1		2.2		—		—
Foreign currency forward contracts		—		—		0.1		—
Non-Current Liabilities:
Other Liabilities
Commodity futures contracts		1.8		—		0.2		—
Interest rate swap		0.2		1.4		—		—
Total Liabilities	$	18.0	$	3.6	$	3.2	$	—

(1) All our derivative instruments are classified as Level 2 within the fair value hierarchy. For more information on other fair value measurements, see Note 16.

	Derivatives in Cash Flow Hedging Relationships
	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Amount of Loss or (Gain) Reclassified from AOCI into Income (Effective Portion):
Commodity futures contracts(1)	$	(2.9	)	$	(1.4	)	$	(12.8	)	$	(9.0	)
Interest rate swap(2)		0.6			0.6			1.9			1.8
	$	(2.3	)	$	(0.8	)	$	(10.9	)	$	(7.2	)
Amount of (Gain) or Loss Recognized in Income on Derivatives (Ineffective Portion):
Commodity futures contracts(3)	$	0.1		$	(0.3	)	$	0.1		$	(0.4	)

	Derivatives Not Designated as Hedging Instruments
	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011		2010
Amount of (Gain) or Loss Recognized in Income on Derivatives:
Commodity futures contracts(3)	$	3.3		$	(1.3	)	$	3.8	$	(0.7	)
Foreign currency forward contracts(3)		(0.4	)		0.7			0.9		(0.1	)
	$	2.9		$	(0.6	)	$	4.7	$	(0.8	)

(1)	The loss (gain) is recorded in Cost of goods sold in the accompanying Consolidated Statements of Operations.
(2)	The loss (gain) is recorded in Interest expense, net in the accompanying Consolidated Statements of Operations.
(3)	The loss (gain) is recorded in Losses and other expenses, net in the accompanying Consolidated Statements of Operations.