11.

DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

We use derivative financial instruments, including forward foreign exchange and interest rate swap contracts, to manage our exposure to fluctuations in foreign exchange rates and interest rates. The use of these financial instruments mitigates our exposure to these risks and the variability of our operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes.

We formally document our hedge relationships, including the identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivatives that are designated as hedges of specific assets, liabilities, firm commitments or forecasted transactions. We also formally assess, both at inception and at least quarterly thereafter, whether a derivative used in a hedging transaction is highly effective in offsetting changes in either the fair value or cash flows of the hedged item. When it is determined that a derivative ceases to be a highly effective hedge, we discontinue hedge accounting. Hedge ineffectiveness did not have a material impact on operations for the years ended December 31, 2011, 2010 or 2009.

Fair value is generally determined based on quoted market prices in active markets for identical assets or liabilities. If quoted market prices are not available, we use valuation techniques that place greater reliance on observable inputs and less reliance on unobservable inputs. In measuring fair value, we may make adjustments for risks and uncertainties, if a market participant would include such an adjustment in its pricing.

FASB ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that distinguishes between assumptions based on market data, referred to as observable inputs, and our assumptions, referred to as unobservable inputs. Determining where an asset or liability falls within that hierarchy depends on the lowest level input that is significant to the fair value measurement as a whole. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. The hierarchy consists of three broad levels as follows:

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Level 1: Quoted market prices in active markets for identical assets and liabilities;

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Level 2: Inputs other than level 1 inputs that are either directly or indirectly observable; and

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Level 3: Unobservable inputs developed using internal estimates and assumptions, which reflect those that market participants would use.

Derivatives financial instruments are recorded at fair value in the consolidated balance sheets. The fair values of our interest rate swap contracts and foreign exchange contracts are determined based on third-party valuation models and observable foreign exchange forward contract rates, respectively, both of which represent Level 2 fair value inputs. The notional amounts and fair values of the derivative instruments measured on a recurring basis in the consolidated balance sheets were as follows:


	Notional Amounts				Fair Values
(in millions of U.S. Dollars)	December 31, 2011		December 31, 2010		December 31, 2011			December 31, 2010			Balance Sheet Location
Derivatives designated as cash flow hedging instruments:
Interest rate swap contract	$	186.3	$	300.0	$	(4.6	)	$	(4.6	)	Other non-current liabilities
Derivatives not receiving hedge accounting treatment:
Interest rate swap contract		140.0		—		(0.8	)		—		Accrued expenses
Foreign exchange contracts		11.7		11.4		(1.0	)		0.7		Accrued expenses/Prepaid expenses and other

Total derivative financial instruments	$	338.0	$	311.4	$	(6.4	)	$	(3.9	)

The following table summarizes the impact of derivative instruments on the consolidated financial statements:


	Year Ended December 31,
	2011			2010			2009		2011			2010			2009			2011			2010			2009
(in millions of U.S. Dollars)	Amount of Pre-Tax Gain (Loss) Recognized in Earnings on Derivatives*								Amount of Pre-Tax Gain (Loss) Recognized in OCI on Derivatives									Amount of Pre-Tax Loss Reclassified from AOCI into Earnings*
Derivatives designated as cash flow hedging instruments:
Interest Rate Swap Contracts	$	—		$	—		$	—	$	(5.0	)	$	(5.4	)	$	0.8		$	(5.0	)	$	—		$	—
Foreign Exchange Contracts		—			—			—		—			—			—			—			—			(1.6	)

Total	$	—		$	—		$	—	$	(5.0	)	$	(5.4	)	$	0.8		$	(5.0	)	$	—		$	(1.6	)

Derivatives not receiving hedge accounting treatment:
Interest Rate Swap Contracts	$	—		$	(1.4	)	$	9.5	$	—		$	—		$	2.6	**	$	—		$	(17.3	)	$	(14.6	)
Foreign Exchange Contracts		(1.7	)		0.3			0.4		—			—			—			—			—			—

Total	$	(1.7	)	$	(1.1	)	$	9.9	$	—		$	—		$	2.6		$	—		$	(17.3	)	$	(14.6	)

*	Amount recognized in earnings related to interest rate swap contracts is included in Interest expense and amounts recognized in earnings related to foreign exchange contracts is included in Cost of sales.

**	Represents amount recognized in OCI during the first quarter of 2009 related to interest rate swaps for which hedge accounting was discontinued on April 1, 2009; however, these derivative financial instruments were effective as cash flow hedges until that date.

Interest Rates Swaps

During the second quarter of 2007, we entered into interest rate swap agreements with an aggregate notional principal amount of $480.0 million. These interest rate swaps effectively fixed three-month LIBOR at 5.045%, for a then-effective interest rate of 6.795%, including the applicable margin, for $480.0 million of our variable rate debt under our Prior Senior Secured Credit Facility. In February 2009, we reduced the notional principal amount of the interest rate swaps by $32.8 million and paid termination fees of approximately $2.6 million. The termination fees, or deferred losses, related to the terminated portion of the swaps were amortized to interest expense over the original life of the interest rate swaps, through December 31, 2010. As a result of the reduced notional amount of the swaps, three-month LIBOR was effectively fixed at 5.026%, for a then-effective interest rate of 6.776%, including the applicable margin. We initially designated the swaps as hedging instruments and recorded changes in the fair value of these interest rate swaps as a component of accumulated other comprehensive income. We discontinued cash flow hedge accounting treatment for the interest rate swap agreements effective April 1, 2009. The deferred losses on the interest rate swaps previously charged to accumulated other comprehensive income were amortized to interest expense and subsequent changes in the fair value of the swaps were recognized in earnings as a component of interest expense until the swaps expired on December 31, 2010.

On December 17, 2009, we entered into an interest rate swap agreement with an initial notional amount of $300.0 million to fix three-month LIBOR at 2.005%, for an effective rate of 4.255%, including the applicable margin, for $300.0 million of our variable rate debt under our Prior Senior Secured Credit Facility. The effective date of this agreement was December 31, 2010. The notional amount of $300.0 million amortizes by $40.0 million at the end of every quarter until it reaches $100.0 million for the quarter ended June 30, 2012, the expiration date. The swap was designated as, and qualified as, a cash flow hedge through the termination of the Prior Senior Secured Credit Facility on June 27, 2011. During the year ended December 31, 2011, as a result of the termination of the Prior Senior Secured Credit Facility, pre-tax losses of $2.6 million were reclassified from accumulated other comprehensive income to earnings as a component of interest expense. This interest rate swap remains in effect and subsequent changes in the fair value of this swap will be recognized in earnings as a component of interest expense until the swap expires.

On July 6, 2011, we entered into an interest rate swap agreement with an initial notional amount of $186.3 million. The effective date of this agreement is June 30, 2012, the expiration date of our existing interest rate swap. Under the swap agreement, we are required to make quarterly payments at a fixed interest rate of 1.8695% per annum to the counterparty on an amortizing notional amount in exchange for receiving variable payments based on the three-month LIBOR interest rate for the same notional amount. After giving effect to the swap agreement, our effective interest rate for the notional amount, based on the current applicable margin under the Senior Secured Credit Facility of 1.75% per annum, will be 3.6195% per annum. The initial notional amount of $186.3 million amortizes quarterly by (i) $2,812,500 from the effective date through the quarter ended September 30, 2013, (ii) $5,625,000 from September 30, 2013 through the quarter ended September 30, 2014, and (iii) $8,437,500 from September 30, 2014 until June 30, 2015, the expiration date of the agreement. The swap is designated as and qualifies as a cash flow hedge.

Foreign Currency

Currencies to which we have exposure are the Mexican peso, Canadian dollar, British pound, Polish zloty and Euro. Currency restrictions are not expected to have a significant effect on our cash flows, liquidity, or capital resources. We purchase the Mexican peso and Polish zloty under two to twelve-month forward foreign exchange contracts to stabilize the cost of production. As of December 31, 2011, we had commitments to purchase $10.8 million in Mexican pesos and $0.9 million in Polish zlotys over the next year.

Long-Term Debt

The estimated fair market value of our long-term debt was $25.0 million below carrying value and $10.6 million above carrying value as of December 31, 2011 and 2010, respectively. Our 2021 Notes are traded in an active market with the fair value determined based on quoted active market prices. Borrowings under our Senior Secured Credit Facility are not traded in an active market and are valued based on an implied price derived from industry averages and relative loan performance. Our 2015 Notes were traded in an active market with the fair value determined based on quoted active market prices. Borrowings under our Senior Secured Term Loan B and Senior Secured Delayed Draw Term Loan were not traded in an active market and were valued based on an implied price derived from industry averages and relative loan performance.

Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate fair value due to the near-term maturity of these instruments.