DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

We are exposed to market risks arising from adverse changes in foreign exchange rates and interest rates. We manage these risks through a variety of strategies which include the use of derivatives. Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others do not qualify or have not been designated as hedges and are marked to market through earnings. The notional amounts of derivative financial instruments and related fair values measured on a recurring basis and included in the condensed consolidated balance sheets were as follows:



	Notional Amounts				Fair Values
(in millions of U.S. dollars)	June 30, 2012		December 31, 2011		June 30, 2012			December 31, 2011			Balance Sheet Location
Derivatives designated as cash flow hedging instruments:
Interest rate swap contract	$	186.3	$	186.3	$	(6.2	)	$	(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	10.7		11.7		(0.1		)	(1.0		)	Accrued expenses
Total derivative financial instruments	$	197.0	$	338.0	$	(6.3	)	$	(6.4	)

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 following tables summarize the impact of derivative financial instruments on the condensed consolidated financial statements for the indicated periods:



	Three Months Ended
	June 30,
	2012			2011			2012			2011			2012		2011
(in millions of U.S. Dollars)	Amount of Pre-tax Loss Recognized in Earnings*						Amount of Pre-tax Loss Recognized in OCI						Amount of Pre-tax Loss Reclassified from AOCI into Earnings*
Derivatives designated as cash flow hedging instruments:
Interest rate swap contract	$	—		$	—		$	(0.9	)	$	(0.2	)	$	—	$	(3.7	)
Derivatives not receiving hedge accounting treatment:
Interest rate swap contracts	$	—		$	(0.1	)	$	—		$	—		$	—	$	—
Foreign exchange contracts	(0.2		)	(0.2		)	—			—			—		—
	$	(0.2	)	$	(0.3	)	$	(0.9	)	$	(0.2	)	$	—	$	(3.7	)



	Six Months Ended
	June 30,
	2012			2011			2012			2011			2012		2011
(in millions of U.S. Dollars)	Amount of Pre-tax Gain (Loss) Recognized in Earnings*						Amount of Pre-tax Loss Recognized in OCI						Amount of Pre-tax Loss Reclassified from AOCI into Earnings*
Derivatives designated as cash flow hedging instruments:
Interest rate swap contract	$	—		$	—		$	(1.6	)	$	(0.4	)	$	—	$	(5.0	)
Derivatives not receiving hedge accounting treatment:
Interest rate swap contracts	$	(0.1	)	$	(0.1	)	$	—		$	—		$	—	$	—
Foreign exchange contracts	0.9			—			—			—			—		—
	$	0.8		$	(0.1	)	$	(1.6	)	$	(0.4	)	$	—	$	(5.0	)


*	Amounts recognized in earnings related to interest rate swap contracts are included in interest expense in the unaudited condensed consolidated statements of income and amounts recognized in earnings related to foreign exchange contracts are included in cost of sales in the unaudited condensed consolidated statements of income.

Interest Rate Swaps

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 an equivalent portion 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 amortized by $40.0 million at the end of every quarter until it reached $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. Changes in the fair value of this swap subsequent to the termination of hedge accounting were recognized in earnings as a component of interest expense until expiration of the swap.

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 was June 30, 2012. 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 our Senior Secured Credit Facility, is 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 ending September 30, 2013, (ii) $5,625,000 from September 30, 2013 through the quarter ending 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 June 30, 2012, we had a commitment to purchase $10.2 million in Mexican pesos and $0.5 million in Polish zlotys over the next year.

Long-Term Debt

The estimated fair market value of our long-term debt was $14.3 million and $25.0 million below carrying value as of June 30, 2012 and December 31, 2011. Our 2021 Notes are traded in an active market with the fair value determined based on quoted active market prices, which represents a Level 1 fair value input. 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, which represent Level 3 fair value inputs.

Cash and Cash Equivalents

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