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Derivative Instruments
9 Months Ended
Sep. 30, 2011
Derivative Instruments [Abstract] 
Derivative Instruments
(11) Derivative Instruments:

During 2011, the Company entered into nickel swaps indexed to the LME price of nickel with a third-party broker. The nickel swaps are treated as derivatives for accounting purposes. The Company entered into them to mitigate the risk of volatility in the price of nickel. The nickel swaps vary in length from one to fifteen months and are settled with the broker at maturity. The economic benefit or loss arising from the changes in fair value of the swaps is contractually passed through to the customer. The primary risk associated with the nickel swaps is the ability of our customer to honor its agreement with the Company related to derivative instruments. If the customer is unable to honor its agreement, the Company’s risk of loss is the fair value of the nickel swap.

CTI entered into an interest rate swap to reduce the impact of changes in interest rates on its IRB. The swap agreement matures April 2018, the same time as the IRB, but is reduced annually by the amount of the principal payments on the IRB. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreement. However, the Company does not anticipate nonperformance by the counterparties. The interest rate swap is not treated as a hedge for accounting purposes.

 

While these derivatives are intended to help the Company manage risk, they have not been designated as hedging instruments. The periodic changes in fair value of the nickel and embedded customer derivative instruments are included in “Cost of materials sold” in the Consolidated Statement of Operations. We recognize derivative positions with both the customer and the third party for the derivatives and we classify cash settlement amounts associated with them as part of “Cost of materials sold” in the Consolidated Statements of Operations. The periodic changes in fair value of the interest rate swap are included in “Other income and expense, net” in the Consolidated Statement of Operations. Cash settlement amounts associated with the interest rate swap are included in “Interest and other expense on debt” in the Consolidated Statements of Operations.

The embedded customer derivatives are included in “Accounts receivable, net”, and the nickel and interest rate swaps are included in “Other accrued liabilities” and “Other long-term liabilities” on the Consolidated Balance Sheet at September 30, 2011.

As of September 30, 2011, we had paid $63 thousand of net derivative losses that we had not yet settled under the embedded customer derivative agreement. Settlement of these assets is expected to occur during the fourth quarter of 2011. There was no net impact from the nickel swaps or embedded customer derivative agreements to the Company’s Consolidated Statement of Operations for the three or nine months ended September 30, 2011. The table below shows the total impact to the Company’s Consolidated Statement of Operations of the derivatives for the three and nine months ended September 30, 2011.

 

                 
    Net Gain (Loss) Recognized  
  Three Months Ended
September 30, 2011		     Nine Months Ended
September 30, 2011		  
(in thousands)            
Interest rate swap   $ (80 )    $ (80 ) 
Nickel swaps     (973 )      901  
Embedded customer derivatives     973       (901 ) 
   

 

 

    

 

 

  
Total   $ (80 )    $ (80 )