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Financial Instruments
 12 Months Ended
Dec. 31, 2012
Financial Instruments [Abstract]  
Financial Instruments

9 FINANCIAL INSTRUMENTS

     We use derivative financial instruments for the purpose of hedging margin exposure from fixed-price forward sales contracts in Aluminum Extrusions and currency exchange rate exposures that exist as part of ongoing business operations (primarily in Film Products). Our derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the consolidated balance sheet at fair value. The fair value of derivative instruments recorded on the consolidated balance sheets are based upon Level 2 inputs. If individual derivative instruments with the same counterparty can be settled on a net basis, we record the corresponding derivative fair values as a net asset or net liability.

     In the normal course of business, we enter into fixed-price forward sales contracts with certain customers for the future sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge our margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, we enter into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled purchases for the firm sales commitments. The fixed-price firm sales commitments and related hedging instruments generally have durations of not more than 12 months, and the notional amount of aluminum futures contracts that hedged future purchases of aluminum to meet fixed-price forward sales contract obligations was $6.2 million (6.7 million pounds of aluminum) at December 31, 2012 and $10.8 million (11.0 million pounds of aluminum) at December 31, 2011.

     The table below summarizes the location and gross amounts of aluminum derivative contract fair values in the consolidated balance sheets as of December 31, 2012 and 2011:

  December 31, 2012 December 31, 2011
  Balance Sheet   Fair Balance Sheet   Fair
(In Thousands) Account   Value Account   Value
 
Derivatives Designated as Hedging Instruments            
Asset derivatives: Prepaid expenses          
Aluminum futures contracts and other $ 226 Accrued expenses $ 21
Liability derivatives: Prepaid expenses          
Aluminum futures contracts and other $ 88 Accrued expenses $ 677
Derivatives Not Designated as Hedging Instruments            
Asset derivatives:            
Aluminum futures contracts   $ - Accrued expenses $ 18
Liability derivatives:            
Aluminum futures contracts   $ - Accrued expenses $ 18

     In the event that a counterparty to an aluminum fixed-price forward sales contract chooses not to take delivery of its aluminum extrusions, the customer is contractually obligated to compensate us for any losses on the related aluminum futures and/or forward purchase contracts through the date of cancellation. The offsetting asset and liability positions for derivatives not designated as hedging instruments included in the table above are associated with the unwinding of aluminum futures contracts that relate to such cancellations.

     We have future fixed Euro-denominated contractual payments for equipment being purchased as part of our multi-year capacity expansion project at our film products manufacturing facility in Cabo de Santo Agostinho, Brazil. We are using fixed rate Euro forward contracts with various settlement dates through November 2013 to hedge exchange rate exposure on these obligations. We had fixed rate forward contracts with outstanding notional amounts of €9.9 million as of December 31, 2012 (none at December 31, 2011).

     The table below summarizes the location and gross amounts of foreign currency forward contract fair values in the consolidated balance sheets as of December 31, 2012 (none at December 31, 2011):

  December 31, 2012
  Balance Sheet   Fair
(In Thousands) Account   Value
Derivatives Designated as Hedging Instruments      
Asset derivatives: Prepaid expenses    
Foreign currency forward contracts and other $ 948

 

     We receive Euro-based royalty payments relating to our operations in Europe. From time to time we use zero-cost collar currency options to hedge a portion of our exposure to changes in cash flows due to variability in U.S. Dollar and Euro exchange rates. There were no outstanding notional amounts on these collars at December 31, 2012 and 2011 as there were no derivatives outstanding related to the hedging of royalty payments with currency options.

     The counterparties to our forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to our aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available to our best and most credit-worthy customers. The counterparties to our foreign currency futures and zero-cost collar contracts are major financial institutions.

     The pretax effect on net income (loss) and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for years ended December 31, 2012, 2011, and 2010 is summarized in the tables below:

(In Thousands) Cash Flow Derivative Hedges
  Aluminum Futures Contracts Foreign Currency Forwards and Options
Years Ended December 31,   2012     2011     2010     2012   2011   2010  
Amount of pre-tax gain (loss) recognized in                                
other comprehensive income $ (232 ) $ (802 ) $ (102 ) $ 1,421 $ - $ (284 )
Location of gain (loss) reclassified from                             Selling,  
accumulated other comprehensive income   Cost of     Cost of     Cost of           general and  
into net income (effective portion)   sales     sales     sales           admin. exp.  
Amount of pre-tax gain (loss) reclassified                                
from accumulated other comprehensive                                
income to net income (effective portion) $ (1,026 ) $ 308   $ 641   $ - $ - $ (271 )

 

     Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as hedging instruments were not significant in 2012, 2011 and 2010. For the years ended December 31, 2012, 2011 and 2010, unrealized net losses from hedges that were discontinued were not significant. As of December 31, 2012, we expect $0.1 million of unrealized after-tax gains on derivative instruments reported in accumulated other comprehensive income to be reclassified to earnings within the next 12 months.