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Financial Instruments
 12 Months Ended
Dec. 31, 2013
Summary of Derivative Instruments [Abstract]  
Financial Instruments
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. 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 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 $8.0 million (8.4 million pounds of aluminum) at December 31, 2013 and $6.2 million (6.7 million pounds of aluminum) at December 31, 2012.
The table below summarizes the location and gross amounts of aluminum derivative contract fair values in the consolidated balance sheets as of December 31, 2013 and 2012:
 
December 31, 2013
 
December 31, 2012
(In Thousands)
Balance Sheet
Account
 
Fair
Value
 
Balance Sheet
Account
 
Fair
Value
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Asset derivatives:
Aluminum futures contracts
Accrued expenses
 
$
31

 
Prepaid expenses
and other
 
$
226

Liability derivatives:
Aluminum futures contracts
Accrued expenses
 
$
178

 
Prepaid expenses
and other
 
$
88

Net asset (liability)
 
 
$
(147
)
 
 
 
$
138


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 February 2014 to hedge exchange rate exposure on these obligations. We had fixed rate forward contracts with outstanding notional amounts of €2.1 million as of December 31, 2013 and €9.9 million as of December 31, 2012.
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, 2013 and 2012:
 
December 31, 2013
 
December 31, 2012
(In Thousands)
Balance Sheet
Account
 
Fair
Value
 
Balance Sheet
Account
 
Fair
Value
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Asset derivatives:
Foreign currency forward contracts
Prepaid expenses
and other
 
$
47

 
Prepaid expenses
and other
 
$
948

Net asset (liability)
 
 
$
47

 
 
 
$
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, 2013 and 2012 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, 2013, 2012, and 2011 is summarized in the tables below:
(In Thousands)
Cash Flow Derivative Hedges
 
Aluminum Futures Contracts
 
Foreign Currency Forwards and Options
Years Ended December 31,
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Amount of pre-tax gain (loss) recognized in other comprehensive income
$
(868
)
 
$
(232
)
 
$
(802
)
 
$
(77
)
 
$
1,421

 
$
—

Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion)
Cost of
sales

 
Cost of
sales

 
Cost of
sales

 
 
 
 
 
 
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income to net income (effective portion)
$
(583
)
 
$
(1,026
)
 
$
308

 
$
—

 
$
—

 
$
—


Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as hedging instruments were not significant in 2013, 2012 and 2011. For the years ended December 31, 2013, 2012 and 2011, unrealized net losses from hedges that were discontinued were not significant. As of December 31, 2013, we expect $0.1 million of unrealized after-tax losses on derivative instruments reported in accumulated other comprehensive income to be reclassified to earnings within the next 12 months.