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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2017
Summary of Derivative Instruments [Abstract]  
Derivative Financial Instruments
Tredegar uses 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 PE Films and Flexible Packaging Films business operations. These 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, the Company records the corresponding derivative fair values as a net asset or net liability.
In the normal course of business, Aluminum Extrusions enters 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 margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, Aluminum Extrusions enters 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 $8.1 million (8.9 million pounds of aluminum) at June 30, 2017 and $8.0 million (9.6 million pounds of aluminum) at December 31, 2016.
The table below summarizes the location and gross amounts of aluminum futures contract fair values in the consolidated balance sheets as of June 30, 2017 and December 31, 2016:
 
June 30, 2017
 
December 31, 2016
(In Thousands)
Balance Sheet
Account
 
Fair
Value
 
Balance Sheet
Account
 
Fair
Value
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Asset derivatives:
Aluminum futures contracts
Prepaid expenses and other
 
$
411

 
Prepaid expenses and other
 
$
308

Liability derivatives:
Aluminum futures contracts
Prepaid expenses and other
 
$
(170
)
 
Prepaid expenses and other
 
$
(37
)
Net asset (liability)
 
 
$
241

 
 
 
$
271


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 Aluminum Extrusions for any losses on the related aluminum futures and/or forward contracts through the date of cancellation.
These derivative contracts involve elements of market risk that are not reflected on the consolidated balance sheet, including the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to any forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to any aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available to the best and most credit-worthy customers. The counterparties to our foreign currency futures and zero-cost collar contracts are major financial institutions.
The 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 the three and six month periods ended June 30, 2017 and 2016 is summarized in the table below:
(In Thousands)
Cash Flow Derivative Hedges
 
Aluminum Futures Contracts
 
Foreign Currency Forwards
 
Three Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Amount of pretax gain (loss) recognized in other comprehensive income (loss)
$
(322
)
 
$
686

 
$
—

 
$
—

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

 
Cost of
sales

 
Cost of
sales

 
Cost of
sales

Amount of pretax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) (effective portion)
$
321

 
$
(525
)
 
$
16

 
$
16

 
Aluminum Futures Contracts
 
Foreign Currency Forwards
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Amount of pre-tax gain (loss) recognized in other comprehensive income (loss)
$
524

 
$
137

 
$
—

 
$
—

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

 
Cost of
sales

 
Cost of
sales

 
Cost of
sales

Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) to net income (loss) (effective portion)
$
554

 
$
(1,509
)
 
$
31

 
$
31


As of June 30, 2017, the Company expects $0.2 million of unrealized after-tax gains on derivative instruments reported in accumulated other comprehensive income (loss) to be reclassified to earnings within the next 12 months. For the three and six month periods ended June 30, 2017 and 2016, net gains or losses realized, from previously unrealized net gains or losses on hedges that had been discontinued, were not material.