Derivative Financial Instruments

12 Months Ended

Dec. 31, 2015

Derivative Financial Instruments

Derivative Financial Instruments

Note 7. Derivative Financial Instruments

        The company is exposed to certain risks relating to its ongoing business operations. The company may utilize derivative instruments to mitigate interest rate and foreign currency exchange rate risk, and routinely enters into forward exchange traded futures and option contracts to manage the price risk associated with nonferrous metals inventory as well as purchases and sales of nonferrous metals (specifically aluminum, copper, nickel and silver). The company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under master netting agreements. The company designates certain of its nonferrous metals forward exchange futures contracts as fair value hedges of inventory and firm sales commitments.

        Commodity futures contracts.    If the company is "long" on futures contracts, it means the company has more futures contracts purchased than futures contracts sold for the underlying commodity. If the company is "short" on a futures contract, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company's commodity futures contract commitments as of December 31, 2015 (MT represents metric tons and Lbs represents pounds):

Commodity	Long/Short	Total
Aluminum	Long		2,475	MT
Aluminum	Short		2,825	MT
Copper	Long		8,985	MT
Copper	Short		14,144	MT
Silver	Short		343	Lbs

        The following summarizes the location and amounts of the fair values reported on the company's balance sheets and gains or losses related to derivatives included in the company's consolidated statements of operations as of and for the years ended December 31 (in thousands):

	Asset Derivatives					Liability Derivatives
		Fair Value				Fair Value
	Balance sheet location	December 31, 2015		December 31, 2014		December 31, 2015		December 31, 2014
Derivative instruments designated as fair value hedges—
Commodity futures	Other current assets	$	857	$	3,180	$	2,860	$	913
Derivative instruments not designated as hedges—
Commodity futures	Other current assets		908		2,132		1,065		626
Total derivative instruments		$	1,765	$	5,312	$	3,925	$	1,539

        The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements, which total $3.4 million and $7.6 million at December 31, 2015, and 2014, respectively, are reflected in other current assets in the consolidated balance sheet.

	Location of gain (loss) recognized in income on derivatives	Amount of gain (loss) recognized in income on derivatives for the year ended December 31, 2015			Hedged items in fair value hedge relationships	Location of gain recognized in income on related hedged item	Amount of gain recognized in income on related hedged items for the year ended December 31, 2015
Derivatives in fair value hedging relationships—
Commodity futures	Costs of goods sold	$	(4,254	)	Firm commitments	Costs of goods sold	$	2,084
					Inventory	Costs of goods sold		1,269
							$	3,353
Derivatives not designated as hedging instruments—
Commodity futures	Costs of goods sold	$	16,261

	Location of gain recognized in income on derivatives	Amount of gain recognized in income on derivatives for the year ended December 31, 2014		Hedged items in fair value hedge relationships	Location of gain (loss) recognized in income on related hedged item	Amount of gain (loss) recognized in income on related hedged items for the year ended December 31, 2014
Derivatives in fair value hedging relationships—
Commodity futures	Costs of goods sold	$	2,778	Firm commitments	Costs of goods sold	$	1,488
				Inventory	Costs of goods sold		(3,411	)
						$	(1,923	)
Derivatives not designated as hedging instruments—
Commodity futures	Costs of goods sold	$	14,988

	Location of gain recognized in income on derivatives	Amount of gain recognized in income on derivatives for the year ended December 31, 2013		Hedged items in fair value hedge relationships	Location of gain (loss) recognized in income on related hedged item	Amount of gain (loss) recognized in income on related hedged items for the year ended December 31, 2013
Derivatives in fair value hedging relationships—
Commodity futures	Costs of goods sold	$	7,509	Firm commitments	Costs of goods sold	$	120
				Inventory	Costs of goods sold		(7,437	)
						$	(7,317	)
Derivatives not designated as hedging instruments—
Commodity futures	Costs of goods sold	$	2,097

        Derivatives accounted for as fair value hedges had ineffectiveness resulting in gains of $90,000 and $206,000, and a loss of $206,000 for the years ended December 31, 2015, 2014, and 2013, respectively. A loss excluded from hedge effectiveness testing of $991,000 increased costs of goods sold, and gains excluded from hedge effectiveness testing of $649,000 and $398,000 reduced costs of goods sold for the years ended December 31, 2015, 2014, and 2013, respectively.