Derivative Financial Instruments

3 Months Ended

Mar. 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 utilizes derivative instruments to mitigate interest rate risk, foreign currency exchange rate risk, and commodity margin risk. The company 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.

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 futures contract commitments as of March 31, 2015 (MT represents metric tons and Lbs represents pounds):

Commodity Futures	Long/Short	Total
Aluminum	Long	3,825	MT
Aluminum	Short	4,175	MT
Copper	Long	6,267	MT
Copper	Short	16,561	MT
Silver	Short	343	Lbs

The following summarizes the location and amounts of the fair values reported on the company’s balance sheets as of March 31, 2015, and December 31, 2014, and gains and losses related to derivatives included in the company’s statement of income for the three-month periods ended March 31, 2015, and 2014 (in thousands):

	Asset Derivatives					Liability Derivatives
		Fair Value				Fair Value
	Balance sheet location	March 31, 2015		December 31, 2014		March 31, 2015		December 31, 2014
Derivative instruments designated as fair value hedges -
Commodity futures	Other current assets	$	688	$	3,180	$	2,734	$	913
Derivative instruments not designated as hedges -
Commodity futures	Other current assets	1,216		2,132		1,762		626
Total derivative instruments		$	1,904	$	5,312	$	4,496	$	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 totaled $7.7 million at March 31, 2015, and $7.6 million at December 31, 2014, are reflected in other current assets in the consolidated balance sheet.

	Location of gain (loss) recognized	Amount of gain (loss) recognized in income on derivatives for the three months ended					Hedged items	Location of gain (loss) recognized	Amount of gain (loss) recognized in income on related hedged items for the three months ended
	in income on	March 31,			March 31,		in fair value hedge	in income on	March 31,		March 31,
	derivatives	2015			2014		relationships	derivatives	2015		2014
Derivatives in fair value hedging relationships -
Commodity futures	Costs of goods sold	$	(4,313	)	$	1,617	Firm commitments	Costs of goods sold	$	494	$	984
							Inventory	Costs of goods sold	2,656		(2,488		)
									$	3,150	$	(1,504	)
Derivatives not designated as hedging instruments -
Commodity futures	Costs of goods sold	$	6,996		$	7,956

Derivatives accounted for as fair value hedges had ineffectiveness resulting in gains of $107,000 and $296,000 during the three-month periods ended March 31, 2015, and 2014, respectively; and losses excluded from hedge effectiveness testing of $1.3 million and $183,000 that increased costs of goods sold during the three-month periods ended March 31, 2015, and 2014, respectively.