Foreign Currency Exchange And Futures Contracts

3 Months Ended

Mar. 31, 2012

Foreign Currency Exchange And Futures Contracts [Abstract]

Foreign Currency Exchange And Futures Contracts

7. Foreign Currency Exchange and Futures Contracts

Certain of the Corporation's operations are subject to risk from exchange rate fluctuations in connection with sales in foreign currencies. To minimize this risk, foreign currency sales contracts are entered into which are designated as cash flow or fair value hedges and are recorded in the condensed consolidated balance sheet as either an asset or a liability measured at their fair value. The accounting for changes in the fair value of a derivative depends on the use of the derivative. To the extent that a derivative is designated and effective as a cash flow hedge of an exposure to future changes in value, the change in fair value of the derivative is deferred in accumulated other comprehensive income (loss). Any portion considered to be ineffective, including that arising from the unlikelihood of an anticipated transaction to occur, is reported as a component of earnings (other income/expense) immediately. Upon occurrence of the anticipated transaction, the derivative designated and effective as a cash flow hedge is de-designated as a fair value hedge and the change in fair value previously deferred in accumulated other comprehensive income (loss) is reclassified to earnings (net sales) with subsequent changes in fair value recorded as a component of earnings (other income/expense). To the extent that a derivative is designated and effective as a hedge of an exposure to changes in fair value, the change in the derivative's fair value will be offset in the condensed consolidated statement of operations by the change in the fair value of the item being hedged and is recorded as a component of earnings (other income/expense).

No portion of the existing cash flow or fair value hedges is considered to be ineffective, including any ineffectiveness arising from the unlikelihood of an anticipated transaction to occur. Additionally, no amounts have been excluded from assessing the effectiveness of the hedge.

As of March 31, 2012, approximately $17,909,000 of anticipated foreign-denominated sales has been hedged of which $1,438,000 is covered by cash flow contracts settling at various dates through March 2013 and the remaining $16,471,000 is covered by fair value contracts settling at various dates through September 2013. As of March 31, 2012, the fair value of foreign currency sales contracts designated as cash flow hedges expecting to settle within the next 12 months approximated $132,000 and is recorded as other current assets. The change in the fair value of the contracts is recorded as a component of accumulated other comprehensive income (loss) and approximated $38,000 and $114,000, net of income taxes, as of March 31, 2012 and December 31, 2011, respectively. During the three months ended March 31, 2012, approximately $(26,000), net of income taxes, was recognized as comprehensive income (loss) and $50,000, net of income taxes, was released from accumulated other comprehensive income (loss). The change in the fair value will be reclassified to earnings when the projected sale occurs with approximately $60,000 expected to be released to pretax earnings in the next 12 months. During the three months ended March 31, 2012 and 2011, approximately $79,000 and $183,000, respectively, was released to pre-tax earnings.

As of March 31, 2012, the fair value of foreign currency sales contracts designated as fair value hedges expecting to settle within the next 12 months approximated $521,000 and is recorded as other current assets. (The fair value of the related hedged items, recorded as other current liabilities or a reduction to accounts receivable, approximated $537,000.) The fair value of the remaining fair value hedges equaled $165,000 and is recorded as other noncurrent assets. (The fair value of the related hedged items, recorded as other noncurrent liabilities, approximated $166,000.) The fair value of assets held as collateral as of March 31, 2012 approximated $801,000.

Gains (losses) on foreign exchange transactions included in other income (expense) approximated $27,000 and $(191,000) for the three months ended March 31, 2012 and 2011.

In May 2009, the Corporation entered into foreign currency purchase contracts to manage the volatility associated with Euro-denominated progress payments to be made for certain machinery and equipment. All contracts were settled as of December 31, 2010; accordingly, no amounts were recognized as comprehensive income (loss) in 2011 or 2012. Approximately $4,000, net of income taxes, was released from accumulated other comprehensive income (loss) for the three months ended March 31, 2012. The change in the fair value of the contracts is recorded as a component of accumulated other comprehensive income (loss) and approximated $305,000 and $309,000, net of income taxes, as of March 31, 2012 and December 31, 2011, respectively. The change in the fair value is being amortized to pre-tax earnings (as an offset to depreciation expense) over the life of the underlying assets. For the three months ended March 31, 2012 and 2011, approximately $7,000 and $8,000, respectively, was released to pre-tax earnings. Approximately $28,000 is expected to be released to pre-tax earnings within the next 12 months.

At March 31, 2012, the Corporation has purchase commitments covering 60% or $10,048,000 of anticipated natural gas usage over approximately the next four years at one of its subsidiaries. The commitments qualify as normal purchases and, accordingly, are not reflected on the condensed consolidated balance sheet.

One of the Corporation's subsidiaries is subject to risk from increases in the price of commodities (copper and aluminum) used in the production of inventory. To minimize this risk, futures contracts are entered into which are designated as cash flow hedges. The change in fair value of the derivative is deferred in accumulated other comprehensive income (loss). Any portion considered to be ineffective, including that arising from the unlikelihood of an anticipated transaction to occur, is reported as a component of earnings (other income/expense) immediately. Upon occurrence of the anticipated transaction, the futures contract is settled and the change in fair value previously deferred in accumulated other comprehensive income (loss) is reclassified to earnings (costs of products sold) when the projected sales occur. At March 31, 2012, approximately 57% or $3,294,000 of anticipated copper purchases over the next nine months and 63% or $819,000 of anticipated aluminum purchases over the next six months are hedged. The fair value of these contracts (both outstanding and settled) approximated $184,000 as of March 31, 2012. The change in the fair value of the contracts designated as cash flow hedges is recorded as a component of accumulated other comprehensive income (loss) and approximated $115,000 and $(314,000), net of income taxes, as of March 31, 2012 and December 31, 2011, respectively. During the three months ended March 31, 2012, approximately $252,000, net of income taxes, was recognized as comprehensive income (loss) and $(177,000), net of income taxes, was released from accumulated other comprehensive income (loss). The change in the fair value will be reclassified to earnings when the projected sale occurs with approximately $184,000 expected to be released to pretax earnings in the next 12 months. During the three months ended March 31, 2012 and 2011, approximately $(284,000) and $504,000, respectively, was released to pre-tax earnings. The fair value of assets held as collateral as of March 31, 2012 equaled $500,000.

The Corporation does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.