Financial Instruments

12 Months Ended

Dec. 31, 2014

Summary of Derivative Instruments [Abstract]

Financial Instruments

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 business operations (primarily in Film Products). 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 $8.6 million (7.8 million pounds of aluminum) at December 31, 2014 and $8.0 million (8.4 million pounds of aluminum) at December 31, 2013.

The table below summarizes the location and gross amounts of aluminum derivative contract fair values (Level 2) in the consolidated balance sheets as of December 31, 2014 and 2013:

	December 31, 2014				December 31, 2013
(In Thousands)	Balance Sheet Account	Fair Value			Balance Sheet Account	Fair Value
Derivatives Designated as Hedging Instruments
Asset derivatives: Aluminum futures contracts	Accrued expenses	$	82		Accrued expenses	$	31
Liability derivatives: Aluminum futures contracts	Accrued expenses	$	(318	)	Accrued expenses	$	(178	)
Derivatives Not Designated as Hedging Instruments
Asset derivatives: Aluminum futures contracts	Accrued expenses	$	7		Accrued expenses	$	—
Liability derivatives: Aluminum futures contracts	Accrued expenses	$	(7	)	Accrued expenses	$	—
Net asset (liability)		$	(236	)		$	(147	)

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. The offsetting asset and liability positions included in the table above are associated with the unwinding of aluminum futures contracts due to such cancellations.

Film Products used future fixed Euro-denominated contractual payments for equipment being purchased as part of its multi-year capacity expansion project at the film products manufacturing facility in Cabo de Santo Agostinho, Brazil. The Company used fixed rate Euro forward contracts with various settlement dates through February 2014 to hedge exchange rate exposure on these obligations. The Company had fixed rate forward contracts with outstanding notional amounts of €2.1 million as of December 31, 2013 (none at December 31, 2014).

The table below summarizes the location and gross amounts of foreign currency forward contract fair values (Level 2) in the consolidated balance sheets as of December 31, 2014 and 2013:

	December 31, 2014			December 31, 2013
(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
Net asset (liability)		$	—		$	47

Tredegar receives Euro-based royalty payments relating to its operations in Europe. From time to time Tredegar uses zero-cost collar currency options to hedge a portion of its 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, 2014 and 2013 as there were no derivatives outstanding related to the hedging of royalty payments with currency options.

The counterparties to the Company’s forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to 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 Tredegar’s 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, 2014, 2013, and 2012 is summarized in the tables below:

(In Thousands)	Cash Flow Derivative Hedges
	Aluminum Futures Contracts								Foreign Currency Forwards and Options
Years Ended December 31,	2014		2013			2012			2014			2013			2012
Amount of pre-tax gain (loss) recognized in other comprehensive income	$	542	$	(868	)	$	(232	)	$	(120	)	$	(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			Cost of sales
Amount of pre-tax gain (loss) reclassified from accumulated other comprehensive income to net income (effective portion)	$	631	$	(583	)	$	(1,026	)	$	16		$	—		$	—

Gains and losses on the ineffective portion of derivative instruments or derivative instruments that were not designated as hedging instruments were not significant in 2014, 2013 and 2012. For the years ended December 31, 2014, 2013 and 2012, unrealized net losses from hedges that were discontinued were not significant. As of December 31, 2014, the Company expects $0.2 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.