Derivative Financial Instruments

9 Months Ended

Sep. 30, 2012

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

8. We use 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 due to specified transactions. When possible, our derivative financial instruments are designated as and qualify as cash flow hedges and are recognized in the balance sheet at fair value. A change in the fair value of derivatives that are highly effective and that are designated and qualify as cash flow hedges is recorded in other comprehensive income (loss). Gains and losses reported in other comprehensive income (loss) are reclassified to earnings in the periods in which earnings are affected by the variability of cash flows of the hedged transaction. Such gains and losses are reported on the same line as the underlying hedged item. Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current period earnings. The amount of gains and losses recognized for hedge ineffectiveness was not material to the third quarter and first nine months of 2012 and 2011.

     The fair value of derivative instruments recorded on the consolidated balance sheets are based upon Level 2 inputs within the corresponding commodity or foreign currency markets. If individual derivative instruments with the same counterparty can be settled on a net basis, we record the corresponding derivative fair values as a net asset or net liability.

     In the normal course of business, we enter 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 our margin exposure created from the fixing of future sales prices relative to volatile raw material (aluminum) costs, we enter 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 $7.2 million (7.7 million pounds of aluminum) at September 30, 2012 and $10.8 million (11.0 million pounds of aluminum) at December 31, 2011.

     The table below summarizes the location and gross amounts of aluminum futures contract fair values in the consolidated balance sheets as of September 30, 2012 and December 31, 2011:

	September 30, 2012			December 31, 2011
	Balance Sheet	Fair		Balance Sheet	Fair
(In Thousands)	Account	Value		Account	Value
Derivatives Designated as Hedging Instruments
Asset derivatives:	Prepaid expenses
Aluminum futures contracts	and other	$	333	Accrued expenses	$	21
Liability derivatives:	Prepaid expenses
Aluminum futures contracts	and other	$	92	Accrued expenses	$	677
Derivatives Not Designated as Hedging Instruments
Asset derivatives:	Prepaid expenses
Aluminum futures contracts	and other	$	47	Accrued expenses	$	18
Liability derivatives:	Prepaid expenses
Aluminum futures contracts	and other	$	47	Accrued expenses	$	18

     In the event that the counterparty to an aluminum fixed-price forward sales contract chooses to not take delivery of its aluminum extrusions, the customer is contractually obligated to compensate us for any losses on the related aluminum futures and/or forward purchase contracts through the date of cancellation. The offsetting asset and liability positions for derivatives not designated as hedging instruments included in the table above are associated with the unwinding of aluminum futures contracts that relate to such cancellations.

     We have future fixed Euro-denominated contractual payments for equipment being purchased as part of our multi-year capacity expansion project at our film products manufacturing facility in Cabo de Santo Agostinho, Brazil. We are using fixed rate Euro forward contracts with various settlement dates through November 2013 to hedge exchange rate exposure on these obligations. We had fixed rate forward contracts with outstanding notional amounts of €16.0 million as of September 30, 2012 (none at December 31, 2011).

     The table below summarizes the location and gross amounts of foreign currency forward contract fair values in the consolidated balance sheets as of September 30, 2012 (none at December 31, 2011):

	September 30, 2012
	Balance Sheet	Fair
(In Thousands)	Account	Value
Derivatives Designated as Hedging Instruments
Asset derivatives:	Prepaid expenses
Foreign currency forward contracts	and other	$	889
	Other assets and
Foreign currency forward contracts	deferred charges	$	125

     The counterparties to our forward purchase commitments are major aluminum brokers and suppliers, and the counterparties to our aluminum futures contracts are major financial institutions. Fixed-price forward sales contracts are only made available to our best and most credit-worthy customers. The counterparties to our foreign currency forwards are major financial institutions.

     The effect on net income and other comprehensive income (loss) of derivative instruments classified as cash flow hedges and described in the previous paragraphs for the three and nine month periods ended September 30, 2012 and 2011 is summarized in the table below:

(In Thousands)	Cash Flow Derivative Hedges
	Aluminum Futures Contracts						Foreign Currency Forwards
	Three Months Ended September 30,
	2012			2011			2012		2011
Amount of pre-taxgain (loss) recognized in other comprehensive income	$	(617	)	$	(478	)	$	1,132	$	-
Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion)		Cost of sales			Cost of sales
Amount of pre-taxgain (loss) reclassified from accumulated other comprehensive income to net income (effective portion)	$	(600	)	$	55		$	-	$	-

	Aluminum Futures Contracts						Foreign Currency Forwards
	Nine Months Ended September 30,
	2012			2011			2012		2011
Amount of pre-taxgain (loss) recognized in other comprehensive income	$	(1,317	)	$	(242	)	$	1,132	$	-
Location of gain (loss) reclassified from accumulated other comprehensive income into net income (effective portion)		Cost of sales			Cost of sales
Amount of pre-taxgain (loss) reclassified from accumulated other comprehensive income to net income (effective portion)	$	(902	)	$	641		$	-	$	-

     As of September 30, 2012, we expect $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 twelve months. For the three and nine month periods ended September 30, 2012 and 2011, net gains or losses realized on previously unrealized net gains or losses from hedges that had been discontinued were not material.