Derivative Instruments and Hedging Activities

9 Months Ended

Oct. 01, 2011

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 10 – Derivative Instruments and Hedging Activities

Cash Flow Hedges

Copper and brass represent the largest component of the Company’s variable costs of production.  The cost of these materials is subject to global market fluctuations caused by factors beyond the Company’s control.  The Company occasionally enters into forward fixed-price arrangements with certain customers; the risk of these arrangements is generally managed with commodity futures contracts.  The Company accounts for these futures contracts in accordance with ASC 815, Derivatives and Hedging (ASC 815).  These futures contracts have been designated as cash flow hedges.  The fair value of open futures contracts are recognized as a component of accumulated other comprehensive income until the position is closed which corresponds to the period when the related hedged transaction is recognized in earnings.  Should these contracts no longer meet hedge criteria in accordance with ASC 815, either through lack of effectiveness or because the hedged transaction is no longer probable of occurring, all deferred gains and losses related to the hedge would be immediately reclassified from accumulated other comprehensive income into earnings.  In the next twelve months, the Company will reclassify into earnings realized gains or losses of cash flow hedges; at October 1, 2011, the net fair value of these contracts was a $4.4 million loss position.

At October 1, 2011, the Company held open futures contracts to purchase approximately $28.4 million of copper over the next twelve months related to fixed price sales orders.  The fair value of those futures contracts was a $4.5 million loss position, which was determined by obtaining quoted market prices (Level 1 hierarchy as defined by ASC 820, Fair Value Measurements and Disclosures (ASC 820)).

Derivative instruments designated as cash flow hedges under ASC 815 are reflected in the Condensed Consolidated Financial Statements as follows:

	October 1, 2011
	Location		Fair value
(In thousands)
Commodity contracts	Other current liability:	Gain positions	$	20
	Other current liability:	Loss positions	$	(4,501	)

	December 25, 2010
	Location		Fair value
(In thousands)
Commodity contracts	Other current assets:	Gain positions	$	891

The following tables summarize activities related to the Company’s derivative instruments, classified as cash flow hedges in accordance with ASC 815:

	(Loss) Gain Recognized in Accumulated OCI (Effective Portion), Net of Tax
	For the Quarter Ended					For the Nine Months Ended
	October 1, 2011			September 25, 2010		October 1, 2011			September 25, 2010
(In thousands)
Commodity contracts (1)	$	(2,386	)	$	402	$	(1,593	)	$	870
(1) Includes $88 thousand attributable to noncontrolling interest for the nine months ended September 25, 2010.

	(Gain) Reclassified from Accumulated OCI into Income (Effective Portion), Net of Tax
	For the Quarter Ended						For the Nine Months Ended
	October 1, 2011			September 25, 2010			October 1, 2011			September 25, 2010
(In thousands)
Commodity contracts:
Cost of goods sold	$	(790	)	$	(69	)	$	(1,816	)	$	(727	)

Fair Value Hedges

The value of the Company’s copper inventory is subject to global market fluctuations caused by factors beyond the Company’s control.  The Company occasionally enters into futures contracts in order to protect the value of inventory against market fluctuations.  The Company accounts for these futures contracts in accordance with ASC 815.  These futures contracts have been designated as fair value hedges.  For fair value hedges, the changes in value of the hedging derivative, as well as the changes in value of the related hedged item due to the risk being hedged, are reflected in current earnings.  Hedge ineffectiveness is reflected in current earnings in the period in which it occurs.

At October 1, 2011, the Company held open futures contracts to sell approximately $17.8 million of copper over the next three months related to inventory.  The fair value of those futures contracts was a $1.8 million gain position and is recorded as an other current asset.  The fair value was determined by obtaining quoted market prices (Level 1 hierarchy as defined by ASC 820).

The following tables summarize the gains (losses) on the Company's fair value hedges:

	Gains (Losses) on Fair Value Hedges for the Three Months Ended October 1, 2011
	Location	Amount
(In thousands)
Gain on the derivatives in designated and qualifying fair value hedges:
Commodity Contracts	Cost of goods sold	$	8,424
(Loss) on the hedged item in designated and qualifying fair value hedges:
Inventory	Cost of goods sold	$	(7,915	)

	Gains (Losses) on Fair Value Hedges for the Nine Months Ended October 1, 2011
	Location	Amount
(In thousands)
Gain on the derivatives in designated and qualifying fair value hedges:
Commodity Contracts	Cost of goods sold	$	5,164
(Loss) on the hedged item in designated and qualifying fair value hedges:
Inventory	Cost of goods sold	$	(4,987	)

The Company enters into futures contracts that closely match the terms of the underlying transactions.  As a result, the ineffective portion of the open cash flow and fair value hedge contracts through October 1, 2011, was not material to the Condensed Consolidated Statements of Income.

The Company does not offset fair value of amounts for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral.  At October 1, 2011, the Company had recorded restricted cash of $2.7 million related to open futures contracts.