Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 9 - Derivative Instruments and Hedging Activities

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 is 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 June 30, 2012, the net fair value of these contracts was a $133 thousand loss position.

At June 30, 2012, the Company held open futures contracts to purchase approximately $18.0 million of copper over the next 18 months related to fixed price sales orders.  The fair value of those futures contracts was a $216 thousand loss position, which was determined by obtaining quoted market prices (Level 1 hierarchy as defined by ASC 820, Fair Value Measurements and Disclosures).

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

	June 30, 2012
(In thousands)	Location		Fair value
Commodity contracts	Other current assets:	Gain positions	$	87
		Loss positions		(25	)
	Other current liabilities:	Gain positions		213
		Loss positions		(491	)

	December 31, 2011
(In thousands)	Location		Fair value
Commodity contracts	Other current assets:	Gain positions	$	85
		Loss positions		(25	)
	Other current liabilities:	Gain positions		339
		Loss positions		(1,078	)

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

	Gain (Loss) Recognized in Accumulated OCI (Effective Portion), Net of Tax
	For the Quarter Ended						For the Six Months Ended
(In thousands)	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Commodity contracts	$	(1,394	)	$	961		$	(107	)	$	793
	(Gain) Loss Reclassified from Accumulated OCI into Income (Effective Portion), Net of Tax
	For the Quarter Ended						For the Six Months Ended
(In thousands)	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Commodity contracts:
Cost of goods sold	$	804		$	(417	)	$	430		$	(1,026	)

The Company enters into futures contracts that closely match the terms of the underlying transactions.  As a result, the ineffective portion of the open hedge contracts through June 30, 2012 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 June 30, 2012, the Company had recorded restricted cash of $1.1 million related to open futures contracts.