Derivative Instruments and Hedging Activities

9 Months Ended

Oct. 01, 2011

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 9 – 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 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 on cash flow hedges; at September 29, 2012, the net fair value of these contracts was a $677 thousand gain position.

At September 29, 2012, the Company held open futures contracts to purchase approximately $14.4 million of copper over the next 15 months related to fixed price sales orders.  The fair value of those futures contracts was a $703 thousand gain 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:

	September 29, 2012
(In thousands)	Location		Fair value
Commodity contracts	Other current asset:	Gain positions	$	802
		Loss positions		(99	)

	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 Nine Months Ended
(In thousands)	September 29, 2012		October 1, 2011			September 29, 2012		October 1, 2011
Commodity contracts	$	562	$	(2,386	)	$	455	$	(1,593	)

	Loss (Gain) Reclassified from Accumulated OCI into Income (Effective Portion), Net of Tax
	For the Quarter Ended						For the Nine Months Ended
(In thousands)	September 29, 2012			October 1, 2011			September 29, 2012		October 1, 2011
Commodity contracts:
Cost of goods sold	$	(2	)	$	(790	)	$	428	$	(1,816	)

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 September 29, 2012, the Company held open futures contracts to sell approximately $34.0 million of copper over the next six months related to inventory.  The fair value of those futures contracts was a $2.3 million loss position and was recorded as an other current liability.  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:

	(Losses) Gains on Fair Value Hedges for the Three Months Ended September 29, 2012
(In thousands)	Location	Amount
(Loss) on the derivatives in designated and qualifying fair value hedges:
Commodity Contracts	Cost of goods sold	$	(2,261	)
Gain on the hedged item in designated and qualifying fair value hedges:
Inventory	Cost of goods sold	$	2,344

The Company enters into futures and forward 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 September 29, 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 September 29, 2012, the Company had recorded restricted cash of $2.6 million related to open futures contracts.