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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

3 Months Ended

Mar. 31, 2024

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

6.	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company accounts for its derivative instruments and hedging activities under ASC 815, “Derivatives and Hedging.” The following table presents the fair values of the Company’s derivative instruments:


		Fair value
		March 31,			December 31,
Derivatives designated as hedging instruments		2024			2023			Balance Sheet location
Assets:
Commodity contracts		$	2,379		$	4,480		Accounts receivable, net
Commodity contracts		$	332		$	316		Other assets
Liabilities:
Commodity contracts		$	(432)		$	(386)		Accrued liabilities


		Fair value
		March 31,			December 31,
Derivatives not designated as hedging instruments		2024			2023			Balance Sheet location
Assets:
Foreign currency exchange contracts		$	602		$	138		Accounts receivable, net
Liabilities:
Foreign currency exchange contracts		$	(1,193)		$	(1,221)		Accrued liabilities

Cash Flow Hedging Strategy

The Company uses cash flow hedges to minimize the variability in cash flows of forecasted transactions caused by fluctuations in commodity prices. The changes in the fair values of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (loss) (“AOCI”) and are reclassified into the line item in our condensed consolidated statement of income in which the hedged items are recorded in the same period that the hedged items affect earnings. The changes in the fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. The maximum length of time for which the Company hedges its exposure to the variability in future cash flows is currently less than two years.

The Company has entered into commodity hedge contracts to mitigate the price risk associated with a portion of its forecasted aluminum purchases. These derivative instruments were designated as part of the Company’s commodity cash flow hedging program. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of aluminum. The total notional values of derivatives that were designated and qualified for this program were $126.1 million and $98.3 million as of March 31, 2024 and December 31, 2023, respectively. Transactions under the commodity cash flow hedging program were executed beginning in May 2023.

The following table presents the impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income (“OCI”), AOCI and earnings:


Three-months ended March 31, 2024
Derivatives							Gain (loss)
designated as		Gain (loss) recognized			Location of gain (loss)		reclassified from
hedging instruments		in AOCI			recognized in income		AOCI into income
Commodity contracts		$	2,279		Cost of sales		$	(966)

As of March 31, 2024, the Company estimates that it will reclassify into earnings net gains (losses) of $1.9 million from the amount recorded in AOCI as the anticipated cash flows occur during the next 12 months.

Economic (Non-Designated) Hedging Strategy

The Company is exposed to foreign currency exchange rate risks related primarily to its foreign business operations. During the three-months ended March 31, 2024 and 2023, the Company entered into forward currency exchange contracts with financial institutions to create an economic hedge to specifically manage a portion of the foreign exchange risk exposure associated with certain consolidated subsidiaries’ non-functional currency denominated assets and liabilities. All foreign currency exchange contracts of the Company that were outstanding as of March 31, 2024 have terms of approximately one month or less. The Company does not enter into forward currency exchange contracts for speculation or trading purposes.

The Company has not designated its foreign currency exchange contracts as hedge transactions. Therefore, gains and losses on the Company’s foreign currency exchange contracts are recognized in interest and other income (expense), net, in the condensed consolidated statements of income, and are largely offset by the changes in the fair value of the underlying economically hedged item. The total notional values of derivatives related to our foreign currency economic hedges were $230.5 million and $282.7 million as of March 31, 2024 and December 31, 2023, respectively.

The net gains (losses) on derivatives not designated as hedging instruments in the condensed consolidated statements of income were as follows:


				Gain (loss)
				recognized in income on
				derivatives
				Three-months ended
Derivatives not designated as		Location of gain (loss)		March 31,			March 31,
hedging instruments		recognized in income on derivatives		2024			2023
Foreign currency exchange contracts		Interest and other income, net		$	5,343		$	(7,852)

Certain of the Company’s counterparty agreements contain provisions that require the Company to post collateral on derivative instruments in a net liability position. As of March 31, 2024, $0.6 million was posted as collateral.