XML 24 R12.htm IDEA: XBRL DOCUMENT

Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Derivative Financial Instruments

Derivative Financial Instruments

Note 5. Derivative Financial Instruments

The company is exposed to certain risks relating to its ongoing business operations. The company utilizes derivative instruments to mitigate commodity margin risk, and occasionally to mitigate foreign currency exchange rate risk, and have in the past to mitigate interest rate fluctuation risk. The company routinely enters into forward exchange traded futures and option contracts to manage the price risk associated with nonferrous metals inventory as well as purchases and sales of nonferrous metals (primarily aluminum and copper) and ferrous metals. The company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under master netting agreements.

Commodity Futures Contracts. If the company is “long” on futures contracts, it means the company has more futures contracts purchased than futures contracts sold for the underlying commodity. If the company is “short” on a futures contract, it means the company has more futures contracts sold than futures contracts purchased for the underlying commodity. The following summarizes the company’s significant futures contract commitments as of March 31, 2023:



	Commodity Futures		Long/Short		Metric Tons
	Aluminum		Long		8,625
	Aluminum		Short		15,750
	Copper		Long		14,297
	Copper		Short		33,348

The following summarizes the location and amounts of the fair values reported on the company’s consolidated balance sheets as of March 31, 2023, and December 31, 2022, and gains and losses related to derivatives included in the company’s statement of income for the three-month periods ended March 31, 2023 and 2022 (in thousands):



			Asset Derivatives						Liability Derivatives
	Balance sheet		Fair Value						Fair Value
	location		March 31, 2023			December 31, 2022			March 31, 2023			December 31, 2022
Derivative instruments designated as hedges
Commodity futures	Other current assets		$	3,055		$	2,169		$	1,958		$	2,119

Derivative instruments not designated as hedges
Commodity futures	Other current assets			3,104			2,102			3,234			5,269
Total derivative instruments			$	6,159		$	4,271		$	5,192		$	7,388

Note 5. Derivative Financial Instruments (Continued)

The fair value of the above derivative instruments along with required margin deposit amounts with the same counterparty under master netting arrangements totaled $18.7 million at March 31, 2023, and $23.5 million at December 31, 2022, and are reflected in other current assets in the consolidated balance sheets.

Amount of gain (loss)

Amount of gain (loss)

recognized in income

Location of gain

recognized in income

Location of gain

on derivatives for the

(loss) recognized

on derivatives for the

(loss) recognized

three-month periods

Hedged items in

in income on

three-month periods

in income on

ended March 31,

fair value hedge

related hedged

ended March 31,

derivatives

2023

2022

relationships

items

2023

2022

Derivatives in fair value hedging relationships

Commodity futures

Costs of goods sold

$

(155)

$

1,326

Firm commitments

Costs of goods sold

$

377

$

(1,192)

Inventory

Costs of goods sold

239

(384)

$

616

$

(1,576)

Derivatives not designated as hedging instruments

Commodity futures

Costs of goods sold

$

(11,390)

$

(11,221)

Derivatives accounted for as fair value hedges had ineffectiveness resulting in losses of $301,000 and gains of $285,000 during the three-month periods ended March 31, 2023 and 2022, respectively. Gains excluded from hedge effectiveness testing of $763,000 decreased cost of goods sold during the three-month period ended March 31, 2023, and losses excluded from hedge effectiveness testing of $536,000 increased cost of goods sold during the three-month period ended March 31, 2022.

Derivatives accounted for as cash flow hedges resulted in net gains of $2.0 million and $18.1 million recognized in other comprehensive income for the three-month periods ended March 31, 2023 and 2022, respectively. Net gains of $786,000 and $3.2 million were reclassified from accumulated other comprehensive income for the three-month periods ended March 31, 2023 and 2022, respectively. At March 31, 2023, the company expects to reclassify all $2.4 million of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months due to the settlement of futures contracts. The maximum term over which the company is hedging its exposure to the variability of future cash flows for forecasted transactions is less than 12 months.