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Note 2 - Derivative Instruments and Hedging Activities
 6 Months Ended
Jun. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

2. Derivative Instruments and Hedging Activities


The Company records all derivatives in accordance with Accounting Standards Codification (ASC) 815, Derivatives and Hedging, which requires all derivative instruments be reported on the consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company is exposed to market risk such as changes in commodity prices, foreign currencies, and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.


Commodities


The primary objectives of the commodity risk management activities are to understand and mitigate the impact of potential price fluctuations on the Company’s financial results and its economic well-being. While the Company’s risk management objectives and strategies will be driven from an economic perspective, it attempts, where possible and practical, to ensure that the hedging strategies it engages in can be treated as “hedges” from an accounting perspective or otherwise result in accounting treatment where the earnings effect of the hedging instrument provides substantial offset (in the same period) to the earnings effect of the hedged item. Generally, these risk management transactions will involve the use of commodity derivatives to protect against exposure resulting from significant price fluctuations.


The Company primarily utilizes commodity contracts with maturities of less than twelve months. The impact of such contracts is intended to offset the effect of price fluctuations on actual inventory purchases. Outstanding commodity forward contracts in place to hedge the Company’s projected commodity purchases were as follows:


As of June 30, 2014:

             
               

Commodity

Trade Date

Effective Date

 

Notional Amount

 

Termination Date

Copper

1/31/2014

2/1/2014

    $ 3,879  

12/31/2014

Copper

3/11/2014

4/1/2014

    $ 3,014  

12/31/2014


As of December 31, 2013:

             
               

Commodity

Trade Date

Effective Date

 

Notional Amount

 

Termination Date

Copper

6/21/2013

10/1/2013

    $ 2,169  

6/30/2014


As of June 30, 2013:

             
               

Commodity

Trade Date

Effective Date

 

Notional Amount

 

Termination Date

Copper

10/29/2012

1/1/2013

    $ 3,472  

9/30/2013

Copper

2/26/2013

3/1/2013

    $ 2,677  

12/31/2013

Copper

3/1/2013

3/1/2013

    $ 2,636  

12/31/2013

Copper

4/15/2013

5/1/2013

    $ 4,033  

12/31/2013

Copper

6/21/2013

10/1/2013

    $ 2,169  

6/30/2014


Because these contracts do not qualify for hedge accounting, gains and losses are recorded in cost of goods sold in the Company’s condensed consolidated statements of comprehensive income. Total gains (losses) recognized for the three and six months ended June 30, 2014 were $279 and $(47), respectively. Total losses recognized for the three and six months ended June 30, 2013 were $(826) and $(1,118), respectively.


Foreign Currencies


The Company is exposed to foreign currency exchange risk as a result of transactions denominated in other currencies. The Company periodically utilizes foreign currency forward purchase and sales contracts to manage the volatility associated with foreign currency purchases in the normal course of business. Contracts typically have maturities of twelve months or less. There were no foreign currency hedge contracts outstanding as of June 30, 2013. As of June 30, 2014 and December 31, 2013, the following foreign currency contracts were outstanding:


As of June 30, 2014:

       
         

Currency Denomination

 

Notional Amount

 

United States Dollar (USD) to Euro

  $ 250  

British Pound Sterling (GBP) to Euro

  £ 3,000  

As of December 31, 2013:

       
         

Currency Denomination

 

Notional Amount

 

United States Dollar (USD) to Euro

  $ 650  

British Pound Sterling (GBP) to Euro

  £ 4,000  

Total losses recognized in the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2014 were $(55) and $(97), respectively.


Interest Rate Swaps


As of May 30, 2012, the date of a previous credit agreement refinancing, the Company had four interest rate swap agreements outstanding. The first swap was entered into on January 21, 2010, had an effective date of July 1, 2010, a notional amount of $200,000, a fixed LIBOR rate of 1.73% and an expiration date of July 1, 2012. The second swap was entered into on June 29, 2010, had an effective date of October 1, 2010, a notional amount of $100,000, a fixed LIBOR rate of 1.025% and an expiration date of October 1, 2012. The third swap was entered into on April 1, 2011, had an effective date of July 1, 2012, a notional amount of $200,000, a fixed LIBOR rate of 1.905% and an expiration date of July 1, 2013. The fourth swap was entered into on April 1, 2011, had an effective date of October 1, 2012, a notional amount of $100,000, a fixed LIBOR rate of 2.22% and an expiration date of October 1, 2013. Due to the incorporation of a new interest rate floor provision in the then new credit agreement, which constituted a change in critical terms, the Company concluded that as of May 30, 2012, the then outstanding swaps would no longer be highly effective in achieving offsetting changes in cash flows during the periods the hedges were designated.  As a result, the Company was required to de-designate the four outstanding hedges as of May 30, 2012.  Beginning May 31, 2012, the effective portion of the swaps prior to the change (i.e. amounts previously recorded in Accumulated Other Comprehensive Loss) were amortized into interest expense over the period of the originally designated hedged transactions which had various termination dates through October 2013.  Future changes in fair value of these swaps were immediately recognized in the consolidated statements of comprehensive income as interest expense.


On October 23, 2013, the Company entered into two interest rate swap agreements, and on May 19, 2014, the Company entered into one interest rate swap agreement. The Company formally documented all relationships between interest rate hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions. These interest rate swap agreements qualify as cash flow hedges. For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss. The cash flows of the swaps are recognized as adjustments to interest expense each period.  The ineffective portion of the derivatives’ change in fair value, if any, is immediately recognized in earnings. The Company assesses on an ongoing basis whether derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.  The effective dates of the swaps are July 1, 2014 with a notional amount of $100,000 each and a fixed LIBOR rate of 1.7370%, 1.7420% and 1.6195%, including a LIBOR floor of 0.75%, with expiration dates of July 1, 2018.


The following table presents the fair value of the Company’s derivatives:


   

June 30,
2014

   

December 31,
2013

 

Commodity contracts

  $ 77     $ 69  

Foreign currency contracts

    (97 )     56  

Interest rate swaps

    (1,435 )     1,236  

The fair value of the interest rate swaps is included in other long-term liabilities and other assets in the condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013, respectively. The fair value of the commodity contracts is included in other assets in the condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013, respectively. Excluding the impact of credit risk, the fair value of the derivative contracts as of June 30, 2014 and December 31, 2013 is a liability of $(1,463) and an asset of $1,385, respectively, which represents the amount the Company would need to pay or receive to exit the agreements on those dates.


The following presents the impact of interest rate swaps, commodity contracts and foreign currency contracts on the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2014 and 2013:


   

Amount of Loss
Recognized in Accumulated

Other Comprehensive Loss

for the Three Months Ended

June 30,

 

Location of Gain (Loss)
Recognized in Net

Income on Ineffective

Portion of Hedges

 

Amount of Loss
Reclassified from

Accumulated Other

Comprehensive Loss

into Net Income for

the Three Months

Ended June 30,

   

Amount of Gain (Loss)
Recognized in Net

Income on Hedges
(Ineffective Portion)

for the Three Months

Ended June 30,

 
   

2014

   

2013

     

2014

   

2013

   

2014

   

2013

 
                                                   

Derivatives Designated as Hedging Instruments

                                   
                                     

Interest rate swaps

  $ (1,208 )   $ —  

Interest expense

  $ —     $ —     $ —     $ —  
                                                   

Derivatives Not Designated as Hedging Instruments

                                   
                                     

Interest rate swaps (1)

  $ —     $ —  

Interest expense

  $ —     $ (1,003 )   $ —     $ 1,266  

Commodity and foreign currency contracts

  $ —     $ —  

Cost of goods sold

  $ —     $ —     $ 224     $ (826 )

   

Amount of Loss
Recognized in Accumulated

Other Comprehensive Loss

for
the Six Months Ended
June 30,

 

Location of Gain (Loss)

Recognized in Net

Income on Ineffective

Portion of Hedges

 

Amount of Loss
Reclassified from

Accumulated Other

Comprehensive Loss

into Net Income

for the Six Months

Ended June 30,

   

Amount of Gain (Loss)
 Recognized in Net

Income on Hedges
(Ineffective Portion)

for the Six Months

Ended June 30,

 
   

2014

   

2013

     

2014

   

2013

   

2014

   

2013

 
                                                   

Derivatives Designated as Hedging Instruments

                                   
                                     

Interest rate swaps

  $ (1,708 )   $ —  

Interest expense

  $ —     $ —     $ —     $ —  
                                                   

Derivatives Not Designated as Hedging Instruments

                                   
                                     

Interest rate swaps (1)

  $ —     $ —  

Interest expense

  $ —     $ (2,005 )   $ —     $ 2,472  

Commodity and foreign currency contracts

  $ —     $ —  

Cost of goods sold

  $ —     $ —     $ (144 )   $ (1,118 )

(1) Amounts recorded for the three and six months ended June 30, 2013 relate to interest rate swap agreements outstanding as of May 30, 2012, the date the hedging relationships for these agreements were terminated.