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Note 4 - Derivative Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

4. Derivative Instruments and Hedging Activities 


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, the Company 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 eighteen months. These are 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 December 31, 2014:

           

Commodity

Trade Date

Effective Date

 

Notional Amount

 

Termination Date

Copper

October 2, 2014

October 1, 2014

  $ 4,960  

December 31, 2015

Copper

October 15, 2014

November 1, 2014

  $ 4,637  

December 31, 2015

Copper

December 1, 2014

December 1, 2014

  $ 8,232  

December 31, 2015


As of December 31, 2013:

           

Commodity

Trade Date

Effective Date

 

Notional Amount

 

Termination Date

Copper

June 21, 2013

October 1, 2013

  $ 2,169  

June 30, 2014


As of December 31, 2012:

           

Commodity

Trade Date

Effective Date

 

Notional Amount

 

Termination Date

Copper

October 29, 2012

January 1, 2013

  $ 3,472  

September 30, 2013


Because these contracts do not qualify for hedge accounting, gains and losses are recorded in cost of goods sold in the Company’s consolidated statements of comprehensive income. Net gains (losses) recognized on such contracts in the consolidated statements of comprehensive income were $(629), $(605) and $386 for the years ended December 31, 2014, 2013, and 2012, respectively.


Foreign Currencies


The Company is exposed to foreign currency exchange risk as a result of transactions 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 during the year ended December 31, 2012. As of December 31, 2014 and 2013, the following foreign currency contracts were outstanding:


As of December 31, 2014:

       

Currency Denomination

 

Notional Amount

 

British Pound Sterling (GBP) to Euro

  £ 5,000  

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 net losses recognized in the consolidated statements of comprehensive income for the years ended December 31, 2014 and 2013 were $(149) and $(56), 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. 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, a fixed LIBOR rate of 1.7370%, 1.7420% and 1.6195%, including a LIBOR floor of 0.75%, and all expire on July 1, 2018.


The following table presents the fair value of the Company’s derivative assets (liabilities):


   

December 31,
2014

   

December 31,
2013

 

Interest rate swaps

  $ (1,045 )   $ 1,236  

Commodity contracts

    (515 )     69  

Foreign currency contracts

    (149 )     56  

The fair value of the interest rate swaps, and the commodity and foreign currency contracts are included in other accrued liabilities and other assets in the consolidated balance sheets as of December 31, 2014 and 2013, respectively. Excluding the impact of credit risk, the fair value of the derivative contracts as of December 31, 2014 and 2013 is a liability of $(1,727) and an asset of $1,385, respectively, which represents the amount the Company would need to pay or would 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 consolidated statement of comprehensive income for the years ended December 31, 2014, 2013 and 2012:


   

Amount of Gain (Loss)

Recognized in AOCI for the

Year Ended December 31,

 

Location of Gain

(Loss) Recognized in

the Net Income

(Loss) on Ineffective

 

Amount of Loss Reclassified

from AOCI into Net Income for

the Year Ended December 31,

   

Amount of Gain (Loss)

Recognized in Net Income on

Hedges (Ineffective Portion) for

the Year Ended December 31,

 
   

2014

   

2013

   

2012

  Portion of Hedges  

2014

   

2013

   

2012

   

2014

   

2013

   

2012

 
                                                                           
Derivatives designated as hedging instruments  
                                                                           

Interest rate swaps (1)

  $ (1,420 )   $ 774     $ 365  

Interest Expense

  $ -     $ -     $ -     $ -     $ -     $ -  
                                                                           

Derivatives not designated as hedging instruments

 
                                                                           

Interest rate swaps (2)

  $ -     $ -     $ -  

Interest Expense

  $ -     $ (2,381 )   $ (2,082 )   $ -     $ 2,973     $ 1,695  

Commodity and foreign currency contracts

  $ -     $ -     $ -  

Cost of goods sold

  $ -     $ -     $ -     $ (778 )   $ (661 )   $ 386  

(1)

Amounts recorded for the year ended December 31, 2012 relate to the interest rate swap agreements outstanding prior to May 30, 2012, the date the hedging relationships for these agreements were terminated.


(2)

Amounts recorded for the years ended December 31, 2013 and 2012 relate to interest rate swap agreements outstanding as of May 30, 2012, the date the hedging relationships for these agreements were terminated.