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Note 5 - Derivative Instruments
 9 Months Ended
Sep. 30, 2016
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
5.     
     
Derivative Instruments
:
 
Metals swaps
and embedded customer derivatives
 
During 2016 and 2015, the Company entered into nickel swaps indexed to the London Metal Exchange (LME) price of nickel with third-party brokers. The nickel swaps are accounted for as derivatives for accounting purposes. The Company entered into them to mitigate its customers’ risk of volatility in the price of metals. The outstanding nickel swaps have one to two months remaining. The swaps are settled with the brokers at maturity. The economic benefit or loss arising from the changes in fair value of the swaps is contractually passed through to the customer. The primary risk associated with the metals swaps is the ability of customers or third-party brokers to honor their agreements with the Company related to derivative instruments. If the customer or third-party brokers are unable to honor their agreements, the Company’s risk of loss is the fair value of the metals swaps.
 
While these derivatives are intended to help the Company manage risk, they have not been designated as hedging instruments. The periodic changes in fair value of the metals and embedded customer derivative instruments are included in “Cost of materials sold” in the Consolidated Statements of Comprehensive Income. The Company recognizes derivative positions with both the customer and the third party for the derivatives and classifies cash settlement amounts associated with them as part of “Cost of materials sold” in the Consolidated Statements of Comprehensive Income. The cumulative change in fair value of the metals swaps that have not yet been settled are included in “Accounts receivable, net”, and the embedded customer derivatives are included in “Other accrued liabilities” on the Consolidated Balance Sheets at September 30, 2016. At December 31, 2015, the cumulative change in fair value of the metals swaps that had not yet settled were included in “Other accrued liabilities”, and the embedded customer derivatives were included in “Accounts receivable, net” on the Consolidated Balance Sheets.
 
In 2014, the Company entered into carbon swaps to mitigate its risk of volatility in the price of metals. The swaps were indexed to the New York Mercantile Exchange price of U.S. Midwest Domestic Hot-Rolled Coil Steel with third-party brokers and the carbon swaps matured during 2015. The periodic change in fair value of the metals hedges were included in “Accumulated other comprehensive loss” on the Consolidated Balance Sheet at December 31, 2015. The impact of the mark-to-market adjustment on settled hedges is recorded in “Cost of materials sold” in the accompanying Consolidated Statements of Comprehensive Income. The impact for the three and nine months ended September 30, 2015 was $544 thousand and $1.6 million of expense, respectively.
 
Interest rate swap
 
CTI entered into an interest rate swap to reduce the impact of changes in interest rates on its IRB. The swap agreement matures in April 2018, the same time as the IRB, and is reduced annually by the amount of the optional principal payments on the IRB. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreement. However, the Company does not anticipate nonperformance by the counterparties. The interest rate swap is not treated as a hedge for accounting purposes.
 
The periodic changes in fair value of the interest rate swap and cash settlement amounts associated with the interest rate swap are included in “Interest and other expense on debt” in the Consolidated Statements of Comprehensive Income.
 
Fixed rate interest rate hedge
 
In June 2012, the Company entered into a forward starting fixed rate interest rate hedge commencing June 2013 in order to eliminate the variability of cash interest payments on $53.2 million of the then outstanding LIBOR-based borrowings under the ABL Credit Facility. The hedge, which matured on June 1, 2016, fixed the rate at 1.21% plus a premium ranging from 1.25% to 1.75%. The fixed rate interest rate hedge was accounted for as a cash flow hedging instrument for accounting purposes.
 
There was no net impact from the nickel swaps or embedded customer derivative agreements to the Company’s Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015. The table below shows the total impact to the Company’s Consolidated Statements of Comprehensive Income through net income of the derivatives for the three and nine months ended September 30, 2016 and 2015.
 
 
 
Net Gain (Loss) Recognized
 
 
 
For the Three Months Ended September 30,
 
 
For the Nine Months Ended September 30,
 
(in thousands)
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Interest rate swap (CTI)
   $ (19 )   $ (15 )   $ (52 )   $ (50 )
Fixed interest rate swap (ABL)
     -       (90 )     (98 )     (284 )
Cash flow metals hedges
     -       (544 )     -       (1,629 )
Metals swaps
     111       (571 )     173       (1,958 )
Embedded customer derivatives
     (111 )     571       (173 )     1,958  
Total loss
   $ (19 )   $ (649 )   $ (150 )   $ (1,963 )