Derivative Instruments

Metals swaps

and embedded customer derivatives

During

2017

and

2016,

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 mature in

2017

and

2018.

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 “Other accrued liabilities”, and the embedded customer derivatives are included in “Accounts receivable, net” on the Consolidated Balance Sheets at

June 30, 2017

and

December 31, 2016.

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

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%

1.75%.

The fixed rate interest rate hedge was accounted for as a cash flow hedging instrument for accounting purposes.

There was

net impact from the nickel swaps or embedded customer derivative agreements to the Company’s Consolidated Statements of Comprehensive Income for the

three

and

six

months ended

June 30, 2017

and

2016.

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

six

months ended

June 30, 2017

and

2016.

	Net Gain (Loss) Recognized
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016
Interest rate swap (CTI)	$	(5	)	$	(13	)	$	(18	)	$	(33	)
Fixed interest rate swap (ABL)		-			(37	)		-			(98	)
Metals swaps		(91	)		138			(77	)		62
Embedded customer derivatives		91			(138	)		77			(62	)
Total loss	$	(5	)	$	(50	)	$	(18	)	$	(131	)