9.	Derivative Instruments :

Metals

swaps

and embedded customer derivatives

During

2019

and

2018,

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

2019.

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.

These derivatives 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 settled are included in “Accounts receivable,” and the embedded customer derivatives are included in “Other accrued liabilities” on the Consolidated Balance Sheets as of

September 30, 2019.

The cumulative change in fair value of the metals swaps that had

not

yet settled as of

December 31, 2018

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

December 31, 2018.

Fixed rate interest rate hedge

January 10, 2019,

the Company entered into a

five

year forward starting fixed rate interest rate hedge in order to eliminate the variability of cash interest payments on

$75

million of the outstanding LIBOR based borrowings under the ABL Credit Facility. The interest rate hedge fixed the rate at

2.57%.

The interest rate hedge is included in “Other long-term liabilities” on the Consolidated Balance Sheets as of

September 30, 2019.

Although the Company is exposed to credit loss in the event of nonperformance by the other party to the interest rate hedge agreement, the Company anticipates performance by the counterparty.

Interest rate swap

CTI entered into an interest rate swap to reduce the impact of changes in interest rates on its Industrial Revenue Bond (IRB). The swap agreement was terminated in

March 2018

upon repayment of the IRB. 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.

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

nine

months ended

September 30, 2019

and

2018.

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, 2019

and

2018.

	Net Gain (Loss) Recognized
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands)	2019			2018			2019			2018
Fixed interest rate hedge	$	(57	)	$	-		$	(88	)	$	-
Interest rate swap (CTI)		-			-			-			(5	)
Metals swaps		177			(221	)		310			14
Embedded customer derivatives		(177	)		221			(310	)		(14	)
Total loss	$	(57	)	$	-		$	(88	)	$	(5	)