XML 25 R13.htm IDEA: XBRL DOCUMENT v3.4.0.3
Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
The Company’s risk management objective is to ensure that business exposures to risks that have been identified and measured and are capable of being controlled are minimized or managed using what it believes to be the most effective and efficient methods to manage, eliminate, reduce or transfer such exposures.  Operating decisions consider associated risks, and transactions are structured to minimize or manage risk whenever possible.
Use of derivative instruments is consistent with the overall business and risk management objectives of the Company.  Derivative instruments may be used to manage business risk within limits specified by the Company’s risk policy and to manage exposures that have been identified through the risk identification and measurement process, provided that they clearly qualify as “hedging” activities as defined in the risk policy.  Use of derivative instruments is not automatic, nor is it necessarily the only response to managing pertinent business risk.  Use is permitted only after the risks that have been identified are determined to exceed defined tolerance levels and are considered to be unavoidable.
The primary risks managed by the Company by using derivative instruments are interest rate risk, commodity price risk and foreign currency exchange risk.  Interest rate swaps are used to manage interest rate or fair value risk.  Swap contracts on various commodities are used to manage the price risk associated with forecasted purchases of materials used in the Company’s manufacturing processes.  The Company also enters into various foreign currency derivative instruments to manage foreign currency risk associated with the Company’s projected foreign currency denominated purchases, sales, and receivable and payable balances.
ASC Topic 815-10, “Derivatives and Hedging,” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position.  In accordance with ASC Topic 815-10, the Company designates commodity swaps, foreign currency exchange contracts and float-to-fixed interest rate derivative contracts as cash flow hedges of forecasted purchases of commodities and purchases and sales currencies, and of variable rate interest payments.  Also in accordance with ASC Topic 815-10, the Company designates fixed-to-float interest rate swaps as fair market value hedges of fixed rate debt, which synthetically swap the Company’s fixed rate debt to floating rate debt.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.  In the next twelve months, the Company estimates that $1.6 million of unrealized losses net of tax related to commodity price and currency exchange rate hedging will be reclassified from other comprehensive income into earnings.  Foreign currency and commodity hedging is generally completed prospectively on a rolling basis for between twelve and twenty-four months, respectively, depending on the type of risk being hedged.
As of March 31, 2016 and December 31, 2015, the Company had the following outstanding commodity and foreign currency exchange contracts that were intended to hedge forecasted transactions:
 
 
Units Hedged
 
 
 
Commodity
 
March 31, 2016
 
December 31, 2015
 
Unit
Type
Natural Gas
 
69,379

 
175,617

 
MMBtu
Cash Flow
Steel
 
3,789

 
4,811

 
Tons
Cash Flow
 
 
 
Units Hedged
 
 
Short Currency
 
March 31, 2016
 
December 31, 2015
 
Type
European Euro
 
740,555

 
—

 
Cash Flow
South Korean Won
 
706,322,850

 
1,533,257,930

 
Cash Flow
Singapore Dollar
 
600,000

 
1,800,000

 
Cash Flow
Japanese Yen
 
81,971,900

 
245,915,700

 
Cash Flow

As of December 31, 2015, the Company had $175.0 million notional amount of float-to-fixed interest rate swaps outstanding related to Term Loan A under the Prior Senior Credit Facility that were designated as cash flow hedges. As a result, $175.0 million of Term Loan A was hedged at an interest rate of 1.635%, plus the applicable spread based on the Consolidated Total Leverage Ratio of the Company as defined under the Prior Senior Credit Facility at December 31, 2015.
As of March 31, 2016 and December 31, 2015, the Company had no outstanding fixed-to-float interest rate swaps related to the Senior Notes.
See Note 9, “Debt,” for a description of the debt instruments.
For derivative instruments that are not designated as hedging instruments under ASC Topic 815-10, the gains or losses on the derivatives are recognized in current earnings within Other (expense) income, net in the Condensed Consolidated Statements of Operations.  As of March 31, 2016 and December 31, 2015, the Company had the following outstanding foreign currency exchange contracts that were not designated as hedging instruments:
 
 
Units Hedged
 
 
 
 
 
Short Currency
 
March 31,
2016
 
December 31, 2015
 
 
Recognized Location
 
Purpose
Euro
 
13,315,716

 
20,490,320

 
 
Other income, net
 
Accounts Payable and Receivable Settlement
United States Dollar
 
13,150,400

 
17,321,106

 
 
Other income, net
 
Accounts Payable and Receivable Settlement
Japanese Yen
 
—

 
70,518,463

 
 
Other income, net
 
Accounts Payable and Receivable Settlement
British Pound Sterling
 
—

 
4,840,238

 
 
Other income, net
 
Accounts Payable and Receivable Settlement
Singapore Dollar
 
—

 
500,000

 
 
Other income, net
 
Accounts Payable and Receivable Settlement
Aluminum
 
—

 
175

 
MT
Other income, net
 
De-designated commodity swap
Steel
 
—

 
3,989

 
MT
Other income, net
 
De-designated commodity swap

The fair value of outstanding derivative contracts recorded as assets in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 was as follows:
 
 
 
 
ASSET DERIVATIVES
 
 
 
 
March 31, 2016
 
December 31, 2015
(in millions)
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 

 
 

Foreign exchange contracts
 
Other current assets
 
$
0.4

 
$
0.3

Total derivatives designated as hedging instruments
 
 
 
$
0.4

 
$
0.3

Total asset derivatives
 
 
 
$
0.4

 
$
0.3


The fair value of outstanding derivative contracts recorded as liabilities in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 was as follows:
 
 
 
 
LIABILITY DERIVATIVES
 
 
 
 
March 31, 2016
 
December 31, 2015
(in millions)
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
 

 
 

Foreign exchange contracts
 
Accounts payable and accrued expenses
 
$
2.9

 
$
0.2

Commodity contracts
 
Accounts payable and accrued expenses
 
0.1

 
0.7

Interest rate swap contracts: Float-to-fixed
 
Accounts payable and accrued expenses
 
—

 
1.7

Commodity contracts
 
Other non-current liabilities
 
—

 
0.1

Interest rate swap contracts: Float-to-fixed
 
Other non-current liabilities
 
—

 
0.6

Total derivatives designated as hedging instruments
 
 
 
$
3.0

 
$
3.3

 
 
 
 
LIABILITY DERIVATIVES
 
 
 
 
March 31, 2016
 
December 31, 2015
(in millions)
 
Balance Sheet Location
 
Fair Value
Derivatives NOT designated as hedging instruments
 
 
 
 

 
 

Foreign exchange contracts
 
Accounts payable and accrued expenses
 
$
—

 
$
0.9

Total derivatives NOT designated as hedging instruments
 
 
 
$
—

 
$
0.9

 
 
 
 
 
 
 
Total liability derivatives
 
 
 
$
3.0

 
$
4.2