Derivative Instruments

We use derivative instruments as part of our overall foreign currency, interest rate and commodity risk management strategies to manage the risk of exchange rate movements that would reduce the value of our foreign cash flows, manage the risk associated with fluctuations in interest rate indices and to minimize commodity price volatility. Foreign currency exchange rate movements create a degree of risk by affecting the value of sales made and costs incurred in currencies other than the U.S. dollar.

Certain of our derivative contracts contain provisions that require us to provide collateral. Since the counterparties to these financial instruments are large commercial banks and similar financial institutions, we do not believe that we are exposed to material counterparty credit risk. We do not anticipate nonperformance by any of the counterparties to our instruments. Our derivative assets and liabilities are included within "Other long-term assets", "Prepaid expenses and other current assets", "Long-term liabilities" and "Other current liabilities" on the Condensed Consolidated Balance Sheets and effects of these derivatives are recorded in "Other comprehensive income", "Cost of sales", "Interest expense" and "Other income (expense)" on the Condensed Consolidated Statements of Operations.

Interest rate swap contracts

During the third quarter of 2019, the Company entered into four interest rate swap contracts. The contracts are "pay fixed, receive variable" with notional amounts of $500 million maturing in two years and another $500 million maturing in five years. The Company’s risk management objective was to fix its cash flows associated with the risk in variability in the one-month US LIBO Rate for a portion of our outstanding debt. It is expected that these swaps will fix the cash flows associated with the forecasted interest payments on this notional amount of debt to an effective fixed interest rate of 5.1%, which could be lowered to 4.85% depending on credit ratings. Within Accumulated Other Comprehensive Income we recorded a net unrealized pre-tax gain of $0.7 million as of September 30, 2019. The fair value of these contracts was determined using Level 2 inputs.

Foreign currency derivatives

We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, are used to hedge global currency exposures such as foreign currency denominated debt, sales, receivables, payables, and purchases.

We had no foreign currency cashflow hedges outstanding as of September 30, 2019 and December 31, 2018 and therefore, no unrealized gains or losses reported under accumulated other comprehensive income (loss).

As of September 30, 2019, we had outstanding Mexican peso, euro, Swiss franc, South African rand, and Japanese yen currency contracts with an aggregate notional amount of $75.1 million. These foreign currency derivatives outstanding as of September 30, 2019 have maturities through December 31, 2019. As of December 31, 2018, we had outstanding Mexican peso, South African rand, euro, Swiss franc and Japanese yen currency contracts, with an aggregate notional amount of $19.6 million.

Commodity derivative contracts

We have entered into commodity derivative contracts for refined oil products. These contracts are entered into to protect against the risk that eventual cash flows related to these products will be adversely affected by future changes in prices. We had outstanding commodity derivative contracts as of September 30, 2019 with notional amount of $111.0 million with maturities from October 2019 to June 2022. The outstanding commodity derivative contracts represented a pre-tax net unrealized loss within "Other Comprehensive Income" of $17.2 million as of September 30, 2019. We had outstanding commodity derivative contracts as of December 31, 2018 with notional amount of $142.1 million representing a pre-tax net unrealized loss of $10.7 million.

Net Investment Hedges

We use certain intercompany debt to hedge a portion of our net investment in our foreign operations against currency exposure (net investment hedge). Intercompany debt denominated in foreign currency and designated as a non-derivative net investment hedging instrument was $9.0 million as of September 30, 2019 and $9.5 million as of December 31, 2018. Within the currency translation adjustment portion of "Other Comprehensive Income", we recorded gains of $0.7 million and $0.5 million for the three and nine months ended September 30, 2019, respectively. We recorded gains of $0.4 million and $1.9 million in the three and nine months ended September 30, 2018, respectively.

The fair value of all derivatives is recorded as assets or liabilities on a gross basis in our Condensed Consolidated Balance Sheets. As of September 30, 2019 and December 31, 2018, the fair value of our derivatives and their respective balance sheet locations are presented in the following table:



	Asset Derivatives			Liability Derivatives
	Location	Fair Value		Location	Fair Value
As of September 30, 2019	(Dollars in thousands)
Derivatives designated as cash flow hedges:
Commodity derivative contracts	Prepaid and other current assets	$	6	Other accrued liabilities	$	9,290
	Other long-term assets	49		Other long-term obligations	7,940
Interest rate swap contracts	Prepaid and other current assets	1,033		Other accrued liabilities	—
	Other long-term assets	22		Other long-term obligations	317
Total fair value		$	1,110		$	17,547

As of December 31, 2018
Derivatives designated as cash flow hedges:
Commodity derivative contracts	Prepaid and other current assets	$	90	Other accrued liabilities	$	4,630
	Other long-term assets	260		Other long-term obligations	6,393
Total fair value		$	350		$	11,023



	Asset Derivatives			Liability Derivatives
	Location	Fair Value		Location	Fair Value
As of September 30, 2019	(Dollars in thousands)
Derivatives not designated as hedges:
Foreign currency derivatives	Prepaid and other current assets	$	189	Other current liabilities	$	971

As of December 31, 2018
Derivatives not designated as hedges:
Foreign currency derivatives	Prepaid and other current assets	$	—	Other current liabilities	$	43

The realized (gains) losses resulting from the settlement of commodity derivative contracts remain in Accumulated Other Comprehensive Income until they are recognized in the Statement of Operations when the hedged item impacts earnings, which is when the finished product is sold. As of September 30, 2019 and September 30, 2018, net realized pre-tax gains of $7.3 million and $5.4 million, respectively, were reported under Accumulated Other Comprehensive Income and will be and were, respectively, released to earnings within the following 12 months. See table below for amounts recognized in the Statement of Operations.

The amount of pre-tax realized (gains) losses on commodity derivatives, interest rate swaps and on undesignated foreign currency derivatives recognized in the Statement of Operations for the periods ended September 30, 2019 and September 30, 2018 are as follows :



		Amount of (Gain)/Loss Recognized
	Location of (Gain)/Loss Recognized in the Consolidated Statement of Operations	For the Three Months Ended September 30,
		2019			2018
Derivatives designated as cash flow hedges:		(Dollars in thousands)
Commodity contract hedges	Cost of sales	$	(3,145	)	$	421
Interest rate swap contracts	Interest expense	(323		)	—
		$	(3,468	)	$	421

Derivatives not designated as hedges:
Foreign currency derivatives	Cost of sales, Other (income) expense	$	173		(159		)

		Amount of (Gain)/Loss Recognized
	Location of (Gain)/Loss Recognized in the Consolidated Statement of Operations	For the Nine Months Ended September 30,
		2019			2018
Derivatives designated as cash flow hedges:		(Dollars in thousands)
Commodity contract hedges	Cost of sales	$	(6,994	)	421
Interest rate swap contracts	Interest expense	(323		)	—
		$	(7,317	)	$	421

Derivatives not designated as hedges:
Foreign currency derivatives	Cost of sales, Other (income) expense	$	(648	)	137