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Derivative Instruments | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative Instruments We may 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 to our cash flows 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. 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 have no foreign currency cash flow hedges outstanding as of September 30, 2021 and December 31, 2020 and, therefore, no unrealized gains or losses reported under accumulated other comprehensive income (loss). As of September 30, 2021, we had outstanding Mexican peso, euro, Swiss franc, South African rand and Japanese yen currency contracts with an aggregate notional amount of $102.9 million. As of December 31, 2020, we had outstanding Mexican peso, South African rand, euro, Swiss franc and Japanese yen currency contracts, with an aggregate notional amount of $71.0 million. The foreign currency derivatives outstanding as of September 30, 2021 have maturities through December 31, 2021, and were not designated as hedging instruments. 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, 2021 with a notional amount of $28.9 million and maturities from October 2021 to June 2022. The outstanding commodity derivative contracts represented a pre-tax net unrealized gain within "Accumulated Other Comprehensive Income" of $12.3 million as of September 30, 2021. We had outstanding commodity derivative contracts as of December 31, 2020 with a notional amount of $61.3 million representing a pre-tax net unrealized loss of $2.2 million. In connection with the de-designated commodity derivative contracts, we recognized $0.2 million unrealized loss and $0.7 million unrealized gain in cost of sales in the three and nine months ended September 30, 2021, respectively, as a result of the variation in fair value from the de-designation date. This resulted from a small portion of our commodity derivative contracts that ceased to qualify for hedge accounting in the second quarter of 2021. Interest rate swap contracts During the third quarter of 2019, the Company entered into four interest rate swap contracts. The contracts were "pay fixed, receive variable" with notional amounts of $500 million expected to mature in August 2021 and another $500 million due to mature in August 2024. The Company’s risk management objective was to fix its cash flows associated with the risk in variability in the one-month USD LIBOR for a portion of our outstanding debt. It was expected that these swaps would 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. In December 2020, in connection with the $500 million principal repayment of the 2018 Term Loan Facility, we de-designated one interest rate swap contract of $250 million notional maturing in the third quarter of 2021, and in February 2021, we closed the contract and recorded a $0.9 million charge in interest expense. Additionally, in February 2021, the Company modified the three remaining swaps with notional amounts of $250 million that matured in the third quarter 2021 and $500 million maturing in the third quarter 2024 in order to align their terms to the amended 2018 Term Loan Facility (see Note 4 "Debt and Liquidity" for details of the February 2021 repricing of the 2018 Term Loan Facility). 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 4.2%, which could be lowered to 3.95% depending on credit ratings. The modification triggered the de-designation and re-designation of the swaps. Because the modified swaps contained an other-than-insignificant financing element at re-designation date, they are considered hybrid instruments composed of a debt host and an embedded derivative. The debt host portion amounted to a liability of $7.6 million as of September 30, 2021 with $2.5 million included in "Other accrued liabilities" and $5.1 million in "Other long-term obligations." The corresponding loss is accounted for in "Accumulated Other Comprehensive income" and is amortized over the remaining life of the swaps. The embedded derivative is treated as a cash-flow hedge. Within "Accumulated Other Comprehensive Income", the portion of the interest rate swaps qualifying as a cash flow hedge represented a net unrealized pre-tax gain of $1.7 million and a net unrealized pre-tax loss of $11.0 million as of September 30, 2021 and December 31, 2020, respectively. The fair value of these contracts was determined using Level 2 inputs. 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, 2021 and December 31, 2020, the fair value of our derivatives and their respective balance sheet locations are presented in the following tables:
| Asset Derivatives |  | Liability Derivatives
| Location |  | Fair Value |  | Location |  | Fair Value
As of September 30, 2021 | (Dollars in thousands)
Derivatives designated as cash flow hedges: |  |  |  |  |  |
Commodity derivative contracts | Prepaid and other current assets |  | $ | 12,322 |  |  | Other accrued liabilities |  | $ | — |
| Other long-term assets |  | — |  |  | Other long-term obligations |  | — |
Interest rate swap contracts | Prepaid and other current assets |  | — |  |  | Other accrued liabilities |  | 848 |
| Other long-term assets |  | 2,510 |  |  | Other long-term obligations |  | — |
Total fair value |  |  | $ | 14,832 |  |  |  |  | $ | 848 |
As of December 31, 2020 |
Derivatives designated as cash flow hedges: |  |  |  |  |  |
Commodity derivative contracts | Prepaid and other current assets |  | $ | 518 |  |  | Other accrued liabilities |  | $ | 888 |
| Other long-term assets |  | 63 |  |  | Other long-term obligations |  | 1,898 |
Interest rate swap contracts | Prepaid and other current assets |  | — |  |  | Other accrued liabilities |  | 4,080 |
| Other long-term assets |  | — |  |  | Other long-term obligations |  | 6,903 |
Total fair value |  |  | $ | 581 |  |  |  |  | $ | 13,769 |
| Asset Derivatives |  | Liability Derivatives
| Location |  | Fair Value |  | Location |  | Fair Value
As of September 30, 2021 | (Dollars in thousands)
Derivatives not designated as hedges: |  |  |  |  |  |
Foreign currency derivatives | Prepaid and other current assets |  | $ | 43 |  |  | Other accrued liabilities |  | $ | 1,077 |
Commodity derivative contracts | Prepaid and other current assets |  | $ | 724 |  |  | Other accrued liabilities |  | $ | — |
Total fair value |  |  | $ | 767 |  |  |  |  | $ | 1,077 |
As of December 31, 2020 |  |  |  |  |  |  |
Derivatives not designated as hedges: |  |  |  |  |  |
Foreign currency derivatives | Prepaid and other current assets |  | $ | 6 |  |  | Other accrued liabilities |  | $ | 111 |
Interest rate swap contracts | Prepaid and other current assets |  | — |  |  | Other accrued liabilities |  | 952 |
Total fair value |  |  | $ | 6 |  |  |  |  | $ | 1,063 |
The realized (gains) losses resulting from the settlement of commodity derivative contracts designated as hedges 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, 2021 and 2020, net realized pre-tax gains of $7.0 million and net realized pre-tax losses of $8.0 million, respectively, were reported under "Accumulated Other Comprehensive Income" and will be and were, respectively, released to earnings within the following 12 months. See the table below for amounts recognized in the Statement of Operations. The location and amount of realized (gains) losses on derivatives are recognized in the Statements of Operations as follows for the periods ended September 30, 2021 and 2020:
|  |  |  | Amount of (Gain)/Loss Recognized
|  | Location of Realized (Gain)/Loss Recognized in the Consolidated Statement of Operations |  | For the Three Months Ended September 30,
|  |  | 2021 |  | 2020
Derivatives designated as cash flow hedges: |  |  |  | (Dollars in thousands)
Commodity derivative contracts |  | Cost of sales |  | $ | 1,191 |  |  | $ | (1,295) |
Interest rate swap contracts |  | Interest expense |  | 285 |  |  | 1,537 |
Derivatives not designated as hedges: |  |  |  |  |  |
Foreign currency derivatives |  | Cost of sales, Other expense (income) |  | $ | 448 |  |  | $ | (243) |
Commodity derivative contracts |  | Cost of sales |  | (440) |  |  | (207) |
|  |  |  | Amount of (Gain)/Loss Recognized
|  | Location of (Gain)/Loss Recognized in the Consolidated Statement of Operations |  | For the Nine Months Ended September 30,
|  |  | 2021 |  | 2020
Derivatives designated as cash flow hedges: |  |  |  | (Dollars in thousands)
Commodity contract hedges |  | Cost of sales |  | $ | 6,238 |  |  | $ | (5,234) |
Interest rate swap contracts |  | Interest expense |  | 1,571 |  |  | 2,852 |
Derivatives not designated as hedges: |  |  |  |  |  |
Foreign currency derivatives |  | Cost of sales, Other expense (income) |  | $ | 2,342 |  |  | $ | (959) |
Commodity derivative contracts |  | Cost of sales |  | (682) |  |  | (321) |
Interest rate swap contracts |  | Interest expense |  | 866 |  |  | — |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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