Derivative Instruments

9 Months Ended

Sep. 30, 2016

Derivative Instruments

Derivative Instruments

4.    Derivative Instruments

The Company uses foreign currency forward exchange contracts and foreign exchange option contracts to limit the exposure of exchange rate fluctuations on certain foreign currency receivables, payables, and other known and forecasted transactional exposures for periods consistent with the expected cash flow of the underlying transactions.  Management’s policy for managing foreign currency risk is to use derivatives to hedge up to 75% of the value of the forecasted exposure.  The foreign currency forward exchange and foreign exchange option contracts generally mature within eighteen months and are designed to limit exposure to exchange rate fluctuations.

The Company also uses natural gas forward contracts to limit the exposure to changes in natural gas prices.  Management’s policy for managing natural gas exposure is to use derivatives to hedge up to 75% of the forecasted natural gas requirements that are not fixed.  The natural gas forward contracts generally mature within twenty-four months. 

The Company accounts for its derivative instruments under Accounting Standards Codification (ASC) 815 “Derivatives and Hedging.”  Hedge effectiveness is measured on a quarterly basis and any portion of ineffectiveness as well as hedge components excluded from the assessment of effectiveness, are recorded directly to current earnings, in other expense - net. 

The fair value of outstanding derivative contracts in the condensed consolidated balance sheets was as follows:

Asset Derivatives	Balance Sheet Locations	September 30, 2016		December 31, 2015
Derivatives designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	8	$	411
Natural gas contracts	Other current assets		78		—
Foreign exchange contracts	Other assets		—		6
Natural gas contracts	Other assets		20		—
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current assets		45		51
Total asset derivatives		$	151	$	468

Liability Derivatives	Balance Sheet Locations	September 30, 2016		December 31, 2015
Derivatives designated as hedging instruments:
Foreign exchange contracts	Accounts payable and accrued liabilities	$	958	$	13
Natural gas contracts	Accounts payable and accrued liabilities		35		586
Foreign exchange contracts	Accrued pension and other liabilities		97		3
Natural gas contracts	Accrued pension and other liabilities		5		89
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Accounts payable and accrued liabilities		23		92
Total liability derivatives		$	1,118	$	783

The Company had the following outstanding derivative contracts that were entered into to hedge forecasted transactions:

(in thousands except for mmbtu)	September 30, 2016		December 31, 2015
Natural gas contracts (mmbtu)		720,000		955,000
Foreign exchange contracts	$	42,697	$	37,016

The use of derivatives exposes the Company to the risk that a counterparty may default on a derivative contract.  The Company enters into derivative financial instruments with high credit quality counterparties and diversifies its positions among such counterparties.  The aggregate fair value of the Company’s derivative instruments in asset positions represents the maximum loss that the Company would recognize at that date if all counterparties failed to perform as contracted.  The Company has entered into various master netting arrangements with counterparties to facilitate settlement of gains and losses on these contracts.  These arrangements may allow for netting of exposures in the event of default or termination of the counterparty agreement due to breach of contract.  The Company does not net its derivative positions by counterparty for purposes of balance sheet presentation and disclosure.

	September 30, 2016				December 31, 2015
	Fair Value		Fair Value		Fair Value		Fair Value
	of Assets		of Liabilities		of Assets		of Liabilities
Gross derivative amounts recognized in the balance sheet	$	151	$	1,118	$	468	$	783
Gross derivative amounts not offset in the balance sheet that are eligible for offsetting		(65)		(65)		(67)		(67)
Net amount	$	86	$	1,053	$	401	$	716

Derivatives in Cash Flow Hedging Relationships

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) (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  The location of the gain or (loss) reclassified into earnings (effective portion) for derivatives in cash flow hedging relationships is cost of products sold (excluding depreciation and amortization).

	Amount of Gain or (Loss) Recognized
	in OCI on Derivatives (Effective Portion)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Foreign exchange contracts	$	(66)	$	(221)	$	(1,512)	$	649
Natural gas contracts		257		(342)		464		(692)
Total	$	191	$	(563)	$	(1,048)	$	(43)

	Amount of Gain or (Loss) Recognized from
	Accumulated OCI into Earnings (Effective Portion) (1)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Foreign exchange contracts	$	(153)	$	600	$	281	$	1,668
Natural gas contracts		183		(292)		(407)		(696)
Total	$	30	$	308	$	(126)	$	972

(1) Assuming market rates remain constant with the rates as of September 30, 2016, a loss of $0.9 million is expected to be recognized in earnings over the next 12 months.

During the three and nine month periods ended September 30, 2016 and 2015, there was no gain or (loss) recognized in earnings on derivatives related to the ineffective portion and the amount excluded from effectiveness testing, which would have been recorded in other expense – net.

Derivatives Not Designated as Hedging Instruments

The Company has also entered into certain derivatives to minimize its exposure of exchange rate fluctuations on certain foreign currency receivables, payables, and other known and forecasted transactional exposures.  The Company has not qualified these contracts for hedge accounting treatment and therefore, the fair value gains and losses on these contracts are recorded in earnings, in other expense - net as follows:

	Amount of Gain or (Loss) Recognized in Earnings on Derivatives
	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Foreign exchange contracts	$	(240)	$	(303)	$	1,050	$	(1,033)
Total	$	(240)	$	(303)	$	1,050	$	(1,033)