Derivative Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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.

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 cashflow hedges outstanding as of March 31, 2020 and December 31, 2019 and, therefore, no unrealized gains or losses reported under accumulated other comprehensive income (loss).

As of March 31, 2020, we had outstanding Mexican peso, euro, Swiss franc, South African rand and Japanese yen currency contracts with an aggregate notional amount of $39.8 million. As of December 31, 2019, we had outstanding Mexican peso, South African rand, euro, Swiss franc and Japanese yen currency contracts, with an aggregate notional amount of $78.8 million. The foreign currency derivatives outstanding as of March 31, 2020 have maturities through June 30, 2020, 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 March 31, 2020 with a notional amount of $85.7 million with maturities from April 2020 to June 2022. The outstanding commodity derivative contracts represented a pre-tax net unrealized loss within "Accumulated Other Comprehensive Income" of $33.7 million as of March 31, 2020. We had outstanding commodity derivative contracts as of December 31, 2019 with a notional amount of $99.5 million representing a pre-tax net unrealized loss of $3.7 million.

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 "Other Comprehensive Income", we recorded a net unrealized pre-tax loss of $16.7 million for the three months ended March 31, 2020. The fair value of these contracts was determined using Level 2 inputs.

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 $4.3 million as of March 31, 2020 and $5.5 million as of December 31, 2019. Within the currency translation adjustment portion of "Other Comprehensive Income", we recorded pre-tax gains of $1.2 million for the three months ended March 31, 2020, and no gain or loss for the three months ended March 31, 2019.

The fair value of all derivatives is recorded as assets or liabilities on a gross basis in our Condensed Consolidated Balance Sheets. As of March 31, 2020 and December 31, 2019, 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 March 31, 2020	(Dollars in thousands)
Derivatives designated as cash flow hedges:
Commodity derivative contracts	Prepaid and other current assets	$	—	Other accrued liabilities	$	18,002
	Other long-term assets	—		Other long-term obligations	15,739
Interest rate swap contracts	Prepaid and other current assets	—		Other accrued liabilities	5,869
	Other long-term assets	—		Other long-term obligations	7,922
Total fair value		$	—		$	47,532

As of December 31, 2019
Derivatives designated as cash flow hedges:
Commodity derivative contracts	Prepaid and other current assets	$	104	Other accrued liabilities	$	1,872
	Other long-term assets	369		Other long-term obligations	2,255
Interest rate swap contracts	Prepaid and other current assets	253		Other accrued liabilities	—
	Other long-term assets	2,684		Other long-term obligations	72
Total fair value		$	3,410		$	4,199



	Asset Derivatives			Liability Derivatives
	Location	Fair Value		Location	Fair Value
As of March 31, 2020	(Dollars in thousands)
Derivatives not designated as hedges:
Foreign currency derivatives	Prepaid and other current assets	$	90	Other current liabilities	$	135
Commodity derivatives contracts	Prepaid and other current assets	—		Other accrued liabilities	450
		$	90		$	585
As of December 31, 2019
Derivatives not designated as hedges:
Foreign currency derivatives	Prepaid and other current assets	$	239	Other current liabilities	$	81
Commodity derivatives contracts	Prepaid and other current assets	376		Other accrued liabilities	—
		$	615		$	81

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 March 31, 2020 and March 31, 2019, net realized pre-tax losses of $0.5 million and pre-tax gains of $8.4 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 location and amount of realized (gains) losses on derivatives are recognized in the Statements of Operations as follows for the periods ended March 31, 2020 and March 31, 2019:



		Amount of (Gain)/Loss Recognized
	Location of (Gain)/Loss Recognized in the Consolidated Statement of Operations	For the Three Months Ended March 31,
		2020			2019
Derivatives designated as cash flow hedges:		(Dollars in thousands)
Commodity derivative contracts	Cost of sales	$	(2,809	)	$	(1,848	)
Interest rate swap	Interest expense	(206		)	—

Derivatives not designated as hedges:
Foreign currency derivatives	Cost of sales, Other (income) expense	$	(499	)	(677		)
Commodity derivative contracts	Cost of sales	(139		)	—