DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company operates internationally, with manufacturing and sales facilities in various locations around the world. In the normal course of business, the Company uses cash flow derivatives to manage exposures. For a derivative to qualify for hedge accounting treatment at inception and throughout the hedge period, the Company formally documents the nature and relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions, and methods of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it is deemed probable the forecasted transaction will not occur, then the gain or loss would be recognized in current earnings. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged. The Company does not engage in trading or other speculative use of financial instruments. The Company records all derivative contracts at fair value on a recurring basis. The Company’s derivative financial instruments are categorized under the ASC 820 hierarchy; see Note A - “Basis of Presentation” for an explanation of the hierarchy.

Interest Rate Caps and Commodity Swaps

Derivatives designated as cash flow hedging instruments include interest rate caps and commodity swaps with outstanding notional value of $300.0 million and $25.0 million, respectively, at June 30, 2021. Commodity swaps outstanding at June 30, 2021 mature on or before August 31, 2022. The outstanding notional value of interest rate caps and commodity swaps was $300.0 million and $26.0 million, respectively, at December 31, 2020. The Company uses interest rate caps to mitigate its exposure to changes in interest rates related to variable rate debt and commodity swaps to mitigate price risk for hot rolled coil steel. Fair values of interest rate caps are based on the present value of future cash payments and receipts. Fair values of commodity swaps are based on observable market data for similar assets and liabilities. Changes in the fair value of interest rate caps and commodity swaps are deferred in Accumulated other comprehensive income (loss) (“AOCI”). Gains or losses on interest rate caps are reclassified to Interest expense in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the underlying hedged transactions occur. Gains or losses on commodity swaps are reclassified to Cost of goods sold (“COGS”) in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the hedged transaction affects earnings.

Cross Currency Swaps

Derivatives designated as net investment hedging instruments include cross currency swaps with outstanding notional value of $94.9 million and $97.7 million at June 30, 2021. and December 31, 2020, respectively. The Company uses these cross currency swaps to mitigate its exposure to changes in foreign currency exchange rates related to a net investment in a Euro-denominated functional currency subsidiary. Fair values of cross currency swaps are based on the present value of future cash payments and receipts. Changes in the fair value of cross currency swaps are deferred in AOCI. Gains or losses on cross currency swaps are reclassified to Selling, general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Income (Loss) when the net investment is liquidated.

Foreign Exchange Contracts

The Company enters into foreign exchange contracts to manage variability of future cash flows associated with changing currency exchange rates. Foreign currency exchange contracts, whether designated or not designated as cash flow hedges, are used to mitigate exposure to changes in foreign currency exchange rates on recognized assets and liabilities. Fair values of these contracts are derived using quoted forward foreign exchange prices to interpolate values of outstanding trades at the reporting date based on their maturities. Foreign exchange contracts outstanding at June 30, 2021 mature during the third quarter of 2021.

At June 30, 2021 and December 31, 2020, the Company had $1.8 million and $7.8 million notional value, respectively, of foreign exchange contracts outstanding that were designated as cash flow hedge contracts. For effective hedging instruments, changes in the fair value of foreign exchange contracts are deferred in AOCI until the underlying hedged transactions settle. Gains or losses on foreign exchange contracts are reclassified to COGS in the Company’s Condensed Consolidated Statement of Comprehensive Income (Loss).

The Company had $70.4 million and $54.2 million notional value of foreign exchange contracts outstanding that were not designated as hedging instruments at June 30, 2021 and December 31, 2020, respectively. The majority of gains and losses recognized from foreign exchange contracts not designated as hedging instruments are offset by changes in the underlying hedged items, resulting in no material net impact on earnings. Changes in the fair value of these derivative financial instruments are recognized as gains or losses in COGS and Other income (expense) – net in the Condensed Consolidated Statement of Comprehensive Income (Loss).

The following table provides the location and fair value amounts of derivative instruments designated and not designated as hedging instruments that are reported in the Condensed Consolidated Balance Sheet (in millions):


		June 30, 2021				December 31, 2020
Instrument (1)	Balance Sheet Account	Derivatives designated as hedges		Derivatives not designated as hedges		Derivatives designated as hedges		Derivatives not designated as hedges




Commodity swaps	Other current assets	14.2		—		7.2		—
Commodity swaps	Other non-current assets	1.5		—		0.3		—
Interest rate caps	Other non-current assets	0.8		—		—		—
Foreign exchange contracts	Other current liabilities	—		(0.1)		—		—
Cross currency swaps - net investment hedge	Other current liabilities	(1.2)		—		(2.0)		—
Interest rate caps	Other current liabilities	(1.2)		—		(1.2)		—

Cross currency swaps - net investment hedge	Other non-current liabilities	(5.9)		—		(8.2)		—

Interest rate caps	Other non-current liabilities	—		—		(2.6)		—
Net derivative asset (liability)		$	8.2	$	(0.1)	$	(6.5)	$	—

(1) Categorized as Level 2 under the ASC 820 Fair Value Hierarchy.

The following tables provide the effect of derivative instruments that are designated as hedges in AOCI (in millions):


	Gain (Loss) Recognized on Derivatives in OCI, net of tax				Gain (Loss) Reclassified from AOCI into Income (Loss)

Instrument	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021		Income Statement Account	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Foreign exchange contracts	$	—	$	—	Cost of goods sold	$	0.1	$	0.1
Commodity swaps	7.0		14.9		Cost of goods sold	1.7		1.4
Cross currency swaps - net investment hedge	(0.7)		2.2		Selling, general and administrative expenses	—		—
Interest rate caps	(0.4)		2.6		Interest expense	(0.3)		(0.6)
Total	$	5.9	$	19.7	Total	$	1.5	$	0.9


	Gain (Loss) Recognized on Derivatives in OCI, net of tax				Gain (Loss) Reclassified from AOCI into Income (Loss)

Instrument	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020		Income Statement Account	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Foreign exchange contracts	$	0.4	$	(0.7)	Cost of goods sold	$	(1.0)	$	(2.4)
Commodity swaps	0.6		(0.8)		Cost of goods sold	(0.7)		(1.8)
Cross currency swaps - net investment hedge	(2.0)		(2.2)		Selling, general and administrative expenses	—		—
Interest rate caps	(1.1)		(2.6)		Interest expense	0.2		0.2
Total	$	(2.1)	$	(6.3)	Total	$	(1.5)	$	(4.0)

The following tables provide the effect of derivative instruments that are designated as hedges in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):


	Classification and amount of Gain (Loss) Recognized in Income (Loss)
	Cost of goods sold				Interest expense
	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021		Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Income Statement Accounts in which effects of cash flow hedges are recorded	$	(807.1)	$	(1,495.9)	$	(13.0)	$	(28.3)
Gain (loss) reclassified from AOCI into Income (loss):
Foreign exchange contracts	0.1		0.1		—		—
Commodity swaps	1.7		1.4		—		—
Interest rate caps	—		—		(0.3)		(0.6)
Amount excluded from effectiveness testing recognized in Income (loss) based on amortization approach:
Cross currency swaps - net investment hedge	—		—		0.1		0.3
Total	$	1.8	$	1.5	$	(0.2)	$	(0.3)


	Classification and amount of Gain (Loss) Recognized in Income (Loss)
	Cost of goods sold				Interest expense
	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020		Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Income Statement Accounts in which effects of cash flow hedges are recorded	$	(583.4)	$	(1,280.3)	$	(16.5)	$	(34.2)
Gain (loss) reclassified from AOCI into Income (loss):
Foreign exchange contracts	(1.0)		(2.4)		—		—
Commodity swaps	(0.7)		(1.8)		—		—
Interest rate caps	—		—		0.2		0.2
Amount excluded from effectiveness testing recognized in Income (loss) based on amortization approach:
Cross currency swaps - net investment hedge	—		—		0.1		0.1
Total	$	(1.7)	$	(4.2)	$	0.3	$	0.3

Derivatives not designated as hedges are used to offset foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. The following table provides the effect of non-designated derivatives outstanding at the end of the period in the Condensed Consolidated Statement of Comprehensive Income (Loss) (in millions):


		Gain (Loss) Recognized in Income (Loss)
		Three Months Ended June 30,				Six Months Ended June 30,
Instrument	Income Statement Account	2021		2020		2021		2020
Foreign exchange contracts	Cost of goods sold	$	0.2	$	0.1	$	—	$	(0.3)
Foreign exchange contracts	Other income (expense) – net	(0.1)		0.3		(0.2)		0.2
Debt conversion feature	Other income (expense) – net	—		0.1		—		0.1
	Total	$	0.1	$	0.5	$	(0.2)	$	—

In the Condensed Consolidated Statement of Comprehensive Income (Loss), the Company records hedging activity related to interest rate caps, commodity swaps, cross currency swaps, foreign exchange contracts and the debt conversion feature in the accounts for which the hedged items are recorded. On the Condensed Consolidated Statement of Cash Flows, the Company presents cash flows from hedging activities in the same manner as it records the underlying item being hedged.

Counterparties to the Company’s derivative financial instruments are major financial institutions and commodity trading companies with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. Management continues to monitor counterparty risk and believes the risk of incurring losses on derivative contracts related to credit risk is unlikely and any losses would be immaterial.

See Note L - “Stockholders’ Equity” for unrealized net gains (losses), net of tax, included in AOCI. Within unrealized net gains (losses) included in AOCI as of June 30, 2021, it is estimated that $16.5 million of gains are expected to be reclassified into earnings in the next twelve months.