Derivative Instruments

3 Months Ended

Mar. 31, 2021

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 cash flow hedges outstanding as of March 31, 2021 and December 31, 2020 and, therefore, no unrealized gains or losses reported under accumulated other comprehensive income (loss).

As of March 31, 2021, we had outstanding Mexican peso, euro, Swiss franc, South African rand and Japanese yen currency contracts with an aggregate notional amount of $60.5 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 March 31, 2021 have maturities through September 30, 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 March 31, 2021 with a notional amount of $48.3 million with maturities from April 2021 to June 2022. The outstanding commodity derivative contracts represented a pre-tax net unrealized gain within "Accumulated Other Comprehensive Income" of $6.2 million as of March 31, 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.

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 due 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 U.S. 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. In December 2020, in connection with the $500 million principal repayment of the 2018 Term Loan, we de-designated one interest rate swap contract of $250 million notional maturing in the third quarter of 2021. In February 2021, in connection with the $150 million principal repayment of the 2018 Term Loan, the Company closed one swap contract of $250 million notional that was due to mature in the third quarter 2021 and recorded a $0.9 million charge in interest expense. Additionally, the Company modified the three remaining swaps with notional amounts of $250 million maturing 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 $9.5 million as of March 31, 2021 with $3.1 million included in "Other accrued liabilities" and $6.4 million in "Other long-term obligations". It is accounted for in "Accumulated Other Comprehensive income" and will be amortized over the remaining life of the swaps. The embedded derivative is treated as a cash-flow hedge.

Within "Accumulated Other Comprehensive Income", the interest rate swap portion qualifying as cash-flow hedges represented a net unrealized pre-tax gain of $2.4 million and a net unrealized pre-tax loss of $11.9 million as of March 31, 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 March 31, 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 March 31, 2021	(Dollars in thousands)
Derivatives designated as cash flow hedges:
Commodity derivative contracts	Prepaid and other current assets	$	5,592	Other accrued liabilities	$	—
	Other long-term assets	571		Other long-term obligations	—
Interest rate swap contracts	Prepaid and other current assets	—		Other accrued liabilities	848
	Other long-term assets	3,291		Other long-term obligations	—
Total fair value		$	9,454		$	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 March 31, 2021	(Dollars in thousands)
Derivatives not designated as hedges:
Foreign currency derivatives	Prepaid and other current assets	$	146	Other accrued liabilities	$	429

Total fair value		$	146		$	429

As of December 31, 2020
Derivatives not designated as hedges:
Foreign currency derivatives	Prepaid and other current assets	$	6	Other accrued liabilities	$	111
Commodity derivatives 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 March 31, 2021 and 2020, net realized pre-tax losses of $5.0 million and $0.5 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 March 31, 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 March 31,
		2021		2020
Derivatives designated as cash flow hedges:		(Dollars in thousands)
Commodity derivative contracts	Cost of sales	$	549	$	(2,809)
Interest rate swap contracts	Interest expense (income)	1,330		(206)

Derivatives not designated as hedges:
Foreign currency derivatives	Cost of sales, Other expense (income)	$	1,629	$	(499)
Commodity derivative contracts	Cost of sales	—		(139)
Interest rate swap contracts	Interest expense	866		—