Quarterly report pursuant to Section 13 or 15(d)

Note 12 - Derivative Contracts

v3.19.1
Note 12 - Derivative Contracts
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
12.
Derivative Contracts
 
We maintain a risk-management strategy that uses commodity derivative contracts to minimize significant, unanticipated gains or losses arising from fluctuations in certain commodity prices.
 
We are also exposed to credit risk and market risk through our use of derivative contracts. Credit risk is the risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. Market risk is the risk that the value of a derivative instrument might be adversely affected by a change in market prices and rates. We manage the market risk associated with derivative contracts by establishing and monitoring parameters that limit the types and degree of market risk that
may
be undertaken.
 
We use a cash flow hedge to minimize the variability in cash flows caused by fluctuations in market interest rates. This derivative, which is a designated cash flow hedge, is carried at fair value. The change in fair value is recorded to accumulated other comprehensive income (loss) and reclassified to current earnings if hedge accounting cannot be applied because the hedge contract is
not
highly effective.
 
We manage credit risk associated with derivative contracts by executing derivative instruments with counterparties that we believe are credit-worthy. The amount of such credit risk is limited to the fair value of the derivative contract plus the unpaid portion of amounts due to us pursuant to terms of the derivative contracts, if any. If the credit-worthiness of these counterparties deteriorates, we believe the exposure is mitigated by provisions in the derivative arrangements which allow for the legal right of offset of amounts due to us from the counterparties, if any, with any amounts payable to the counterparties.
 
The following tables provide a summary of our outstanding derivative contracts:
 
   
As of
(in millions)
 
March 31, 2019
 
December 31, 2018
Cash flow hedge:
 
 
 
 
 
 
 
 
Interest rate swap
  $
150.0
 
  $
150.0
 
Commodity and energy derivative contracts:
 
 
 
 
 
 
 
 
Metal
   
7.8
 
   
27.9
 
Energy and utilities
   
4.2
 
   
3.0
 
Total
  $
162.0
 
  $
180.9
 
 
   
As of
(in millions)
 
March 31, 2019
 
December 31, 2018
Commodity and energy derivative contracts:
 
 
 
 
 
 
 
 
Notional amount - long
  $
50.5
 
  $
67.4
 
Notional amount - (short)
   
(38.5
)
   
(36.5
)
Net long / (short)
  $
12.0
 
  $
30.9
 
 
The fair values of derivative contracts in the consolidated balance sheets include the impact of netting derivative assets and liabilities when a legally enforceable master netting arrangement exists. The following tables summarize the gross amounts of open derivative contracts, the net amounts presented in the unaudited consolidated balance sheets, and the collateral deposited with counterparties:
 
 
   
As of March 31, 2019
(in millions)
 
Gross Amounts of Recognized Assets
 
Gross Amounts
Offset in Consolidated
Balance Sheet
 
Net Amounts of
Assets Presented in Consolidated
Balance Sheet
Commodity and energy derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Metal
  $
3.0
 
  $
(1.2
)
  $
1.8
 
Energy and utilities
   
0.2
 
   
(0.2
)
   
-
 
Collateral on deposit
   
0.1
 
   
-
 
   
0.1
 
Total
  $
3.3
 
  $
(1.4
)
  $
1.9
 
Consolidated balance sheet location:
                       
Prepaid expenses and other current assets
   
 
 
   
 
 
  $
1.9
 
 
   
As of March 31, 2019
(in millions)
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts
Offset in Consolidated Balance Sheet
 
Net Amounts of
Liabilities Presented in Consolidated
Balance Sheet
Cash flow hedge:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap
  $
3.6
 
  $
-
 
  $
3.6
 
Commodity and energy derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Metal
   
1.2
 
   
(1.2
)
   
-
 
Energy and utilities
   
0.2
 
   
(0.2
)
   
-
 
Total
  $
5.0
 
  $
(1.4
)
  $
3.6
 
Consolidated balance sheet location:
                       
Other noncurrent liabilities
   
 
 
   
 
 
  $
3.6
 
 
   
As of December 31, 2018
(in millions)
 
Gross Amounts of Recognized Assets
 
Gross Amounts
Offset in Consolidated Balance Sheet
 
Net Amounts of
Assets Presented in Consolidated
Balance Sheet
Commodity and energy derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Metal
  $
3.3
 
  $
(3.3
)
  $
-
 
Energy and utilities
   
0.1
 
   
(0.1
)
   
-
 
Collateral on deposit
   
0.1
 
   
(0.1
)
   
-
 
Total
  $
3.5
 
  $
(3.5
)
  $
-
 
 
   
As of December 31, 2018
(in millions)
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts
Offset in Consolidated Balance Sheet
 
Net Amounts of
Liabilities Presented in Consolidated
Balance Sheet
Cash flow hedge:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap
  $
2.0
 
  $
-
 
  $
2.0
 
Commodity and energy derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Metal
   
4.2
 
   
(3.4
)
   
0.8
 
Energy and utilities
   
0.3
 
   
(0.1
)
   
0.2
 
Total
  $
6.5
 
  $
(3.5
)
  $
3.0
 
Consolidated balance sheet location:
                       
Accrued liabilities
   
 
 
   
 
 
  $
0.9
 
Other noncurrent liabilities
   
 
 
   
 
 
  $
2.1
 
 
The following table summarizes the effects of derivative contracts in the consolidated statements of comprehensive income and the consolidated statements of operations:
 
   
Three Months Ended March 31,
 
(in millions)
 
2019
   
2018
 
Cash flow hedge gains (losses) in other comprehensive income (loss) for:
 
 
 
 
 
 
 
 
Interest rate swap
  $
(1.6
)   $
-
 
Commodity and energy derivative contracts (gains) losses in cost of sales for:
 
 
 
 
 
 
 
 
Metal
  $
(2.8
)   $
1.9
 
Energy and utilities
   
(0.2
)    
-
 
Total commodity derivative contract (gains) losses in cost of sales
  $
(3.0
)   $
1.9