Derivative Financial Instruments | 3 Months Ended |
Mar. 31, 2014 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Derivative Financial Instruments | ' |
Derivative Financial Instruments |
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The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. The Company offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in currencies other than the Company's subsidiaries' functional currencies. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in AOCI. Deferred gains or losses are reclassified from AOCI to the Unaudited Condensed Consolidated Statements of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and generally recognized in cost of sales. |
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The Company uses interest rate swap agreements to partially reduce risks related to floating rate financing agreements that are subject to changes in market rates of interest. Terms of the interest rate swap agreements provide for the Company to receive a variable interest rate and pay a fixed interest rate. The Company's interest rate swap agreements and its variable rate financings are based upon LIBOR. Changes in the fair value of interest rate swap agreements that are effective as hedges are recorded in AOCI. Deferred gains or losses are reclassified from AOCI to the Unaudited Condensed Consolidated Statements of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and included on the line “Other” in the “Other expense (income)” section of the Unaudited Condensed Consolidated Statements of Operations. |
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Interest rate swap agreements and forward foreign currency exchange contracts held by the Company have been designated as hedges of forecasted cash flows. The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges. |
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The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company's exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are included on the line “Cost of sales” or “Other” in the “Other expense (income)” section of the Unaudited Condensed Consolidated Statements of Operations. |
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Cash flows from hedging activities are reported in the Unaudited Condensed Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as a component of cash flows from operations. |
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The Company measures its derivatives at fair value on a recurring basis using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates the LIBOR-swap curve, foreign currency spot rates and foreign currency forward rates to value its derivatives, including its interest rate swap agreements and foreign currency exchange contracts, and also incorporates the effect of its subsidiary and counterparty credit risk into the valuation. |
Foreign Currency Derivatives: HBB held forward foreign currency exchange contracts denominated primarily in Canadian dollars with total notional amounts of $11.0 million, $5.0 million and $8.6 million at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. The fair value of these contracts approximated a net asset of $0.1 million at March 31, 2014, a net asset of less than $0.1 million at December 31, 2013 and a net asset of $0.2 million at March 31, 2013. |
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Forward foreign currency exchange contracts that qualify for hedge accounting are used to hedge transactions expected to occur within the next twelve months. The mark-to-market effect of forward foreign currency exchange contracts that are considered effective as hedges have been included in AOCI. Based on market valuations at March 31, 2014, $0.1 million of the amount included in AOCI is expected to be reclassified as income into the Unaudited Condensed Consolidated Statements of Operations over the next twelve months, as the transactions occur. |
Interest Rate Derivatives: HBB has interest rate swap agreements that hedge interest payments on its one-month LIBOR borrowings. The following table summarizes the notional amounts, related rates and remaining terms of interest rate swap agreements active at March 31, 2014, delayed at December 31, 2013 and active at March 31, 2013, in millions: |
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Notional Amount | | Average Fixed Rate | | |
MARCH 31 | | DECEMBER 31 | | MARCH 31 | | MARCH 31 | | DECEMBER 31 | | MARCH 31 | | Remaining Term at March 31, 2014 |
2014 | 2013 | 2013 | 2014 | 2013 | 2013 |
$ | 20 | | | $ | 20 | | | $ | 25 | | | 1.4 | % | | 1.4 | % | | 4 | % | | extending to January 2020 |
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The fair value of HBB's interest rate swap agreements was a net asset of $0.6 million, a net asset of $0.8 million, and a net liability of $0.2 million at March 31, 2014, December 31, 2013, and March 31, 2013, respectively. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges have been included in AOCI. Based on market valuations at March 31, 2014, $0.1 million of the amount included in AOCI is expected to be reclassified as income into the Unaudited Condensed Consolidated Statements of Operations over the next twelve months, as cash flow payments are made in accordance with the interest rate swap agreements. The interest rate swap agreements held by HBB on March 31, 2014 are expected to continue to be effective as hedges. |
NACoal has interest rate swaps that hedge interest payments on its one-month LIBOR borrowings. The following table summarizes the notional amounts, related rates and remaining terms of the interest rate swap agreement active at March 31, 2014, December 31, 2013 and March 31, 2013 in millions: |
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Notional Amount | | Average Fixed Rate | | | | | |
MARCH 31 | | DECEMBER 31 | | MARCH 31 | | MARCH 31 | | DECEMBER 31 | | MARCH 31 | | Remaining Term at March 31, 2014 | | | |
2014 | 2013 | 2013 | 2014 | 2013 | 2013 | | | |
$ | 100 | | | $ | 100 | | | N/A | | 1.4 | % | | 1.4 | % | | N/A | | extending to May 2018 | | | |
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The fair value of NACoal's interest rate swap agreement was a net asset of less than $0.1 million and $0.1 million at March 31, 2014 and December 31, 2013, respectively. NACoal did not hold any derivative financial instruments at March 31, 2013. The mark-to-market effect of the interest rate swap agreement that is considered effective as a hedge has been included in AOCI. Based on market valuations at March 31, 2014, less than $0.1 million of the amount included in AOCI is expected to be reclassified as income into the Unaudited Condensed Consolidated Statements of Operations over the next twelve months, as cash flow payments are made in accordance with the interest rate swap agreement. The interest rate swap agreement held by NACoal on March 31, 2014 is expected to continue to be effective as a hedge. |
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The following table summarizes the fair value of derivatives designated as hedging instruments reflected on a gross basis at March 31, 2014, December 31, 2013, and March 31, 2013 as recorded in the Unaudited Condensed Consolidated Balance Sheets: |
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| Derivative Assets | | | | | | | | |
Derivatives designated as hedging instruments | Balance Sheet Location | | MARCH 31 | | DECEMBER 31 | | MARCH 31 | | | | | | | | |
2014 | 2013 | 2013 | | | | | | | | |
Interest rate swap agreements | Prepaid expenses and other | | $ | 103 | | | $ | 128 | | | $ | — | | | | | | | | | |
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Interest rate swap agreements | Other non-current assets | | 491 | | | 809 | | | — | | | | | | | | | |
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Foreign currency exchange contracts | Prepaid expenses and other | | 125 | | | 83 | | | 205 | | | | | | | | | |
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| | | $ | 719 | | | $ | 1,020 | | | $ | 205 | | | | | | | | | |
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| Derivative Liabilities | | | | | | | | |
Derivatives designated as hedging instruments | Balance Sheet Location | | MARCH 31 | | 31-Dec | | MARCH 31 | | | | | | | | |
2014 | 2013 | 2013 | | | | | | | | |
Interest rate swap agreements | Other current liabilities | | $ | — | | | $ | — | | | $ | 227 | | | | | | | | | |
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Foreign currency exchange contracts | Other current liabilities | | — | | | — | | | — | | | | | | | | | |
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| | | $ | — | | | $ | — | | | $ | 227 | | | | | | | | | |
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The following table summarizes the fair value of derivatives not designated as hedging instruments reflected on a gross basis at March 31, 2014, December 31, 2013, and March 31, 2013 as recorded in the Unaudited Condensed Consolidated Balance Sheets: |
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| Derivative Liabilities | | | | | | | | |
Derivatives not designated as hedging instruments | Balance Sheet Location | | 31-Mar | | 31-Dec | | 31-Mar | | | | | | | | |
2014 | 2013 | 2013 | | | | | | | | |
Foreign currency exchange contracts | Other current liabilities | | $ | 46 | | | $ | 14 | | | $ | — | | | | | | | | | |
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| | | $ | 46 | | | $ | 14 | | | $ | — | | | | | | | | | |
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The following table summarizes the pre-tax impact of derivative instruments for the three months ended March 31, 2014 and 2013 as recorded in the unaudited condensed consolidated statements of operations: |
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| Amount of Gain or (Loss) Recognized in AOCI on Derivatives (Effective Portion) | | Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion) | | | | | |
| THREE MONTHS | | | THREE MONTHS | | | | | |
Derivatives in Cash Flow Hedging Relationships | 2014 | | 2013 | | | 2014 | | 2013 | | | | | |
Interest rate swap agreements | $ | (708 | ) | | $ | (3 | ) | | Interest expense | $ | (364 | ) | | $ | (232 | ) | | | | | |
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Foreign currency exchange contracts | 76 | | | 199 | | | Cost of sales | 88 | | | (10 | ) | | | | | |
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Total | $ | (632 | ) | | $ | 196 | | | | $ | (276 | ) | | $ | (242 | ) | | | | | |
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| | | | | Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivatives | | | | | |
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Derivatives Not Designated as Hedging Instruments | | 2014 | | 2013 | | | | | |
Foreign currency exchange contracts | Other | $ | (46 | ) | | $ | — | | | | | | |
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Total | | $ | (46 | ) | | $ | — | | | | | | |
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See Note 6 for a discussion of the Company's fair value disclosures. There was no gain or loss recognized from ineffectiveness and no amounts were excluded from effectiveness testing. |