Derivatives, Hedging Programs and Other Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of material derivative positions

The following table summarizes our derivative positions at September 30, 2017:

Aluminum	Maturity Period (month/year)	Notional Amount of contracts (mmlbs)
Purchased put option contracts	10/17 through 12/17	13.4
Fixed price purchase contracts	10/17 through 12/21	151.9
Fixed price sales contracts	10/17 through 11/19	1.8
Midwest premium swap contracts1	10/17 through 12/21	150.1

Alloying Metals	Maturity Period (month/year)	Notional Amount of contracts (mmlbs)
Fixed price purchase contracts	10/17 through 6/18	4.6

Natural Gas2	Maturity Period (month/year)	Notional Amount of contracts (mmbtu)
Fixed price purchase contracts	10/17 through 12/20	3,650,000

Euro	Maturity Period (month/year)	Notional Amount of contracts (euro)
Fixed price purchase contracts	10/17 through 4/18	301,304

______________________

¹  Regional premiums represent the premium over the London Metal Exchange price for primary aluminum which is incurred on our purchases of primary aluminum.

²  As of September 30, 2017, we had derivative and/or physical delivery commitments with energy companies in place to cover exposure to fluctuations in prices for approximately 72% of the expected natural gas purchases for the remainder of 2017, 71% of the expected natural gas purchases for both 2018 and 2019 and 39% of the expected natural gas purchases for 2020.

Summary of realized and unrealized gains and losses

Realized and unrealized (gain) loss included on the Statements of Consolidated Income associated with all derivative contracts consisted of the following for each period presented (in millions of dollars):

	Quarter Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Realized (gain) loss:
Aluminum	$	(4.0	)	$	0.4		$	(13.8	)	$	4.1
Natural gas	0.2			0.9			0.3			4.2
Alloy Hedges	(0.3		)	—			(0.2		)	—
Foreign exchange	(0.1		)	—			(0.1		)	—
Total realized (gain) loss1	$	(4.2	)	$	1.3		$	(13.8	)	$	8.3
Unrealized (gain) loss:
Aluminum	$	(10.6	)	$	(1.7	)	$	(15.3	)	$	(11.7	)
Natural gas	(0.2		)	(0.3		)	1.3			(5.2		)
Total unrealized gain2	$	(10.8	)	$	(2.0	)	$	(14.0	)	$	(16.9	)

______________________

¹  Recorded within Cost of products sold, excluding depreciation, amortization and other items within the Fabricated Products segment.

²  Recorded within Unrealized gain on derivative instruments within the Fabricated Products segment.

Fair Value of Derivative Assets and Liabilities Measured on Recurring Basis

The following table presents our financial instruments, classified under the appropriate level of the fair value hierarchy, as of the period presented (in millions of dollars):

	September 30, 2017
	Level 1		Level 2		Level 3		Total
DERIVATIVE ASSETS:
Non-Designated Hedges:
Aluminum –
Fixed price purchase contracts	$	—	$	18.4	$	—	$	18.4
Midwest premium swap contracts	—		0.8		—		0.8
Natural gas – Fixed price purchase contracts	—		0.4		—		0.4
Designated Hedges:
Alloying metals – Fixed price purchase contracts	—		0.9		—		0.9
Total derivative assets1	$	—	$	20.5	$	—	$	20.5

	September 30, 2017
	Level 1		Level 2			Level 3		Total
DERIVATIVE LIABILITIES:
Non-Designated Hedges:
Aluminum –
Fixed price sales contracts	$	—	$	(0.1	)	$	—	$	(0.1	)
Midwest premium swap contracts	—		(0.8		)	—		(0.8		)
Natural gas – Fixed price purchase contracts	—		(0.5		)	—		(0.5		)
Total derivative liabilities2	$	—	$	(1.4	)	$	—	$	(1.4	)

____________

¹  Of the $20.5 million in total derivative assets, $15.8 million and $4.7 million were recorded within Prepaid expenses and other current assets and Other assets, respectively.

²  Of the $1.4 million in total derivative liabilities, $0.9 million and $0.5 million were recorded within Other accrued liabilities and Long-term liabilities, respectively.

The following table presents our financial instruments, classified under the appropriate level of the fair value hierarchy, as of the period presented (in millions of dollars):

	December 31, 2016
	Level 1		Level 2			Level 3		Total
DERIVATIVE ASSETS:
Non-Designated Hedges:
Aluminum –
Fixed price purchase contracts	$	—	$	3.3		$	—	$	3.3
Midwest premium swap contracts	—		0.9			—		0.9
Natural gas – Fixed price purchase contracts	—		1.6			—		1.6
Total derivative assets1	$	—	$	5.8		$	—	$	5.8
DERIVATIVE LIABILITIES:
Non-Designated Hedges:
Aluminum –
Fixed price purchase contracts	$	—	$	(1.1	)	$	—	$	(1.1	)
Midwest premium swap contracts	—		(0.2		)	—		(0.2		)
Natural gas – Fixed price purchase contracts	—		(0.4		)	—		(0.4		)
Designated Hedges:
Alloying metals – Fixed price purchase contracts	—		(0.1		)	—		(0.1		)
Total derivative liabilities2	$	—	$	(1.8	)	$	—	$	(1.8	)

____________

¹  Of the $5.8 million in total derivative assets, $5.0 million and $0.8 million were recorded within Prepaid expenses and other current assets and Other assets, respectively.

²  Of the $1.8 million in total derivative liabilities, $0.8 million and $1.0 million were recorded within Other accrued liabilities and Long-term liabilities, respectively.

Offsetting Assets

The following tables present offsetting information regarding our derivatives by type of counterparty as of December 31, 2016 (in millions of dollars):

	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets		Net Amount
Counterparty (with netting agreements)	$	3.3	$	—	$	3.3	$	1.0	$	2.3
Counterparty (with partial netting agreements)	2.5		—		2.5		0.7		1.8
Total	$	5.8	$	—	$	5.8	$	1.7	$	4.1

The following tables present offsetting information regarding our derivatives by type of counterparty as of September 30, 2017 (in millions of dollars):

	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets		Net Amount
Counterparty (with netting agreements)	$	20.5	$	—	$	20.5	$	1.4	$	19.1
Total	$	20.5	$	—	$	20.5	$	1.4	$	19.1

Offseting Liabilities

	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets			Gross Amounts Not Offset in the Consolidated Balance Sheets			Net Amount
Counterparty (with netting agreements)	$	(1.0	)	$	—	$	(1.0	)	$	(1.0	)	$	—
Counterparty (with partial netting agreements)	(0.8		)	—		(0.8		)	(0.7		)	(0.1		)
Total	$	(1.8	)	$	—	$	(1.8	)	$	(1.7	)	$	(0.1	)

	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets			Gross Amounts Not Offset in the Consolidated Balance Sheets			Net Amount
Counterparty (with netting agreements)	$	(1.4	)	$	—	$	(1.4	)	$	(1.4	)	$	—
Total	$	(1.4	)	$	—	$	(1.4	)	$	(1.4	)	$	—

Fair Value, Non-Derivative Assets Measured on Recurring Basis

The following table presents our other financial assets, classified under the appropriate level of the fair value hierarchy, as of September 30, 2017 (in millions of dollars):

	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	17.3	$	56.6	$	—	$	73.9
Short-term investments	—		191.4		—		191.4
Total	$	17.3	$	248.0	$	—	$	265.3

The following table presents our other financial assets, classified under the appropriate level of the fair value hierarchy, as of December 31, 2016 (in millions of dollars):

	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	37.9	$	17.3	$	—	$	55.2
Short-term investments	—		231.0		—		231.0
Total	$	37.9	$	248.3	$	—	$	286.2