Disclosures About Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Disclosures About Derivative Instruments and Hedging Activities

Disclosures About Derivative Instruments and Hedging Activities

The Company is subject to fluctuations of exchange rates on a portion of intercompany receivables that are denominated in foreign currencies and uses forward currency contracts to manage exposures to certain of these currency price fluctuations. These contracts have not been designated as hedges for accounting purposes and gains or losses are reported in earnings on a current basis in other income (expense).

The Company is exposed to fluctuations in market prices of raw materials and energy sources. The Company uses cash-settled commodity price swaps and options (including collars) to hedge the market risk associated with the purchase of certain of its raw materials and energy requirements. These derivatives are routinely used with respect to a portion of the Company’s natural gas and nickel requirements and also are used with respect to its iron ore, aluminum, zinc and electricity requirements. The Company’s hedging strategy is designed to mitigate the effect on earnings from the price volatility of these various commodity exposures. Independent of any hedging activities, price increases in any of these commodity markets could negatively affect operating costs.

All commodity derivatives are marked to market and recognized as an asset or liability at fair value. The effective gains and losses for commodity derivatives designated as cash flow hedges of forecasted purchases of raw materials and energy sources are recognized in accumulated other comprehensive income on the Condensed Consolidated Balance Sheets and reclassified into cost of products sold in the same period as the earnings recognition of the associated underlying transaction. Gains and losses on these designated derivatives arising from either hedge ineffectiveness or related to components excluded from the assessment of effectiveness are recognized in current earnings under cost of products sold. All gains or losses from commodity derivatives for which hedge accounting treatment has not been elected are also reported in earnings on a current basis in cost of products sold.

The Company had the following outstanding commodity price swaps and options and forward foreign exchange contracts as of September 30, 2012 and December 31, 2011:

Commodity	September 30, 2012		December 31, 2011
Nickel (in lbs)	627,700		545,500
Natural gas (in MMBTUs)	7,700,000		28,700,000
Zinc (in lbs)	7,500,000		21,000,000
Electricity (in MWHs)	25,600		—
Iron ore (in metric tons)	990,000		294,000
Foreign exchange contracts (in euros)	€	15,690,000	€	13,050,000

The following table presents the fair value of derivative instruments in the Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011:

Asset (liability)	September 30, 2012			December 31, 2011
Derivatives designated as hedging instruments:
Other current assets—commodity contracts	$	0.5		$	—
Accrued liabilities—commodity contracts	(9.2		)	(19.4		)
Other non-current liabilities—commodity contracts	(0.2		)	—
Derivatives not designated as hedging instruments:
Other current assets:
Foreign exchange contracts	—			1.0
Commodity contracts	0.2			—
Accrued liabilities:
Foreign exchange contracts	(0.5		)	—
Commodity contracts	(0.9		)	(2.2		)

The following table presents gains (losses) on derivative instruments included in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,						Nine Months Ended September 30,
Gain (loss)	2012			2011			2012			2011
Derivatives in cash flow hedging relationships—
Commodity contracts:
Reclassified from accumulated other comprehensive income (loss) into cost of products sold (effective portion)	$	(11.3	)	$	1.9		$	(31.9	)	$	(3.4	)
Recognized in cost of products sold (ineffective portion and amount excluded from effectiveness testing)	(0.7		)	(3.5		)	(0.7		)	(5.9		)
Derivatives not designated as hedging instruments:
Foreign exchange contracts—recognized in other income (expense)	(0.9		)	1.4			(1.6		)	1.5
Commodity contracts—recognized in cost of products sold	1.1			(6.6		)	0.2			(6.5		)

The following table lists the duration of the derivatives and the amount of gains (losses) expected to be reclassified into cost of products sold within the next twelve months for the Company’s existing commodity contracts that qualify for hedge accounting:

Commodity Hedge	Settlement Dates	Gains (losses)
Natural gas	October 2012 to December 2012	$	(1.2	)
Zinc	October 2012 to December 2012	0.4
Electricity	October 2012 to December 2012	0.1
Iron ore	October 2012 to December 2013	(6.8		)