Derivative Instruments and Hedging Activities (Notes)

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

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, as well as to the effect of market prices on the sale of certain commodity steel (hot roll carbon steel coils). The Company may use 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 and the sale of hot roll carbon steel coils. With respect to input commodities, these derivatives are typically used for a portion of the Company’s natural gas, nickel, iron ore, 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 changes in any of these commodity markets could negatively affect operating costs or selling prices.

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 recorded in accumulated other comprehensive income (loss) on the 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 derivatives for which hedge accounting treatment has not been elected are also reported in earnings on a current basis in net sales or cost of products sold.

The Company had the following outstanding commodity price swaps and options and forward foreign exchange contracts:

Commodity	June 30, 2015		December 31, 2014
Nickel (in lbs)	314,500		259,300
Natural gas (in MMBTUs)	28,285,000		33,992,500
Zinc (in lbs)	55,496,200		61,800,000
Iron ore (in metric tons)	2,475,000		2,335,000
Electricity (in MWHs)	1,298,500		1,182,800
Hot roll carbon steel coils (in short tons)	6,000		15,000
Foreign exchange contracts (in euros)	€	39,575,000	€	23,675,000

The following table presents the fair value of derivative instruments in the Condensed Consolidated Balance Sheets:

Asset (liability)	June 30, 2015			December 31, 2014
Derivatives designated as hedging instruments:
Other current assets—commodity contracts	$	0.9		$	2.1
Other noncurrent assets—commodity contracts	0.6			1.8
Accrued liabilities—commodity contracts	(28.2		)	(32.0		)
Other non-current liabilities—commodity contracts	(7.3		)	(5.7		)
Derivatives not designated as hedging instruments:
Other current assets:
Foreign exchange contracts	0.5			1.2
Commodity contracts	0.8			1.5
Accrued liabilities—commodity contracts	(2.0		)	(4.2		)

The Company’s derivative contracts contain collateral funding requirements. The Company has master netting arrangements with its counterparties giving it the right to offset amounts owed under the derivative instruments and the collateral. The Company does not offset derivative assets and liabilities or collateral in its Condensed Consolidated Balance Sheets. The Company has recorded in other current assets $11.0 of collateral to counterparties under collateral funding arrangements as of June 30, 2015.

The following table presents gains (losses) on derivative instruments included in the Condensed Consolidated Statements of Operations:

	Three Months Ended June 30,						Six Months Ended June 30,
Gain (loss)	2015			2014			2015			2014
Derivatives designated as cash flow hedges—
Commodity contracts:
Reclassified from accumulated other comprehensive income into cost of products sold (effective portion)	$	(9.3	)	$	1.3		$	(27.2	)	$	4.0
Recognized in cost of products sold (ineffective portion and amount excluded from effectiveness testing)	(1.1		)	(0.7		)	(14.1		)	(0.7		)
Derivatives not designated as hedging instruments:
Foreign exchange contracts—recognized in other income (expense)	(2.8		)	0.2			(1.4		)	0.9
Commodity contracts:
Recognized in net sales	0.5			(0.6		)	1.8			(4.2		)
Recognized in cost of products sold	0.9			(19.4		)	(1.5		)	(19.2		)

The following table lists the amount of gains (losses) before tax 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, as well as the period of time over which the Company is hedging its exposure to the volatility in future cash flows:

Commodity Hedge	Settlement Dates	Gains (losses)
Natural gas	July 2015 to December 2016	$	(10.3	)
Zinc	July 2015 to December 2016	(4.7		)
Electricity	July 2015 to December 2016	(1.2		)
Iron ore	July 2015 to February 2017	(16.2		)