Derivative Instruments and Hedging Activities (Notes)

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Exchange rate fluctuations affect a portion of intercompany receivables that are denominated in foreign currencies, and we use forward currency contracts to reduce our exposure 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).

We are exposed to fluctuations in market prices of raw materials and energy sources. We may use cash-settled commodity price swaps and options (including collars) to hedge the market risk associated with the purchase of certain of our raw materials and energy requirements. For input commodities, these derivatives are typically used for a portion of our natural gas, nickel, iron ore, zinc and electricity requirements. Our hedging strategy is to reduce 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 recognized as an asset or liability at fair value. We record the effective gains and losses for commodity derivatives designated as cash flow hedges of forecasted purchases of raw materials and energy sources in accumulated other comprehensive income (loss) and reclassify them into cost of products sold in the same period we recognize earnings for the associated underlying transaction. We recognize gains and losses on these designated derivatives arising from either hedge ineffectiveness or from components excluded from the assessment of effectiveness in current earnings under cost of products sold. We record all gains or losses from derivatives for which hedge accounting treatment has not been elected to earnings on a current basis in cost of products sold. We have provided $3.4 of collateral to counterparties under collateral funding arrangements as of June 30, 2016.

Outstanding commodity price swaps and options and forward foreign exchange contracts are presented below:

Commodity	June 30, 2016		December 31, 2015
Nickel (in lbs)	39,000		164,800
Natural gas (in MMBTUs)	45,593,000		36,972,500
Zinc (in lbs)	41,351,000		54,173,800
Iron ore (in metric tons)	2,095,000		2,795,000
Electricity (in MWHs)	1,408,000		1,386,400
Foreign exchange contracts (in euros)	€	18,050,000	€	55,500,000

The fair value of derivative instruments in the condensed consolidated balance sheets is presented below:

Asset (liability)	June 30, 2016			December 31, 2015
Derivatives designated as hedging instruments:
Other current assets—commodity contracts	$	9.6		$	0.3
Other noncurrent assets—commodity contracts	3.4			0.3
Accrued liabilities—commodity contracts	(9.7		)	(40.9		)
Other non-current liabilities—commodity contracts	(1.9		)	(9.5		)
Derivatives not designated as hedging instruments:
Other current assets:
Foreign exchange contracts	0.1			1.1
Commodity contracts	—			0.2
Accrued liabilities—commodity contracts	(0.1		)	(0.3		)

Gains (losses) on derivative instruments included in the condensed consolidated statements of operations are presented below:

	Three Months Ended June 30,						Six Months Ended June 30,
Gain (loss)	2016			2015			2016			2015
Derivatives designated as cash flow hedges—
Commodity contracts:
Reclassified from accumulated other comprehensive income into cost of products sold (effective portion)	$	(14.5	)	$	(9.3	)	$	(27.7	)	$	(27.2	)
Recognized in cost of products sold (ineffective portion and amount excluded from effectiveness testing)	(14.1		)	(1.1		)	(9.7		)	(14.1		)
Derivatives not designated as hedging instruments:
Foreign exchange contracts—recognized in other income (expense)	1.0			(2.8		)	(0.8		)	(1.4		)
Commodity contracts:
Recognized in net sales	—			0.5			—			1.8
Recognized in cost of products sold	—			0.9			(0.5		)	(1.5		)

Gains (losses) before tax expected to be reclassified into cost of products sold within the next twelve months for our existing commodity contracts that qualify for hedge accounting, as well as the period over which we are hedging our exposure to the volatility in future cash flows, are presented below:

Commodity Hedge	Settlement Dates	Gains (losses)
Natural gas	July 2016 to June 2018	$	0.4
Zinc	July 2016 to May 2018	0.9
Iron ore	July 2016 to May 2018	1.0
Electricity	July 2016 to December 2017	(0.4		)