Derivative Instruments and Hedging Activities (Notes)

6 Months Ended

Jun. 30, 2014

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, 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 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. The effective gains and losses for hot roll carbon steel coils derivatives designated as cash flow hedges of forecasted sales are recorded in accumulated other comprehensive income on the Consolidated Balance Sheets and reclassified into net sales 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 or net sales, as appropriate. 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, 2014		December 31, 2013
Nickel (in lbs)	515,500		763,300
Natural gas (in MMBTUs)	3,240,000		3,240,000
Zinc (in lbs)	6,000,000		12,000,000
Electricity (in MWHs)	342,200		—
Iron ore (in metric tons)	1,471,900		190,735
Hot roll carbon steel coils (in short tons)	156,400		74,147
Foreign exchange contracts (in euros)	€	18,970,000	€	17,730,000

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

Asset (liability)	June 30, 2014			December 31, 2013
Derivatives designated as hedging instruments:
Other current assets—commodity contracts	$	2.3		$	2.6
Accrued liabilities—commodity contracts	(6.7		)	—
Derivatives not designated as hedging instruments:
Other current assets:
Foreign exchange contracts	0.1			—
Commodity contracts	0.8			2.3
Other noncurrent assets—commodity contracts	0.1			—
Accrued liabilities:
Foreign exchange contracts	—			(0.7		)
Commodity contracts	(18.4		)	(0.4		)
Other noncurrent liabilities—commodity contracts	(0.5		)	(0.1		)

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)	2014			2013			2014			2013
Derivatives in cash flow hedging relationships—
Commodity contracts:
Reclassified from accumulated other comprehensive income into net sales (effective portion)	$	—		$	—		$	—		$	0.4
Reclassified from accumulated other comprehensive income into cost of products sold (effective portion)	1.3			10.7			4.0			14.2
Recognized in cost of products sold (ineffective portion and amount excluded from effectiveness testing)	(0.7		)	0.6			(0.7		)	6.4
Derivatives not designated as hedging instruments:
Foreign exchange contracts—recognized in other income (expense)	0.2			(0.1		)	0.9			0.5
Commodity contracts:
Recognized in net sales	(0.6		)	(0.3		)	(4.2		)	0.2
Recognized in cost of products sold	(19.4		)	(0.2		)	(19.2		)	(0.2		)

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 2014 to December 2014	$	0.3
Zinc	July 2014 to December 2014	0.7
Electricity	July 2014 to September 2014	1.3
Iron ore	July 2014 to November 2014	(10.3		)