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Derivative and Other Financial Instruments | 9 Months Ended
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Sep. 30, 2016
General Discussion of Derivative Instruments and Hedging Activities [Abstract] |
Derivative and Other Financial Instruments | Derivative and Other Financial Instruments Fair Value Measurements Under GAAP a framework exists for measuring fair value, providing a three-tier hierarchy of pricing inputs used to report assets and liabilities that are adjusted to fair value. Level 1 includes inputs such as quoted prices which are available in active markets for identical assets or liabilities as of the report date. Level 2 includes inputs other than those available in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3 includes unobservable pricing inputs that are not corroborated by market data or other objective sources. The Company has no recurring items valued using Level 3 inputs other than certain pension plan assets. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities measured at fair value and their placement within the fair value hierarchy. The Company applies a market approach to value its commodity price hedge contracts. Prices from observable markets are used to develop the fair value of these financial instruments and they are reported under Level 2. The Company uses an income approach to value its foreign exchange forward contracts. These contracts are valued using a discounted cash flow model that calculates the present value of future cash flows under the terms of the contracts using market information as of the reporting date, such as foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy. Fair value disclosures for financial assets and liabilities that were accounted for at fair value on a recurring basis are provided later in this note. In addition, see Note J for fair value disclosures related to debt. Derivative Financial Instruments In the normal course of business the Company is subject to risk from adverse fluctuations in currency exchange rates, interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes. The Company’s objective in managing exposure to market risk is to limit the impact on earnings and cash flow. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales agreements that permit the pass-through of commodity price and foreign exchange rate risk to customers. For derivative financial instruments accounted for in hedging relationships, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the manner in which effectiveness will be assessed. The Company formally assesses, both at inception and at least quarterly thereafter, whether the hedging relationships are effective in offsetting changes in fair value or cash flows of the related underlying exposures. When a hedge no longer qualifies for hedge accounting the change in fair value from the date of the last effectiveness test is recognized in earnings. Any gain or loss which has accumulated in other comprehensive income at the date of the last effectiveness test is reclassified into earnings at the same time of the underlying exposure. Cash Flow Hedges The Company designates certain derivative financial instruments as cash flow hedges. No components of the hedging instruments are excluded from the assessment of hedge effectiveness. Changes in fair value of outstanding derivatives accounted for as cash flow hedges, except for ineffectiveness, are recorded in other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon reclassification from comprehensive income is the same as that of the underlying exposure. Contracts outstanding at September 30, 2016 mature between one and twenty-five months. When the Company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally specified period, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings. The Company uses forward contracts to hedge anticipated purchases of various commodities, including aluminum, fuel oil and natural gas and these exposures are hedged by a central treasury unit. The Company also designates certain foreign exchange contracts as cash flow hedges of anticipated foreign currency denominated sales or purchases. The Company manages these risks at the operating unit level. Often, foreign currency risk is hedged together with the related commodity price risk. The following table sets forth financial information about the impact on accumulated other comprehensive income (“AOCI”) and earnings from changes in the fair value of derivative instruments.
|  | Amount of gain/(loss) |  | Amount of gain/(loss)
|  | recognized in AOCI |  | reclassified from AOCI
|  | (effective portion) |  | into earnings
|  | Three Months Ended |  | Nine Months Ended |  | Three Months Ended |  | Nine Months Ended
Derivatives in cash flow hedges |  | September 30, 2016 |  | September 30, 2016 |  | September 30, 2016 |  | September 30, 2016
Foreign exchange |  | $ | — |  |  | $ | 3 |  |  | $ | 1 |  |  | $ | 2 |
Commodities |  | 4 |  |  | 16 |  |  | — |  |  | (7 | )
Total |  | $ | 4 |  |  | $ | 19 |  |  | $ | 1 |  |  | $ | (5 | )
|  | Amount of gain/(loss) |  | Amount of gain/(loss)
|  | recognized in AOCI |  | reclassified from AOCI
|  | (effective portion) |  | into earnings
|  | Three Months Ended |  | Nine Months Ended |  | Three Months Ended |  | Nine Months Ended
Derivatives in cash flow hedges |  | September 30, 2015 |  | September 30, 2015 |  | September 30, 2015 |  | September 30, 2015
Foreign exchange |  | $ | 1 |  |  | $ | (2 | ) |  | $ | — |  |  | $ | (1 | )
Commodities |  | (15 | ) |  | (26 | ) |  | (9 | ) |  | (12 | )
Total |  | $ | (14 | ) |  | $ | (28 | ) |  | $ | (9 | ) |  | $ | (13 | )
For the nine months ended September 30, 2016 and 2015, the Company recognized gains of $1 ($1 net of tax) and $2 ($1 net of tax) in earnings related to hedge ineffectiveness caused by volatility in the metal premium component of aluminum prices. For the twelve month period ending September 30, 2017, a net gain of $9 ($7 net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the nine months ended September 30, 2016 and 2015 in connection with anticipated transactions that were no longer considered probable. Fair Value Hedges and Contracts Not Designated as Hedges The Company designates certain derivative financial instruments as fair value hedges of recognized foreign-denominated assets and liabilities, generally trade accounts receivable and payable and unrecognized firm commitments. The notional values and maturity dates of the derivative instruments coincide with those of the hedged items. Changes in fair value of the derivative financial instruments, excluding time value, are offset by changes in fair value of the related hedged items. Other than for firm commitments, amounts related to time value are excluded from the assessment and measurement of hedge effectiveness and are reported in earnings. Less than $1 was reported in earnings for the nine months ended September 30, 2016. Certain derivative financial instruments, including foreign exchange contracts related to intercompany debt, were not designated in hedge relationships; however, they are effective economic hedges as the changes in their fair value, except for time value, are offset by changes in re-measurement of the related hedged items. The Company’s primary use of these derivative instruments is to offset the earnings impact that fluctuations in foreign exchange rates have on certain monetary assets and liabilities denominated in currencies other than the entity's functional currency. Changes in fair value of these derivative instruments are immediately recognized in earnings as foreign exchange adjustments. The impact on earnings from foreign exchange contracts designated as fair value hedges was a loss of $1 and a loss of $6 for the three and nine months ended September 30, 2016 and a loss of less than $1 and a gain of less than $1 for the three and nine months ended September 30, 2015. The impact on earnings from foreign exchange contracts not designated as hedges was a gain of $6 and a gain of $32 for the three and nine months ended September 30, 2016 and a gain of $24 and a loss of $19 for the same period in 2015. These adjustments were reported within foreign exchange in the Consolidated Statements of Operations and were offset by changes in the fair values of the related underlying hedged items. For the three and nine months ended September 30, 2016, certain commodity hedges did not meet the criteria for hedge accounting and therefore the change in their fair value during the quarter was recognized in earnings. For the three and nine months ended September 30, 2016, the Company recognized a gain of $1 ($1 net of tax) and a gain of $5 ($4 net of tax) in earnings related to these ineffective hedges. Net Investment Hedges The Company designates certain derivative and non-derivative financial instruments (debt) as hedges of its net investment in a euro-based subsidiary and recorded a loss of $13 ($8 net of tax) and a loss of $31 ($20 net of tax) in accumulated other comprehensive income during the three and nine months ended September 30, 2016. Fair Values of Derivative Financial Instruments and Valuation Hierarchy The following table sets forth the fair value hierarchy for the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, respectively.
|  | Balance Sheet classification |  | Fair Value hierarchy |  | September 30, 2016 |  | December 31, 2015
Derivative assets |  |  |  |  |  |  |  |
Derivatives designated as hedges: |  |  |  |  |  |
Foreign exchange |  | Other current assets |  | 2 |  | $ | 30 |  |  | $ | 32 |
Commodities |  | Other current assets |  | 2 |  | 11 |  |  | 5 |
Commodities |  | Other non-current assets |  | 2 |  | 4 |  |  | 2 |
Derivatives not designated as hedges: |  |  |  |  |  |
Commodities |  | Other current assets |  | 2 |  | 3 |  |  | 3 |
Commodities |  | Other non-current assets |  | 2 |  | 1 |  |  | — |
|  | Total |  |  |  | $ | 49 |  |  | $ | 42 |
Derivative liabilities |  |  |  |  |  |  |  |
Derivatives designated as hedges: |  |  |  |  |  |
Foreign exchange |  | Accounts payable and accrued liabilities |  | 2 |  | $ | 26 |  |  | $ | 14 |
Commodities |  | Accounts payable and accrued liabilities |  | 2 |  | 5 |  |  | 26 |
Commodities |  | Other non-current liabilities |  | 2 |  | 2 |  |  | 5 |
Derivatives not designated as hedges: |  |  |  |  |  |
Foreign exchange |  | Accounts payable and accrued liabilities |  | 2 |  | 2 |  |  | 2 |
Commodities |  | Accounts payable and accrued liabilities |  | 2 |  | 1 |  |  | 5 |
|  | Total |  |  |  | $ | 36 |  |  | $ | 52 |
Offsetting of Derivative Assets and Liabilities Certain derivative financial instruments are subject to agreements with counterparties similar to master netting arrangements and are eligible for offset. The Company has made an accounting policy election not to offset the fair values of these instruments within the statement of financial position. In the table below, the aggregate fair values of the Company's derivative assets and liabilities are presented on both a gross and net basis, where appropriate.
| Gross amounts recognized in the Balance Sheet | Gross amounts not offset in the Balance Sheet | Net amount
Balance at September 30, 2016 |  |  |
Derivative assets | $49 | $10 | $39
Derivative liabilities | 36 | 10 | 26
Balance at December 31, 2015 |  |  |
Derivative assets | 42 | 9 | 33
Derivative liabilities | 52 | 9 | 43
Notional Values of Outstanding Derivative Instruments The aggregate U.S. dollar-equivalent notational values of outstanding derivative instruments in the Consolidated Balance Sheets at September 30, 2016 and December 31, 2015 were:
| September 30, 2016 |  | December 31, 2015
Derivatives in cash flow hedges: |  |  |
Foreign exchange | $ | 604 |  |  | $ | 922 |
Commodities | 180 |  |  | 324 |
Derivatives in fair value hedges: |  |  |
Foreign exchange | 104 |  |  | 125 |
Derivatives not designated as hedges: |  |  |
Foreign exchange | 551 |  |  | 674 |
Commodities | 81 |  |  | 57 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
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