XML 28 R15.htm IDEA: XBRL DOCUMENT
v3.8.0.1

Derivative Financial Instruments and Hedging | 3 Months Ended
--- | ---
Mar. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging | Derivative Financial Instruments and Hedging As part of its risk management strategy, the Company, from time-to-time, utilizes derivative financial instruments to manage its exposure to changes in raw material prices, energy costs, foreign currencies, and interest rates. In accordance with applicable accounting standards, the Company accounts for most of these contracts as hedges. In January 2018, the Company early adopted changes issued by the FASB related to accounting guidance for derivatives and hedging, which includes, among other things, the elimination of the concept of recognizing periodic hedge ineffectiveness for cash flow hedges. The Company sometimes uses futures and swap contracts to manage exposure to changes in prices for forecasted purchases of raw materials, such as nickel, and natural gas. Under these contracts, which are generally accounted for as cash flow hedges, the price of the item being hedged is fixed at the time that the contract is entered into, and the Company is obligated to make or receive a payment equal to the net change between this fixed price and the market price at the date the contract matures. The majority of ATI’s products are sold utilizing raw material surcharges and index mechanisms. However, as of March 31, 2018, the Company had entered into financial hedging arrangements, primarily at the request of its customers, related to firm orders, for an aggregate notional amount of approximately 15 million pounds of nickel with hedge dates through 2021. The aggregate notional amount hedged is approximately 15% of a single year’s estimated nickel raw material purchase requirements. At March 31, 2018, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges. At March 31, 2018, the Company hedged approximately 35% of the Company’s forecasted domestic requirements for natural gas for the remainder of 2018, approximately 35% for 2019, and approximately 15% for 2020. While the majority of the Company’s direct export sales are transacted in U.S. dollars, foreign currency exchange contracts are used, from time-to-time, to limit transactional exposure to changes in currency exchange rates for those transactions denominated in a non-U.S. currency. The Company sometimes purchases foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts are designated as hedges of the variability in cash flows of a portion of the forecasted future export sales transactions which otherwise would expose the Company to foreign currency risk, primarily euros. At March 31, 2018, the Company held euro forward sales contracts designated as cash flow hedges with a notional value of approximately 21 million euros with maturity dates through December 2018. In addition, the Company may also designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. There were no unsettled derivative financial instruments related to debt balances for the periods presented. There are no credit risk-related contingent features in the Company’s derivative contracts, and the contracts contained no provisions under which the Company has posted, or would be required to post, collateral. The counterparties to the Company’s derivative contracts are substantial and creditworthy commercial banks that are recognized market makers. The Company controls its credit exposure by diversifying across multiple counterparties and by monitoring credit ratings and credit default swap spreads of its counterparties. The Company also enters into master netting agreements with counterparties when possible. The fair values of the Company’s derivative financial instruments are presented below, representing the gross amounts recognized which are not offset by counterparty or by type of item hedged. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy, which includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs derived principally from or corroborated by observable market data.
(In millions) Asset derivatives |  | Balance sheet location |  | March 31, 2018 |  | December 31, 2017
Derivatives designated as hedging instruments: |  |  |  |
Natural gas contacts |  | Prepaid expenses and other current assets |  | 0.2 |  |  | 0.1 |
Nickel and other raw material contracts |  | Prepaid expenses and other current assets |  | 10.2 |  |  | 10.5 |
Natural gas contracts |  | Other assets |  | 0.1 |  |  | 0.3 |
Nickel and other raw material contracts |  | Other assets |  | 5.1 |  |  | 5.5 |
Total derivatives designated as hedging instruments |  | 15.6 |  |  | 16.4 |
Derivatives not designated as hedging instruments: |  |  |  |
Foreign exchange contracts |  | Prepaid expenses and other current assets |  | — |  |  | 0.1 |
Total derivatives not designated as hedging instruments |  | — |  |  | 0.1 |
Total asset derivatives |  |  |  | $ | 15.6 |  |  | $ | 16.5 |
Liability derivatives |  | Balance sheet location |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |
Natural gas contracts |  | Accrued liabilities |  | $ | 0.2 |  |  | $ | 0.9 |
Nickel and other raw material contracts |  | Accrued liabilities |  | 1.5 |  |  | 2.1 |
Foreign exchange contracts |  | Accrued liabilities |  | 0.6 |  |  | — |
Natural gas contracts |  | Other long-term liabilities |  | 0.4 |  |  | 0.3 |
Nickel and other raw material contracts |  | Other long-term liabilities |  | 1.6 |  |  | 2.2 |
Total derivatives designated as hedging instruments |  | 4.3 |  |  | 5.5 |
Derivatives not designated as hedging instruments: |  |  |  |
Foreign exchange contracts |  | Accrued Liabilities |  | 0.2 |  |  | — |
Total derivatives not designated as hedging instruments |  | 0.2 |  |  | — |
Total liability derivatives |  |  |  | $ | 4.5 |  |  | $ | 5.5 |
For derivative financial instruments that are designated as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged item affects earnings. For derivative financial instruments that are designated as fair value hedges, changes in the fair value of these derivatives are recognized in current period results and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows. There were no outstanding fair value hedges as of March 31, 2018. The Company did not use net investment hedges for the periods presented. The effects of derivative instruments in the tables below are presented net of related income taxes, excluding any impacts of changes to income tax valuation allowances effecting results of operations or other comprehensive income, when applicable (see Note 14 for further explanation). Assuming market prices remain constant with those at March 31, 2018, a pre-tax gain of $8.1 million is expected to be recognized over the next 12 months. Activity with regard to derivatives designated as cash flow hedges for the three month periods ended March 31, 2018 and 2017 was as follows (in millions):
| Amount of Gain (Loss) Recognized in OCI on Derivatives |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a) |
| Three months ended March 31, |  | Three months ended March 31, |
Derivatives in Cash Flow Hedging Relationships | 2018 |  | 2017 |  | 2018 |  | 2017 |
Nickel and other raw material contracts | $ | 3.1 |  |  | $ | 0.2 |  |  | $ | 2.8 |  |  | $ | (0.6 | ) |
Natural gas contracts | 0.2 |  |  | (1.6 | ) |  | (0.3 | ) |  | (1.4 | ) |
Foreign exchange contracts | (0.8 | ) |  | (0.1 | ) |  | (0.2 | ) |  | 2.6 |  |
Total | $ | 2.5 |  |  | $ | (1.5 | ) |  | $ | 2.3 |  |  | $ | 0.6 |  |
(a) | The gains (losses) reclassified from accumulated OCI into income related to the derivatives are presented in cost of sales in the same period or periods in which the hedged item affects earnings.
The disclosures of gains or losses presented above for nickel and other raw material contracts and foreign currency contracts do not take into account the anticipated underlying transactions. Since these derivative contracts represent hedges, the net effect of any gain or loss on results of operations may be fully or partially offset. The Company has 10 million euro notional value outstanding as of March 31, 2018 of foreign currency forward contracts not designated as hedges, with maturity dates into the fourth quarter of 2018. These derivatives that are not designated as hedging instruments were as follows:
(In millions) |  | Amount of Gain (Loss) Recognized in Income on Derivatives
|  | Three months ended March 31,
Derivatives Not Designated as Hedging Instruments |  | 2018 |  | 2017
Foreign exchange contracts |  | $ | (0.2 | ) |  | $ | (0.1 | )
Changes in the fair value of foreign exchange contract derivatives not designated as hedging instruments are recorded in cost of sales and are reported as changes within accrued liabilities and other on the consolidated statements of cash flows.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration