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Derivative Financial Instruments and Hedging | 9 Months Ended
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Sep. 30, 2019
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. 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 September 30, 2019, 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 9 million pounds of nickel with hedge dates through 2023. The aggregate notional amount hedged is approximately 9% of a single year’s estimated nickel raw material purchase requirements. At September 30, 2019, the outstanding financial derivatives used to hedge the Company’s exposure to energy cost volatility included natural gas cost hedges. At September 30, 2019, the Company hedged approximately 70% of the Company’s forecasted domestic requirements for natural gas for the remainder of 2019, approximately 70% for 2020, and approximately 50% for 2021. 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 euro. In addition, the Company may also designate cash balances held in foreign currencies as hedges of forecasted foreign currency transactions. At September 30, 2019, the Company held euro forward sales contracts designated as cash flow hedges with a notional value of approximately 12 million euro with maturity dates through December 2019. The Company may enter into derivative interest rate contracts to maintain a reasonable balance between fixed- and floating-rate debt. In July 2019, the Company amended its $50 million floating-for-fixed interest rate swap which converts half of the Term Loan to a fixed rate (now 4.21% following the September 30, 2019 ABL amendment and restatement), with a June 2024 maturity. The Company redesignated the existing interest rate swap as a cash flow hedge of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The ineffectiveness at hedge inception, determined from the fair value of the swap immediately prior to amendment, will be amortized to interest expense over the initial Term Loan swap maturity date of January 12, 2021. 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 |  | September 30, 2019 |  | December 31, 2018
Derivatives designated as hedging instruments: |  |  |  |
Foreign exchange contracts |  | Prepaid expenses and other current assets |  | $ | 0.7 |  |  | $ | — |
Natural gas contacts |  | Prepaid expenses and other current assets |  | — |  |  | 0.8 |
Nickel and other raw material contracts |  | Prepaid expenses and other current assets |  | 13.1 |  |  | 1.2 |
Natural gas contracts |  | Other assets |  | 0.1 |  |  | 0.2 |
Nickel and other raw material contracts |  | Other assets |  | 3.6 |  |  | 0.8 |
Total derivatives designated as hedging instruments |  | 17.5 |  |  | 3.0 |
Derivatives not designated as hedging instruments: |  |  |  |
Foreign exchange contracts |  | Prepaid expenses and other current assets |  | — |  |  | 0.4 |
Total derivatives not designated as hedging instruments |  | — |  |  | 0.4 |
Total asset derivatives |  |  |  | $ | 17.5 |  |  | $ | 3.4 |
Liability derivatives |  | Balance sheet location |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |
Interest rate swap |  | Other current liabilities |  | $ | 0.3 |  |  | $ | 0.2 |
Foreign exchange contracts |  | Other current liabilities |  | — |  |  | 0.6 |
Natural gas contracts |  | Other current liabilities |  | 1.7 |  |  | 0.1 |
Nickel and other raw material contracts |  | Other current liabilities |  | 0.3 |  |  | 6.8 |
Interest rate swap |  | Other long-term liabilities |  | 1.7 |  |  | 0.3 |
Natural gas contracts |  | Other long-term liabilities |  | 1.1 |  |  | 0.3 |
Nickel and other raw material contracts |  | Other long-term liabilities |  | — |  |  | 2.1 |
Total derivatives designated as hedging instruments |  | 5.1 |  |  | 10.4 |
Total liability derivatives |  |  |  | $ | 5.1 |  |  | $ | 10.4 |
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 September 30, 2019. 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 17 for further explanation). Assuming market prices remain constant with those at September 30, 2019, a pre-tax gain of $11.5 million is expected to be recognized over the next 12 months. Activity with regard to derivatives designated as cash flow hedges for the three and nine month periods ended September 30, 2019 and 2018 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 September 30, |  | Three months ended September 30,
Derivatives in Cash Flow Hedging Relationships | 2019 |  | 2018 |  | 2019 |  | 2018
Nickel and other raw material contracts | $ | 11.8 |  |  | $ | (8.0 | ) |  | $ | 1.1 |  |  | $ | 1.7 |
Natural gas contracts | (0.9 | ) |  | (0.1 | ) |  | (0.6 | ) |  | — |
Foreign exchange contracts | 0.9 |  |  | 0.2 |  |  | 0.3 |  |  | 0.4 |
Interest rate swap | (1.2 | ) |  | (0.2 | ) |  | (0.1 | ) |  | (0.1 | )
Total | $ | 10.6 |  |  | $ | (8.1 | ) |  | $ | 0.7 |  |  | $ | 2.0 |
| Amount of Gain (Loss) Recognized in OCI on Derivatives |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (a)
| Nine months ended September 30, |  | Nine months ended September 30,
Derivatives in Cash Flow Hedging Relationships | 2019 |  | 2018 |  | 2019 |  | 2018
Nickel and other raw material contracts | $ | 18.2 |  |  | $ | 1.3 |  |  | $ | 0.5 |  |  | $ | 7.9 |
Natural gas contracts | (3.2 | ) |  | 0.1 |  |  | (0.6 | ) |  | (0.4 | )
Foreign exchange contracts | 1.0 |  |  | 0.7 |  |  | — |  |  | 0.4 |
Interest rate swap | (1.7 | ) |  | (0.2 | ) |  | (0.3 | ) |  | (0.1 | )
Total | $ | 14.3 |  |  | $ | 1.9 |  |  | $ | (0.4 | ) |  | $ | 7.8 |
(a) | The gains (losses) reclassified from accumulated OCI into income related to the derivatives, with the exception of the interest rate swap, are presented in cost of sales in the same period or periods in which the hedged item affects earnings. The gains (losses) reclassified from accumulated OCI into income on the interest rate swap are presented in interest expense in the same period as the interest expense on the Term Loan is recognized in 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. 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. The Company has no outstanding foreign currency forward contracts not designated as hedges as of September 30, 2019.
(In millions) | Amount of Gain (Loss) Recognized in Income on Derivatives
| Three months ended September 30, |  | Nine months ended September 30,
Derivatives Not Designated as Hedging Instruments | 2019 |  | 2018 |  | 2019 |  | 2018
Foreign exchange contracts | $ | — |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | 0.1 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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