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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2015
Fair Value Disclosures [Abstract] |
Fair Value Measurement | Fair Value Measurements Overview We apply the fair value hierarchy established by GAAP for the recognition and measurement of certain financial assets and liabilities. An asset or liability’s fair value classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and consider counterparty risk in our assessment of fair value. The fair values of financial assets and liabilities are evaluated and measured on a recurring basis. As part of that evaluation process, we review the underlying inputs that are significant to the fair value measurement of financial instruments to determine if a transfer among hierarchy levels is appropriate. We historically have not had significant transfers into or out of each hierarchy level. Financial assets and liabilities that we measure at fair value as required by GAAP include: (i) our derivative instruments; (ii) the plan assets of the VEBAs and our Canadian defined benefit pension plan measured annually at December 31; and (iii) available for sale securities, consisting of debt investment securities and investments related to our deferred compensation plan (see Note 5). We record certain other financial assets and liabilities at carrying value (see the tables below for the fair value disclosure of those assets and liabilities). The majority of our non-financial assets and liabilities, which include goodwill, intangible assets, inventories and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for goodwill), an evaluation of a non-financial asset or liability is required, potentially resulting in an adjustment to the carrying amount of such asset or liability. Fair Values of Financial Assets and Liabilities Derivative Assets and Liabilities. Our derivative contracts are valued at fair value using significant observable and unobservable inputs. Commodity, Energy and Foreign Currency Derivatives - The fair values of a majority of these derivative contracts are based upon trades in liquid markets. Valuation model inputs can generally be verified, and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy. We, however, have some derivative contracts that do not have observable market quotes. For these financial instruments, management uses significant unobservable inputs (e.g., information concerning regional premiums for swaps). Where appropriate, valuations are adjusted for various factors, such as bid/offer spreads. The fair values of these financial instruments are classified as Level 3 in the fair value hierarchy. Bifurcated Conversion Feature and Option Assets - At December 31, 2014, the fair value of the Bifurcated Conversion Feature was classified as Level 2 in the fair value hierarchy and measured as the difference in the estimated fair value of the Convertible Notes (based on the trading price of the Convertible Notes) and the estimated fair value of the Convertible Notes without the cash conversion feature (present value of the series of the remaining fixed income cash flows under the Convertible Notes, with a maturity of April 1, 2015). Due to the short duration before maturity, management concluded that the fair value of the Option Assets should equal the fair value of the Bifurcated Conversion Feature as of December 31, 2014. As of December 31, 2014, the Bifurcated Conversion Feature and Option Assets were included in the Consolidated Balance Sheet as a portion of Other accrued liabilities and Prepaid expenses and other current assets, respectively. As of September 30, 2015, all balances related to the Convertible Notes, Bifurcated Conversion Feature and Option Assets had been settled. The aggregate fair value of our derivatives, recorded on the Consolidated Balance Sheets at September 30, 2015 and December 31, 2014, was a net liability of $19.0 million and $11.1 million, respectively. The increase in net liability position during the quarter ended September 30, 2015 was primarily due to changes in the underlying commodity and energy prices, as well as settlements of asset positions during such period. Changes in the fair value of our derivative contracts relating to non-designated hedges of operational activities are reflected in Operating income (loss) (see Note 8). VEBA and Canadian Pension Plan Assets. The plan assets of the VEBAs and our Canadian pension plan are measured annually on December 31 and reflected in our Consolidated Balance Sheets at fair value. In determining the fair value of the plan assets at each annual period end, we utilize primarily the results of valuations supplied by the investment advisors responsible for managing the assets of each plan, which we independently review for reasonableness. With respect to the VEBAs, the investment advisors providing the valuations are engaged by the VEBA trustees. As previously discussed, in January 2015, members of the USW at our Newark and Trentwood facilities ratified a new five-year CBA, which did not did not extend our obligation to make annual variable contributions to the Union VEBA for any period after September 2017. As a result of the expiration of our obligation to make annual variable contributions to the Union VEBA, we removed the assets of the Union VEBA from our Consolidated Balance Sheets during the quarter ended March 31, 2015 based on the valuation at December 31, 2014 (See Note 5). Available for Sale Securities. We hold debt investment securities. The fair value of the debt investment securities, which consist of commercial paper and corporate bonds, is determined based on valuation models that use observable market data. At September 30, 2015, the remaining maturity period with respect to short-term investments ranged from approximately five to seven months. We review our debt investment portfolio for other-than-temporary impairment at least quarterly or when there are changes in credit risk or other potential valuation concerns exists. At September 30, 2015 and September 30, 2014, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial and was not other-than-temporarily impaired. We believe that it is probable that the principal and interest will be collected in accordance with the contractual terms, and that the unrealized losses on these securities were due to changes in normal market fluctuations, and were not due to increased credit risk or other valuation concerns. In addition to debt investment securities, we also hold assets in various investment funds at certain registered investment companies in connection with our deferred compensation program (see Note 5). Such assets are accounted for as available for sale securities and are measured and recorded at fair value based on the net asset value of the investment funds on a recurring basis. The fair value input of the available for sale securities is considered either a Level 1 or Level 2 input depending on whether the debt security or investment fund is traded on a public exchange. The amortized cost for available for sale securities approximates their fair value. All Other Financial Assets and Liabilities. We believe that the fair value of our cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their respective carrying values due to their short maturities and nominal credit risk. The fair values of the Convertible Notes at December 31, 2014 and the Senior Notes at both September 30, 2015 and December 31, 2014 are based on their trading prices at each respective period end date and are considered Level 1 inputs in the fair value hierarchy (see Note 3 for the carrying values of the Convertible Notes and the Senior Notes). The Convertible Notes were settled on April 1, 2015. The following table presents our financial instruments, classified under the appropriate level of the fair value hierarchy, as of the period presented (in millions of dollars):
| September 30, 2015
| Level 1 |  | Level 2 |  | Level 3 |  | Total
FINANCIAL ASSETS: |  |  |  |  |  |  |
Derivative Instruments (Non-Designated Hedges): |  |  |  |  |  |  |
Aluminum - |  |  |  |  |  |  |
Fixed price sales contracts | $ | — |  |  | $ | 0.2 |  |  | $ | — |  |  | $ | 0.2 |
Midwest premium swap contracts | — |  |  | — |  |  | 0.1 |  |  | 0.1 |
All Other Financial Assets: |  |  |  |  |  |  |
Cash and cash equivalents | 37.1 |  |  | 45.5 |  |  | — |  |  | 82.6 |
Short-term investments | — |  |  | 30.0 |  |  | — |  |  | 30.0 |
Deferred compensation plan asset | — |  |  | 7.0 |  |  | — |  |  | 7.0 |
Total assets | $ | 37.1 |  |  | $ | 82.7 |  |  | $ | 0.1 |  |  | $ | 119.9 |
FINANCIAL LIABILITIES: |  |  |  |  |  |  |
Derivative Instruments (Non-Designated Hedges): |  |  |  |  |  |  |
Aluminum - |  |  |  |  |  |  |
Fixed price purchase contracts | $ | — |  |  | $ | (10.3 | ) |  | $ | — |  |  | $ | (10.3 | )
Midwest premium swap contracts | — |  |  | — |  |  | (2.0 | ) |  | (2.0 | )
Natural Gas - Fixed price purchase contracts | — |  |  | (6.4 | ) |  | — |  |  | (6.4 | )
Electricity - Fixed price purchase contracts | — |  |  | (0.4 | ) |  | — |  |  | (0.4 | )
Derivative Instruments (Designated Hedges): |  |  |  |  |  |  |
Foreign Currency - Euro forward purchase contracts | — |  |  | (0.2 | ) |  | — |  |  | (0.2 | )
All Other Financial Liabilities: |  |  |  |  |  |  |
Senior Notes | (233.0 | ) |  | — |  |  | — |  |  | (233.0 | )
Total liabilities | $ | (233.0 | ) |  | $ | (17.3 | ) |  | $ | (2.0 | ) |  | $ | (252.3 | )
The following table presents our financial instruments, classified under the appropriate level of the fair value hierarchy, as of the period presented (in millions of dollars):
| December 31, 2014
| Level 1 |  | Level 2 |  | Level 3 |  | Total
FINANCIAL ASSETS: |  |  |  |  |  |  |
Derivative Instruments (Non-Designated Hedges): |  |  |  |  |  |  |
Aluminum - Midwest premium swap contracts | $ | — |  |  | $ | — |  |  | $ | 1.0 |  |  | $ | 1.0 |
Hedges Relating to the Convertible Notes - Option Assets | — |  |  | 84.7 |  |  | — |  |  | 84.7 |
All Other Financial Assets: |  |  |  |  |  |  |
Cash and cash equivalents | 29.5 |  |  | 148.2 |  |  | — |  |  | 177.7 |
Short-term investments | — |  |  | 114.0 |  |  | — |  |  | 114.0 |
Deferred compensation plan asset | — |  |  | 7.3 |  |  | — |  |  | 7.3 |
Total assets | $ | 29.5 |  |  | $ | 354.2 |  |  | $ | 1.0 |  |  | $ | 384.7 |
FINANCIAL LIABILITIES: |  |  |  |  |  |  |
Derivative Instruments (Non-Designated Hedges): |  |  |  |  |  |  |
Aluminum - Fixed price purchase contracts | $ | — |  |  | $ | (4.2 | ) |  | $ | — |  |  | $ | (4.2 | )
Natural Gas - Fixed price purchase contracts | — |  |  | (6.2 | ) |  | — |  |  | (6.2 | )
Electricity - Fixed price purchase contracts | — |  |  | (1.7 | ) |  | — |  |  | (1.7 | )
Hedges Relating to the Convertible Notes - Bifurcated Conversion Feature | — |  |  | (84.7 | ) |  | — |  |  | (84.7 | )
All Other Financial Liabilities: |  |  |  |  |  |  |
Senior Notes | (244.5 | ) |  | — |  |  | — |  |  | (244.5 | )
Convertible Notes, including Bifurcated Conversion Feature | (263.3 | ) |  | — |  |  | — |  |  | (263.3 | )
Total liabilities | $ | (507.8 | ) |  | $ | (96.8 | ) |  | $ | — |  |  | $ | (604.6 | )
Financial instruments classified as Level 3 in the fair value hierarchy represent Midwest premium swap contracts for which at least one significant unobservable input in the valuation model is a management estimate. This is necessary due to the lack of an exchange traded product with observable market pricing data. Fair value was determined using a forward curve based on the average pricing quotes from our trading counterparties and applying a discount factor based on the risk free interest rate. The following table presents quantitative information for Level 3 Midwest premium derivative contracts:
|  | Fair Value at September 30, 2015 (in millions of dollars) |  | Valuation technique |  | Unobservable input |  | Range ($ in unit price)
Assets: |  |  |  |  |  |  |  |
Midwest premium contracts |  | $ | 0.1 |  |  | Discounted fair value |  | Forward price curve |  | $0.070 per metric ton in Oct 2015 to $0.063 per metric ton in Dec 2016
Liabilities: |  |  |  |  |  |  |  |
Midwest premium contracts |  | $ | (2.0 | ) |  | Discounted fair value |  | Forward price curve |  | $0.070 per metric ton in Oct 2015 to $0.063 per metric ton in Dec 2016
The following table presents a reconciliation of activity for the Midwest premium derivative contracts on a net basis (in millions of dollars):
| Level 3
Balance at December 31, 2014 | $ | 1.0 |
Total realized/unrealized losses included in: |
Cost of goods sold excluding depreciation and amortization and other items and Unrealized losses on derivative instruments | (3.9 | )
Transactions involving Level 3 derivative contracts: |
Purchases | (5.4 | )
Sales | — |
Issuances | — |
Settlements | 6.4 |
Transactions involving Level 3 derivatives — net | 1.0 |
Transfers in and/or out of Level 3 valuation hierarchy | — |
Balance at September 30, 2015 | $ | (1.9 | )
Total losses included in Unrealized losses on derivative instruments, attributable to the change in unrealized gains/losses relating to derivative contracts held at September 30, 2015: | $ | (2.0 | )
Fair Values of Non-Financial Assets and Liabilities We concluded that none of our non-financial assets and liabilities subject to fair value assessments on a non-recurring basis required a material adjustment to the carrying amount of such assets and liabilities for the nine months ended September 30, 2015 and September 30, 2014.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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