XML 53 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value Measurements
 3 Months Ended
Mar. 31, 2012
Fair Value  
Fair Value Measurements
7. FAIR VALUE MEASUREMENTS

Pursuant to the accounting guidance for fair value measurements, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, consideration is given to the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

The accounting guidance for fair value measurement also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

•
Level 1 – quoted prices in active markets for identical assets or liabilities.
•   
Level 2 – inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
•
Level 3 – unobservable inputs in which little or no market data exists.


Financial Instruments Recorded at Fair Value

   
Fair Value Measurements
(in millions)
  
   
March 31, 2012
    
December 31, 2011
  
   
Level 1
    
Level 2
    
Level 3
    
Total
    
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets:
                                                
Cash equivalents (a)
     -     $ 72.0       -     $ 72.0       -     $ 37.4       -     $ 37.4  
Deferred compensation asset (b)
     -     $ 2.7       -     $ 2.7       -     $ 2.3       -     $ 2.3  
                                                                 
Liabilities:
                                                                
Deferred compensation obligation (b)
     -       2.9       -       2.9       -       2.6       -       2.6  
 

(a)  Cash equivalents consist of funds invested in institutional money market funds. These investments are classified within Level 2 of the valuation hierarchy because unit prices of institutional funds are not quoted in active markets.
(b)  The deferred compensation obligation represents the balance of deferred compensation plus net investment earnings. The deferred compensation plan is informally funded through a rabbi trust using variable universal life insurance. The cash surrender value of the life insurance policies is designed to track the deemed investments of the plan participants. Investment crediting options consist of institutional and retail investment funds. The deemed investments are classified within Level 2 of the valuation hierarchy because (i) of  the indirect method of investing and (ii) unit prices of institutional funds are not quoted in active markets.

 
Other Financial Instruments

As of March 31, 2012 and December 31, 2011, the balance sheet carrying amounts for accounts receivable and accounts payable and accrued liabilities (excluding the deferred compensation obligation described above), and payables under the commercial agreement (the "Russian Contract") with a Russian government entity known as Techsnabexport ("TENEX") approximate fair value because of the short-term nature of the instruments.

The balance sheet carrying amounts and estimated fair values of USEC's debt follow (in millions):
 
   
March 31, 2012
    
December 31, 2011
 
   
Carrying Value
    
Fair Value
    
Carrying Value
    
Fair Value
  
Credit facility term loan due May 31, 2013
  $ 85.0     $ 86.2       -       -  
Credit facility term loan due May 31, 2012
    -       -     $ 85.0     $ 72.8  
Convertible preferred stock
    91.5       91.5       88.6       88.6  
3.0% convertible senior notes, due October 1, 2014
     530.0       265.0       530.0       246.1  

The estimated fair values of the term loans are based on the change in market value of an index of loans of similar credit quality based on published credit ratings, and are classified as using Level 2 inputs in the fair value measurement.

The convertible preferred stock can be converted or sold at the holder's option and is classified as a current liability at the redemption value. The estimated fair value of the convertible preferred stock is based on a market approach using a discount rate of 12.75%, which is unobservable (Level 3) since the instruments do not trade. Dividends on the convertible preferred stock are paid (or accrue and are added to the liquidation preference of the convertible preferred stock) as additional shares of convertible preferred stock on a quarterly basis at an annual rate of 12.75%, which is consistent with current market prices and other market benchmarks. The estimated fair value equals the redemption value of $1,000 per share. If a share issuance limitation were to exist at the time of share conversion or sale, any preferred stock shares subject to the share issuance limitation would be subject to optional or mandatory redemption for, at USEC's option, cash or SWU consideration. However, USEC's ability to redeem may be limited by Delaware law, and if not limited may result in mandatory prepayment of USEC's credit facility.

The estimated fair value of the convertible notes is based on the trading price as of the balance sheet date, and is classified as using Level 1 inputs in the fair value measurement.