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Derivative Instruments And Risk Management
9 Months Ended
Sep. 30, 2011
Derivative Instruments And Risk Management [Abstract] 
Derivative Instruments And Risk Management

NOTE 12—DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

The Company has limited involvement with derivative instruments and does not trade them. The Company does use derivatives to manage certain interest rate, foreign currency exchange rate and raw material cost exposures.

The Company uses interest rate swaps, floors, collar and cap agreements to reduce the impact of changes in interest rates on its floating rate debt. The swap agreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. The notional amounts are used to calculate interest to be paid or received and do not represent the amount of exposure to credit loss.

The Company has determined to hedge a proportion of the outstanding floating rate debt obligation. As at September 30, 2011 the Company had the following interest rate instruments in effect:

 

(in millions)

    Notional
Amount		      Strike
Rate		      Expiry Date  

Interest rate swap

    $ 15.0         1.8250%         February 6, 2012   
   $ 10.0         1.8700%         February 6, 2012   

 

The Company has hedged the cost of certain raw materials with commodity swaps. As at September 30, 2011 and December 31, 2010 the Company had the following summarized commodity swaps:

 

(in millions)

    September 30, 2011      December 31, 2010  
      Carrying
Amount		      Fair
Value		      Carrying
Amount		      Fair
Value		  

Notional quantity—2,950 tonnes

          $ 1.7       $ 1.7   

Notional quantity—2,600 tonnes

    $ 0.4       $ 0.4         

These derivative instruments have been classified as cash flow hedging relationships. Their effectiveness has been tested and determined to be effective as at September 30, 2011 and December 31, 2010. The impact on the income statement for the first nine months of 2011 is summarized below:

 

(in millions)

    Gain/(Loss)
Recognized in
OCI on
Derivative		    

Location of Gain/(Loss) Reclassified
from Accumulated OCI into Income

    Amount of  Gain/(Loss)
Reclassified from
Accumulated OCI
into Income		  

Interest rate contracts

    $ 0.0      Interest income/(expense)    $ (0.3 ) 

Commodity contracts

      (0.2 )    Cost of goods sold      1.1   
  

 

 

       

 

 

  
     (0.2 )         0.8   

Taxation

      0.1      Income taxes      (0.3 ) 
  

 

 

       

 

 

  
   $ (0.1 )       $ 0.5   
  

 

 

       

 

 

  

We enter into various foreign currency forward exchange contracts to minimize currency exposure from expected future cash flows. The contracts have maturity dates of up to four years at the date of inception. These foreign currency forward exchange contracts have not been designated as hedging instruments, and their impact on the income statement for the nine months ended September 30, 2011 is summarized below:

 

(in millions)

   

Location of Gain/(Loss)
Recognized in Income

    Amount of Gain/(Loss)
Recognized in Income		  

Foreign currency forward exchange contracts

    Other income/(expense)    $ 1.6   

The Company sells a range of Fuel Specialties, Active Chemicals and Octane Additives to major oil refineries and chemical companies throughout the world. Credit limits, ongoing credit evaluation and account monitoring procedures are used to minimize bad debt risk. Collateral is not generally required.