XML 29 R28.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements

Note 16.    Fair Value Measurements

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes a mid-market pricing convention for valuing the majority of its assets and liabilities measured and reported at fair value. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The Company gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy Levels. In 2011, the Company evaluated the fair value hierarchy levels assigned to its assets and liabilities, and concluded that there should be no transfers into or out of Levels 1, 2 and 3.

 

The following table presents the carrying amount and fair values of the Company's assets and liabilities measured on a recurring basis:

 

    December 31, 2011
     December 31, 2010
  

(in millions)

   Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
  

Assets

                                

Non-derivatives:

                                

Cash and cash equivalents

   $ 76.2      $ 76.2      $ 107.1      $ 107.1   

Short-term investments

     4.8        4.8        4.2        4.2   

Non-financial assets (Level 3 measurement):

                                

Goodwill – Octane Additives

     2.6        2.6        4.6        4.6   

Derivatives (Level 1 measurement):

                                

Other non-current assets:

                                

Commodity swaps

     0.2        0.2        1.7        1.7   

Foreign currency forward exchange contracts

     0.0        0.0        0.7        0.7   

Liabilities

                                

Non-derivatives:

                                

Long-term debt (including current portion)

     35.0        35.0        47.0        47.0   

Non-financial liabilities (Level 3 measurement):

                                

Plant closure provisions – remediation

     27.1        27.1        25.9        25.9   

Derivatives (Level 1 measurement):

                                

Other non-current liabilities:

                                

Interest rate swaps

     0.1        0.1        0.5        0.5   

Foreign currency forward exchange contracts

   $ 0.5      $ 0.5      $ 0.0      $ 0.0   

 

The following methods and assumptions were used to estimate the fair values of financial instruments:

 

Cash and cash equivalents, and short-term investments: The carrying amount approximates fair value because of the short-term maturities of such instruments.

 

Long-term debt: Long-term debt comprises the new revolving credit facility and the promissory note, which were entered into in December 2011 and September 2011, respectively. The carrying amount of long-term debt approximates fair value.

 

Plant closure provisions – remediation: The remediation provision represents the fair value of the Company's liability for environmental liabilities and asset retirement obligations.

 

Derivatives: The fair value of derivatives relating to interest rate swaps, foreign currency forward exchange contracts and commodity swaps are derived from current settlement prices and comparable contracts using current assumptions.

 

The cumulative gains and losses on the interest rate swaps and commodity swaps are summarized as follows:

 

(in millions)

    2011
     2010
  

Balance at January 1

    $ 1.2      $ 1.2   

Change in fair value

      (1.1 )      0.0   
    
 

Balance at December 31

    $ 0.1      $ 1.2   
    
 

On June 12, 2009, the Company entered into $50.0 million of interest rate swaps which amortize and mature between February 2010 and February 2012 in line with the long-term debt maturity profile of our previous finance facility. We repaid the previous finance facility upon entering into the new facility in December 2011, at which point the remaining interest rate swaps were rendered ineffective and the associated fair value recognized in earnings. The interest rate swaps qualified for hedge accounting until this point and throughout the year ended December 31, 2010.

 

The commodity swaps are used to manage the Company's cash flow exposure to raw material cost volatility. They have been designated as cash flow hedges and all the commodity swaps qualify for hedge accounting throughout the years ended December 31, 2011 and 2010.

 

At December 31, 2011, the commodity hedges were determined to be effective and consequently an unrealized gain of $0.2 million was recorded in other comprehensive income. The interest rate swaps were ineffective because our previous finance facility, which carried the corresponding floating rate debt obligations, had been repaid, and accordingly a loss of $0.1 million has been recognized in earnings. At December 31, 2010, both interest rate and commodity hedges were determined to be effective and consequently a net unrealized gain of $1.2 million was recorded in other comprehensive income. Ineffectiveness was determined to be immaterial in 2010 and 2009 and accordingly no gain or loss was recognized in earnings in these periods. Based on the valuations as at December 31, 2011 the Company expects the unrealized gain of $0.2 million to be reclassified into earnings in the next 12 months.

 

Foreign currency forward exchange contracts primarily relate to contracts entered into to hedge future known transactions or hedge balance sheet net cash positions. The movements in the carrying amounts and fair values of these contracts are largely due to changes in exchange rates against the U.S. dollar.