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Fair Value Measurements | 3 Months Ended
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Mar. 31, 2013
Fair Value Disclosures [Abstract] |
Fair Value Measurement | Fair Value Measurements Overview The Company applies the fair value hierarchy established by GAAP for the recognition and measurement of 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, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and considers counterparty risk in its assessment of fair value. The fair values of financial assets and liabilities are measured on a recurring basis. The Company has elected not to carry any financial assets and liabilities at fair value, other than as required by GAAP. Financial assets and liabilities that the Company carries at fair value, as required by GAAP include: (i) its derivative instruments, (ii) the plan assets of the VEBAs and the Company’s Canadian defined benefit pension plan, and (iii) available for sale securities, consisting of commercial paper and investments related to the Company’s deferred compensation plan (see Note 5). The Company records 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 the Company’s non-financial assets and liabilities, which include goodwill, intangible assets, inventories and property, plant, and equipment, are not required to be carried 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. For the three months ended March 31, 2013 and March 31, 2012, the Company concluded that none of its 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. Fair Values of Financial Assets and Liabilities Fair Values of Derivative Assets and Liabilities. The Company’s derivative contracts are valued at fair value using significant observable and unobservable inputs. Commodity, Foreign Currency and Energy Hedges - 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 Company has some derivative contracts, however, that do not have observable market quotes. For these financial instruments, management uses significant other observable inputs (e.g., information concerning regional premiums for swaps). Where appropriate, valuations are adjusted for various factors, such as bid/offer spreads. Bifurcated Conversion Feature and Call Options - The fair value of the Bifurcated Conversion Feature is measured as the difference in the estimated fair value of the Convertible Notes and the estimated fair value of the Convertible Notes without the cash conversion feature. The Convertible Notes are valued based on the trading price of the Convertible Notes each period-end (see “All Other Financial Assets and Liabilities” below). The fair value of the Convertible Notes without the cash conversion feature is the present value of the series of the remaining fixed income cash flows under the Convertible Notes, with a mandatory redemption in 2015. The Company determines the fair value of the Call Options using a binomial lattice valuation model. The inputs to the model at March 31, 2013 were as follows:
The Company’s stock price at March 31, 2013 | $ | 64.65 |
Quarterly dividend yield (per share) upon purchase of the Call Option 1 | $ | 0.24 |
Risk-free interest rate 2 | 0.25 | %
Credit spread (basis points)3 | 220 |
Expected volatility rate 4 | 17.2 | %
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1 | The quarterly dividend in the first quarter of 2013 was $0.30 per share, but the model assumes a $0.24 per share quarterly dividend as was paid at the inception of the Call Options. Quarterly dividends in excess of $0.24 per share do not affect the Call Options’ value due to anti-dilution adjustments.
2 | The risk-free rate was based on the 2-year Constant Maturity Treasury rate on March 31, 2013.
3 | The credit spread is based on the Company’s long-term credit rating of BB- issued by Standard & Poor’s and a senior unsecured credit rating of Ba3 issued by Moody’s.
4 | The volatility rate was based on both observed volatility, which is based on the Company’s historical stock price, and implied volatility from the Company’s traded options. Such volatility was further adjusted to take into consideration market participant risk tolerance.
VEBA and Canadian Pension Plan Assets. The fair value of the plan assets of the VEBAs and the Company’s Canadian pension plan is measured annually on December 31. In determining the fair value of the plan assets at each annual period end, the Company utilizes primarily the results of valuations supplied by the investment advisors responsible for managing the assets of each plan. See Note 13 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for additional information with respect to the fair value of the plan assets of the VEBAs and the Company’s Canadian pension plan. Available for sale securities. The Company holds assets in various investment funds at certain registered investment companies in connection with its 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. Such fair value input is considered either a Level 1 or Level 2 input depending on whether the investment fund is traded on a public exchange. In addition to investment funds, the Company also holds short-term commercial paper. The fair value of the commercial paper is determined based on valuation models that use observable market data. Such fair value input is considered a Level 2 input. The amortized cost for available for sale securities approximates its fair value. At March 31, 2013, the remaining maturity period with respect to commercial paper ranges from 10 days to approximately 5 months. All Other Financial Assets and Liabilities. The Company believes that the fair value of its 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 value of the Convertible Notes and Senior Notes are based on the trading prices of the notes and are considered a Level 1 input in the fair value hierarchy (see Note 3 for the carrying value of the Convertible Notes and the Senior Notes). The following table presents the Company’s financial instruments, classified under the appropriate level of the fair value hierarchy, as of March 31, 2013:
| Level 1 |  | Level 2 |  | Level 3 |  | Total
FINANCIAL ASSETS: |  |  |  |  |  |  |
Derivative instruments: |  |  |  |  |  |  |
Aluminum - |  |  |  |  |  |  |
Fixed priced sales contracts | $ | — |  |  | $ | 0.1 |  |  | $ | — |  |  | $ | 0.1 |
Midwest premium swap contracts | — |  |  | — |  |  | 0.4 |  |  | 0.4 |
Natural Gas - |  |  |  |  |  |  |
Fixed priced purchase contracts | — |  |  | 1.0 |  |  | — |  |  | 1.0 |
Electricity - |  |  |  |  |  |  |
Fixed priced purchase contracts | — |  |  | 0.6 |  |  | — |  |  | 0.6 |
Hedges Relating to the Convertible Notes - |  |  |  |  |  |  |
Call Options | — |  |  | 61.3 |  |  | — |  |  | 61.3 |
All Other Financial Assets: |  |  |  |  |  |  |
Cash and cash equivalents | 82.9 |  |  | 165.1 |  |  | — |  |  | 248.0 |
Short-term investments | — |  |  | 85.6 |  |  | — |  |  | 85.6 |
Available for sale securities | — |  |  | 5.8 |  |  | — |  |  | 5.8 |
Total | $ | 82.9 |  |  | $ | 319.5 |  |  | $ | 0.4 |  |  | $ | 402.8 |
FINANCIAL LIABILITIES: |  |  |  |  |  |  |
Derivative instruments: |  |  |  |  |  |  |
Aluminum - |  |  |  |  |  |  |
Fixed priced purchase contracts | $ | — |  |  | $ | (2.4 | ) |  | $ | — |  |  | $ | (2.4 | )
Natural Gas - |  |  |  |  |  |  |
Put option sales contracts | — |  |  | (0.1 | ) |  | — |  |  | (0.1 | )
Fixed priced purchase contracts | — |  |  | (1.1 | ) |  | — |  |  | (1.1 | )
Electricity - |  |  |  |  |  |  |
Fixed priced purchase contracts | — |  |  | (0.5 | ) |  | — |  |  | (0.5 | )
Foreign Currency - |  |  |  |  |  |  |
Euro |  |  |  |  |  |  |
Fixed priced purchase contracts | — |  |  | (0.2 | ) |  | — |  |  | (0.2 | )
Hedges Relating to the Convertible Notes - |  |  |  |  |  |  |
Bifurcated Conversion Feature | — |  |  | (67.7 | ) |  | — |  |  | (67.7 | )
All Other Financial Liabilities: |  |  |  |  |  |  |
Senior Notes | (253.1 | ) |  | — |  |  | — |  |  | (253.1 | )
Convertible Notes | (244.3 | ) |  | — |  |  | — |  |  | (244.3 | )
Total | $ | (497.4 | ) |  | $ | (72.0 | ) |  | $ | — |  |  | $ | (569.4 | )
The following table presents the Company’s financial instruments, classified under the appropriate level of the fair value hierarchy, as of December 31, 2012:
| Level 1 |  | Level 2 |  | Level 3 |  | Total
FINANCIAL ASSETS: |  |  |  |  |  |  |
Derivative instruments: |  |  |  |  |  |  |
Aluminum - |  |  |  |  |  |  |
Fixed priced purchase contracts | $ | — |  |  | $ | 2.6 |  |  | $ | — |  |  | $ | 2.6 |
Midwest premium swap contracts | — |  |  | — |  |  | 0.4 |  |  | 0.4 |
Natural Gas - |  |  |  |  |  |  |
Fixed priced purchase contracts | — |  |  | 0.2 |  |  | — |  |  | 0.2 |
Hedges Relating to the Convertible Notes - |  |  |  |  |  |  |
Call Options | — |  |  | 55.3 |  |  | — |  |  | 55.3 |
All Other Financial Assets: |  |  |  |  |  |  |
Cash and cash equivalents | 107.9 |  |  | 165.5 |  |  | — |  |  | 273.4 |
Short-term investments | — |  |  | 85.0 |  |  | — |  |  | 85.0 |
Available for sale securities | — |  |  | 5.6 |  |  | — |  |  | 5.6 |
Total | $ | 107.9 |  |  | $ | 314.2 |  |  | $ | 0.4 |  |  | $ | 422.5 |
FINANCIAL LIABILITIES: |  |  |  |  |  |  |
Derivative instruments: |  |  |  |  |  |  |
Aluminum - |  |  |  |  |  |  |
Fixed priced purchase contracts | $ | — |  |  | $ | (0.5 | ) |  | $ | — |  |  | $ | (0.5 | )
Natural Gas - |  |  |  |  |  |  |
Put option sales contracts | — |  |  | (0.5 | ) |  | — |  |  | (0.5 | )
Fixed priced purchase contracts | — |  |  | (2.6 | ) |  | — |  |  | (2.6 | )
Electricity - |  |  |  |  |  |  |
Fixed priced purchase contracts | — |  |  | (1.0 | ) |  | — |  |  | (1.0 | )
Hedges Relating to the Convertible Notes - |  |  |  |  |  |  |
Bifurcated Conversion Feature | — |  |  | (62.1 | ) |  | — |  |  | (62.1 | )
All Other Financial Liabilities: |  |  |  |  |  |  |
Senior Notes | (250.0 | ) |  | — |  |  | — |  |  | (250.0 | )
Convertible Notes | (240.1 | ) |  | — |  |  | — |  |  | (240.1 | )
Total | $ | (490.1 | ) |  | $ | (66.7 | ) |  | $ | — |  |  | $ | (556.8 | )
Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts in which management has used at least one significant unobservable input in the valuation model. The following table presents a reconciliation of activity for the Midwest premium derivative contracts on a net basis:
| Level 3
Balance at December 31, 2012 | $ | 0.4 |
Total realized/unrealized gains included in: |
Cost of goods sold excluding depreciation and amortization and other items and Unrealized losses (gains) on derivative instruments | 0.1 |
Transactions involving Level 3 derivative contracts: |
Purchases | — |
Sales | — |
Issuances | — |
Settlements | (0.1 | )
Transactions involving Level 3 derivatives — net | (0.1 | )
Transfers in and (or) out of Level 3 valuation hierarchy | — |
Balance at March 31, 2013 | $ | 0.4 |
Total gains included in Unrealized (gains) losses on derivative instruments, attributable to the change in unrealized gains/losses relating to derivative contracts held at March 31, 2013: | $ | — |
Fair Values of Non-financial Assets and Liabilities See Note 13 of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for additional information with respect to the fair value of the Company’s non-financial assets and liabilities.

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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 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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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=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: 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=7491637&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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