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Financial instruments and fair value measurements
 6 Months Ended
Jun. 30, 2012
Financial instruments and fair value measurements[Abstract]  
Financial instruments and fair value measurements

Note 15 – Financial instruments and fair value measurements:

The following table summarizes the valuation of our marketable securities, financial instruments and other items recorded on a fair value basis as of:

 

                                 
    Fair Value Measurements  
    Total     Quoted
Prices in
Active
Markets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  
    (In millions)  

December 31, 2011:

                                

Marketable securities:

                                

Current

   $ 22.5     $ 20.9     $ 1.6     $ —    

Noncurrent

     354.1       100.3       3.8       250.0  

Currency forward contracts

     (.8 )      (.8 )      —         —    

Contingent consideration

     .7       —         —         .7  

June 30, 2012:

                                

Marketable securities:

                                

Current

   $ .8     $ —       $ .8     $ —    

Noncurrent

     329.9       73.7       6.2       250.0  

Currency forward contracts

     —         —         —         —    

Contingent consideration

     .7       —         —         .7  

 

See Note 3 for information on how we determine fair value of our noncurrent marketable securities.

We periodically use currency forward contracts to manage a nominal portion of currency exchange rate market risk associated with trade receivables, or similar exchange rate risk associated with future sales, denominated in a currency other than the holder’s functional currency. These contracts generally relate to our Chemicals and Component Products operations. We have not entered into these contracts for trading or speculative purposes in the past, nor do we currently anticipate entering into such contracts for trading or speculative purposes in the future. Some of the currency forward contracts we enter into meet the criteria for hedge accounting under GAAP and are designated as cash flow hedges. For these currency forward contracts, gains and losses representing the effective portion of our hedges are deferred as a component of accumulated other comprehensive income, and are subsequently recognized in earnings at the time the hedged item affects earnings. For the currency forward contracts we enter into which do not meet the criteria for hedge accounting, we mark-to-market the estimated fair value of such contracts at each balance sheet date, with any resulting gain or loss recognized in income currently as part of net currency transactions. The fair value of the currency forward contracts is determined using Level 1 inputs based on the currency spot forward rates quoted by banks or currency dealers.

At June 30, 2012, our Chemicals Segment had currency forward contracts to exchange:

 

  •  

an aggregate of $24.0 million for an equivalent value of Canadian dollars at exchange rates ranging from Cdn. $1.0 to Cdn. $1.03 per U.S. dollar. These contracts with Wells Fargo Bank, N.A., mature from July 2012 through December 2012 at a rate of $4.0 million per month, subject to early redemption provisions at our option; and

 

  •  

an aggregate $30.0 million for an equivalent value of Norwegian kroner at exchange rates ranging from kroner 5.99 to kroner 6.05 per U.S. dollar. These contracts with DnB Nor Bank ASA mature at a rate of $5.0 million per month in certain months from August 2012 through May 2013.

The estimated fair value of our Chemical Segment’s currency forward contracts at June 30, 2012 was a $.1 million net liability, of which $.2 million is recognized as part of accounts and other receivables and $.3 million is recognized as part of accounts payable and accrued liabilities. There is also a corresponding $.1 million currency transaction loss recognized in our Condensed Consolidated Statement of Income. Our Chemicals Segment is not currently using hedge accounting for our outstanding currency forward contracts at June 30, 2012, and it did not use hedge accounting for any of such contracts we previously held in 2011.

At June 30, 2012, our Component Products Segment held a series of contracts to exchange an aggregate of U.S. $8.8 million for an equivalent value of Canadian dollars at an exchange rate of Cdn. $1.03 per U.S. dollar. These contracts qualified for hedge accounting and mature through December 2012. The exchange rate was Cdn. $1.02 per U.S. dollar at June 30, 2012. The estimated fair value of these contracts was an asset of approximately $.1 million at June 30, 2012. These contracts qualified for hedge accounting and mature through December 2012.

 

As discussed in our 2011 Annual Report, there is potential additional cash consideration related to the ergonomics healthcare product line acquired by our Component Products Segment in July 2011, in an amount ranging from nil to approximately $1.5 million, is payable in the first quarter of 2013. The payment is contingent upon the achievement of certain acquired product line sales targets during 2012. The estimated fair value of such accrued contingent consideration has been determined using a probability-weighted discounted cash flow methodology (Level 3 inputs), using a discount rate of approximately 4%. During the first six months of 2012, the amount of the accrued contingent consideration increased only for interest, which was not material.

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure:

 

                                 
    December 31, 2011     June 30,2012  
    Carrying
amount		     Fair
value		     Carrying
amount		     Fair
value		  
    (In millions)  

Cash, cash equivalents and restricted cash Equivalents

   $ 109.3     $ 109.3     $ 119.3     $ 119.3  

Note receivable from Contran

     11.2       11.2       11.2       11.2  

Long–term debt (excluding capitalized leases):

                                

Publicly-traded fixed rate debt – KII Senior Secured Notes

   $ 360.6     $ 362.6     $ —       $ —    

Kronos term loan

     —         —         394.0       394.0  

Snake River Sugar Company fixed rate loans

     250.0       250.0       250.0       250.0  

Kronos variable rate bank credit facility

     —         —         99.5       99.5  

WCS fixed rate debt

     82.8       82.8       82.3       82.3  

CompX variable rate bank credit facility

     2.0       2.0       2.0       2.0  

CompX variable rate promissory note

     22.2       22.2       21.0       21.0  

NL variable rate promissory note

     9.0       9.0       5.1       5.1  

Noncontrolling interest in:

                                

Kronos common stock

   $ 240.2     $ 409.4     $ 265.4     $ 358.4  

NL common stock

     84.6       107.3       76.6       103.2  

CompX common stock

     11.0       23.9       11.1       20.6  

Valhi stockholders’ equity

   $ 657.2     $ 6,835.3     $ 732.2     $ 4,235.5  

The fair value of our publicly-traded marketable securities, noncontrolling interest in NL, Kronos and CompX and our common stockholders’ equity are all based upon quoted market prices, Level 1 inputs at each balance sheet date. The fair value of our KII Senior Secured 6.5% Notes was also based on quoted market prices at December 31, 2011; however, these quoted market prices represented Level 2 inputs because the markets in which the Notes trade were not active. At December 31, 2011 the estimated market price of the 6.5% Notes was approximately €1,004 per €1,000 principal amount. The fair value of our fixed-rate nonrecourse loans from Snake River Sugar Company is based upon the $250 million redemption price of our investment in Amalgamated, which collateralizes the nonrecourse loans (this is a Level 3 input). Fair values of the variable interest rate note receivable and variable interest debt and other fixed-rate debt are deemed to approximate book value, which represents Level 2 inputs. Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. See Notes 4 and 7.