Fair Value Measurements and Financial Instruments

3 Months Ended

Mar. 31, 2014

Fair Value Measurements and Financial Instruments

Note 17—Fair value measurements and financial instruments:

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)
Asset (liability)
December 31, 2013:
Marketable securities:
Current	$	3.8		$	2.4		$	1.4	$	—
Noncurrent		253.3			1.4			1.9		250.0
Currency forward contracts		(1.0	)		(1.0	)		—		—
March 31, 2014:
Marketable securities:
Current	$	4.1		$	2.4		$	1.7	$	—
Noncurrent		255.6			—			5.6		250.0
Currency forward contracts		(.9	)		(.9	)		—		—

See Note 4 for information on how we determine fair value of our noncurrent marketable securities.

Certain of our Chemicals Segment’s sales generated by its non-U.S. operations are denominated in U.S. dollars. Our Chemicals Segment periodically uses currency forward contracts to manage a very nominal portion of currency exchange rate risk associated with trade receivables denominated in a currency other than the holder’s functional currency or similar exchange rate risk associated with future sales.  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. Derivatives used to hedge forecasted transactions and specific cash flows associated with financial assets and liabilities denominated in currencies other than the U.S. dollar and which meet the criteria for hedge accounting are designated as cash flow hedges. Consequently, the effective portion of gains and losses is deferred as a component of accumulated other comprehensive income and is recognized in earnings at the time the hedged item affects earnings. Contracts that do not meet the criteria for hedge accounting are marked-to-market 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 March 31, 2014, our Chemicals Segment had currency forward contracts to exchange:

· an aggregate of $27.0 million for an equivalent value of Canadian dollars at exchange rates of Cdn. $1.06 per U.S. dollar; these contracts with Wells Fargo Bank, N.A. mature from April 2014 through December 2014 at a rate of $3.0 million per month, subject to early redemption provisions at our option;

· an aggregate $10.0 million for an equivalent value of Norwegian kroner at exchange rates ranging from kroner 6.24 to kroner 6.25 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 July 2014 through October 2014; and

· an aggregate €15.0 million for an equivalent value of Norwegian kroner at exchange rates ranging from kroner 8.07 to kroner 8.41 per euro; these contracts with DnB Nor Bank ASA mature at a rate ranging of €5.0 million per month in certain months from April 2014 through October 2014.

The estimated fair value of our currency forward contracts at March 31, 2014 was a net liability of $.9 million, of which $.5 million is recognized as part of accounts and other receivables and $1.4 million is recognized as part of accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets. We have also recognized a corresponding $.9 million currency transaction loss in our Condensed Consolidated Statement of Operations. Our Chemicals Segment is not currently using hedge accounting for its outstanding currency forward contracts at March 31, 2014, and it did not use hedge accounting for any of such contracts previously held in 2013.

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

	December 31, 2013				March 31,2014
	Carrying amount		Fair value		Carrying amount		Fair value
	(In millions)
Cash, cash equivalents and restricted cash equivalents	$	186.8	$	186.8	$	301.2	$	301.2
Deferred payment obligation		8.2		8.2		8.3		8.3
Long-term debt (excluding capitalized leases):
Kronos term loan	$	—	$	—	$	348.3	$	355.0
Kronos note payable to Contran		170.0		170.0		—		—
Snake River Sugar Company fixed rate loans		250.0		250.0		250.0		250.0
WCS fixed rate debt		72.4		72.4		70.6		70.6
Valhi credit facility with Contran		206.5		206.5		217.7		217.7
Kronos variable rate bank credit facilities		11.1		11.1		—		—
Tremont promissory note payable		19.1		19.1		17.4		17.4
BMI bank note payable		11.2		11.2		10.9		10.9
LandWell note payable to the City of Henderson		3.1		3.1		3.1		3.1
Noncontrolling interest in:
Kronos common stock	$	241.9	$	431.6	$	239.0	$	377.9
NL common stock		74.5		92.6		60.8		89.8
CompX common stock		13.6		23.1		13.8		16.8
Valhi stockholders’ equity	$	601.3	$	5,916.7	$	583.6	$	2,991.0

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. At March 31, 2014, the estimated market price of Kronos’ term loan was $1,014.4 per $1,000 principal amount.   The fair value of Kronos’ term loan was based on quoted market prices; however, these quoted market prices represent Level 2 inputs because the markets in which the term loan trades were not active. 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 value 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 5 and 8.