FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2021

NOTE 19. FAIR VALUE MEASUREMENTS

Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties or the amount that would be paid to transfer a liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Assets and liabilities recorded at fair value in the condensed balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC 820 “Fair Value Measurements and Disclosures” (ASC 820) are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows:

Level 1 — Inputs were unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted prices included in Level 1) were either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 — Inputs reflected management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration was given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

We are required to separately disclose assets and liabilities measured at fair value on a recurring basis, from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis are intangible assets and goodwill, which are reviewed for impairment annually in the fourth quarter and/or when circumstances or other events indicate that impairment may have occurred.

Determining which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter. The following table summarizes the assets and liabilities measured at fair value in the condensed balance sheets:


	Fair Value Measurements
Balance at September 30, 2021	Level 1		Level 2		Level 3		Total
Assets	($ in millions)
Commodity contracts	$	—	$	79.3	$	—	$	79.3
Foreign exchange contracts	—		0.6		—		0.6
Total Assets	$	—	$	79.9	$	—	$	79.9
Liabilities
Commodity contracts	$	—	$	2.2	$	—	$	2.2
Foreign exchange contracts	—		4.8		—		4.8
Total Liabilities	$	—	$	7.0	$	—	$	7.0
Balance at December 31, 2020
Assets
Commodity contracts	$	—	$	29.1	$	—	$	29.1
Foreign exchange contracts	—		2.3		—		2.3
Total Assets	$	—	$	31.4	$	—	$	31.4
Liabilities
Commodity contracts	$	—	$	0.7	$	—	$	0.7
Total Liabilities	$	—	$	0.7	$	—	$	0.7
Balance at September 30, 2020
Assets
Commodity contracts	$	—	$	24.3	$	—	$	24.3
Foreign exchange contracts	—		1.4		—		1.4
Total Assets	$	—	$	25.7	$	—	$	25.7
Liabilities
Commodity contracts	$	—	$	0.1	$	—	$	0.1
Foreign exchange contracts	—		0.6		—		0.6
Total Liabilities	$	—	$	0.7	$	—	$	0.7

Commodity Contracts

Commodity contract financial instruments were valued primarily based on prices and other relevant information observable in market transactions involving identical or comparable assets or liabilities including both forward and spot prices for commodities. We use commodity derivative contracts for certain raw materials and energy costs such as copper, zinc, lead, ethane, electricity and natural gas to provide a measure of stability in managing our exposure to price fluctuations.

Foreign Currency Contracts

Foreign currency contract financial instruments were valued primarily based on relevant information observable in market transactions involving identical or comparable assets or liabilities including both forward and spot prices for currencies. We enter into forward sales and purchase contracts to manage currency risk resulting from purchase and sale commitments denominated in foreign currencies.

Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximated fair values due to the short-term maturities of these instruments. Since our long-term debt instruments may not be actively traded, the inputs used to measure the fair value of our long-term debt are based on current market rates for debt of similar risk and maturities and is classified as Level 2 in the fair value measurement hierarchy. As of September 30, 2021, December 31, 2020 and September 30, 2020, the fair value measurements of debt were $3,287.9 million, $4,177.2 million and $4,078.7 million, respectively.

Nonrecurring Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis as required by ASC 820. There were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020.

For the three months ended September 30, 2020, the carrying value of the Chlor Alkali Products and Vinyls and Epoxy reporting units’ goodwill was remeasured to fair value on a nonrecurring basis. The fair value of each reporting unit was calculated utilizing an income approach. The income approach uses a discounted cash flow model that requires various observable and nonobservable inputs, such as prices, volumes, expenses, capital expenditures, discount rates and projected long-term growth rates and terminal values. The resulting fair value Level 3 estimates were less than the reporting units’ carrying value which resulted in pre-tax goodwill impairment charge of $699.8 million. As part of our impairment analysis, the fair value of all reporting units was reconciled to the company’s market capitalization. See Note 7 “Goodwill and Intangibles” for additional information on the goodwill impairment.

- 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.

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