Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2011

Assumptions used in determining fair value of the Call Option

The significant assumptions used in the determining the fair value of the Call Options at September 30, 2011 were as follows:



Stock price at September 30, 2011¹	$	44.28
Quarterly dividend yield (per share)²	$	0.24
Risk-free interest rate³	0.56		%
Credit spread (basis points)⁴	700
Expected volatility rate⁵	36		%

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¹	The Company’s stock price has the most material impact to the fair values of the Call Options and the Notes, which drives the fair value of the Bifurcated Conversion Feature.


²	The Company used a discrete quarterly dividend payment of $0.24 per share based on historical and expected future quarterly dividend payments.


³	The risk-free rate was based on the five-year and three-year Constant Maturity Treasury rate on September 30, 2011, compounded semi-annually.


⁴	The Company’s credit rating was estimated to be between BB- and B+ based on comparisons of its financial ratios and size to those of other rated companies. Using the Merrill Lynch High Yield index, the Company identified credit spreads for other debt issuances with similar credit ratings and used the median of such credit spreads.


⁵	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.

Summary of assets and liabilities measured and recognized at fair value on a recurring basis

The following table presents the Company’s derivative assets and liabilities, classified under the appropriate level of the fair value hierarchy, as of September 30, 2011:



	Level 1		Level 2			Level 3		Total
Derivative assets:
Aluminum -
Call option purchase contracts	$	—	$	0.5		$	—	$	0.5
Fixed priced purchase contracts	—		1.4			—		1.4
Fixed priced sales contracts	—		0.5			—		0.5
Midwest premium swap contracts	—		—			0.7		0.7
Natural Gas -
Put option purchase contracts	—		0.9			—		0.9
Hedges Relating to the Notes -
Call Options	—		38.2			—		38.2
Total	$	—	$	41.5		$	0.7	$	42.2

Derivative liabilities:
Aluminum -
Call option sales contracts	$	—	$	(0.5	)	$	—	$	(0.5	)
Fixed priced purchase contracts	—		(5.7		)	—		(5.7		)
Fixed priced sales contracts	—		(0.4		)	—		(0.4		)
Natural Gas -
Call option purchase contracts	—		(0.1		)	—		(0.1		)
Put option sales contracts	—		(4.0		)	—		(4.0		)
Fixed priced purchase contracts	—		(0.9		)	—		(0.9		)
Electricity -
Fixed priced purchase contracts	—		(1.2		)	—		(1.2		)
Hedges Relating to the Notes -
Bifurcated Conversion Feature	—		(47.6		)	—		(47.6		)
Total	$	—	$	(60.4	)	$	—	$	(60.4	)

The following table presents the Company’s derivative assets and liabilities, classified under the appropriate level of the fair value hierarchy, as of December 31, 2010:



	Level 1		Level 2			Level 3			Total
Derivative assets:
Aluminum -
Call option purchase contracts	$	—	$	9.3		$	—		$	9.3
Put option purchase contracts	—		0.1			—			0.1
Fixed priced purchase contracts	—		18.2			—			18.2
Midwest premium swap contracts	—		—			0.2			0.2
Natural Gas -
Call option purchase contracts	—		0.3			—			0.3
Put option purchase contracts	—		2.5			—			2.5
Fixed priced purchase contracts	—		0.1			—			0.1
Hedges Relating to the Notes -
Call Options	—		48.4			—			48.4
Total	$	—	$	78.9		$	0.2		$	79.1
Derivative liabilities:
Aluminum -
Call option sales contracts	$	—	$	(9.3	)	$	—		$	(9.3	)
Put option sales contracts	—		(0.1		)	—			(0.1		)
Fixed priced purchase contracts	—		(0.4		)	—			(0.4		)
Fixed priced sales contracts	—		(3.4		)	—			(3.4		)
Midwest premium swap contracts	—		—			(0.1		)	(0.1		)
Natural Gas -
Put option sales contracts	—		(4.6		)	—			(4.6		)
Fixed priced purchase contracts	—		(0.5		)	—			(0.5		)
Hedges Relating to the Notes -
Bifurcated Conversion Feature	—		(60.0		)	—			(60.0		)
Total	$	—	$	(78.3	)	$	(0.1	)	$	(78.4	)

Reconciliation of activity for financial instruments classified as Level 3

The following table presents a reconciliation of activity for the Midwest premium derivative contracts on a net basis:



	Level 3
Balance at December 31, 2010	$	0.1
Total realized/unrealized gains included in:
Cost of goods sold excluding depreciation expense	1.5
Transactions involving Level 3 derivative contracts:
Purchases	0.2
Sales	—
Issuances	—
Settlements	(1.1		)
Transactions involving Level 3 derivatives — net	(0.9		)
Transfers in and (or) out of Level 3 valuation hierarchy	—
Balance at September 30, 2011	$	0.7

Total gains included in earnings attributable to the change in unrealized gains/losses relating to derivative contracts held at September 30, 2011:	$	0.5

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income, and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issuances, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods. Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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-Publisher FASB

-Name Accounting Standards Codification

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Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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