Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Note 14. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes a

mid-market

pricing convention for valuing the majority of its assets and liabilities measured and reported at fair value. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements and

endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The Company gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy Levels. In 2019, the Company evaluated the fair value hierarchy levels assigned to its assets and liabilities, and concluded that there should be no transfers into or out of Levels 1, 2 and 3.

The following table presents the carrying amount and fair values of the Company’s assets and liabilities measured on a recurring basis:


	December 31, 2021				December 31, 2020
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Non-derivatives:
Cash and cash equivalents	$	141.8	$	141.8	$	105.3	$	105.3
Derivatives (Level 1 measurement):
Other current and non-current assets:
Emissions Trading Scheme credits		3.9		3.9		—		—
Liabilities
Non-derivatives:
Finance leases (including current portion)		0.1		0.1		0.6		0.6
Derivatives (Level 1 measurement):
Other current liabilities:
Foreign currency forward exchange contracts		1.2		1.2		0.5		0.5
Non-financial liabilities (Level 3 measurement):
Stock equivalent units		17.3		17.3		17.2		17.2

The following methods and assumptions were used to estimate the fair values:

Cash and cash equivalents:

The carrying amount approximates fair value because of the short-term maturities of such instruments.

Emissions Trading Scheme credits:

The fair value is determined by the open market pricing at the end of the reporting period.

Long-term debt and finance leases:

Long-term debt principally comprises the revolving credit facility, which is shown net of deferred finance costs that have been capitalized. The fair value of long-term debt approximates to the carrying value. Finance leases relate to certain fixed assets in our Fuel Specialties and Oilfield Services segments. The carrying amount of long-term debt and finance leases approximates to the fair value.

Derivatives:

The fair value of derivatives relating to foreign currency forward exchange contracts and interest rate swaps are derived from current settlement prices and comparable contracts using current assumptions. Foreign currency forward exchange contracts primarily relate to contracts entered into to hedge future known transactions or hedge balance sheet net cash positions. The movements in the carrying amounts and fair values of these contracts are largely due to changes in exchange rates against the U.S. dollar. Interest rate swaps in the prior year related to contracts taken out to hedge interest rate risk on a portion of our long-term debt.

Stock equivalent units:

The fair values of stock equivalent units are calculated at each balance sheet date using either the Black-Scholes or Monte Carlo method.