Fair Value of Financial Instruments and Concentration of Credit Risk

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of those instruments. The carrying amount of accounts receivable approximates fair value because the maturity period is short and the Company has reduced the carrying amount to the estimated net realizable value with an allowance for doubtful accounts. The fair value of the senior credit facility principal outstanding is determined by reference to prices of recent transactions for similar debt. Derivative financial instruments are carried on the Consolidated Balance Sheets at fair value, as determined by reference to quoted terms for similar instruments. The carrying amount of other financial instruments approximates fair value because of the short-term maturity periods and variable interest rates associated with the instruments.

Under U.S. GAAP, the framework for measuring fair value is based on independent observable inputs of market data and follows the hierarchy below:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Significant observable inputs based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuations for which all significant assumptions are observable.

Level 3 – Significant unobservable inputs that are supported by little or no market activity that are significant to the fair value of the assets or liabilities.

The estimated fair values of the senior credit facility loans as of March 31, 2014 and December 31, 2013 are presented below:

Fair Value of Debt	March 31, 2014				December 31, 2013
(Amounts in thousands)	Carrying Amount		Fair Value Level 2		Carrying Amount		Fair Value Level 2
Senior credit facility debt	$	439,093	$	430,311	$	435,107	$	426,405

Derivative Financial Instruments and Foreign Currency Hedging. The Company has manufacturing and/or distribution operations in Brazil, Canada, China, Europe, Japan, Russia, and the U.S. Foreign currency exchange rate movements create a degree of risk by affecting the U.S. Dollar value of certain balance sheet positions denominated in foreign currencies, and by affecting the translated amounts of revenues and expenses. Additionally, the interest rates available in certain jurisdictions in which the Company holds cash may vary, thereby affecting the return on cash equivalent investments. The Company executes regular cash receipts and payments with its foreign subsidiaries and is exposed to changes in exchange rates from these transactions, which may adversely affect its results of operations and financial position.

The Company manages a portion of its foreign currency exchange rate exposures with derivative financial instruments. These instruments are designated as cash flow hedges and are recorded on the Consolidated Balance Sheets at fair value. The Company’s objective in executing these hedging instruments is to minimize earnings volatility resulting from conversion and re-measurement of foreign currency denominated transactions. The effective portion of the gains or losses on these contracts due to changes in fair value is initially recorded as a component of accumulated other comprehensive loss and is subsequently reclassified into net earnings when the contracts mature and the Company settles the hedged payment. The classification of effective hedge results is the same in the Consolidated Statements of Income as that of the underlying exposure. These contracts are highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates.

The cumulative unrealized pre-tax loss on these derivative contracts included in accumulated other comprehensive loss on the Consolidated Balance Sheets was $0.8 million as of March 31, 2014 and $0.6 million as of December 31, 2013. The unrealized pre-tax loss included in accumulated other comprehensive loss is expected to be recognized in the Consolidated Statement of Income during the next twelve months. See Note 10 for amounts recognized in the Consolidated Statements of Income at the maturity of these foreign currency derivative contracts.

Gains and losses on these foreign currency derivative financial instruments are offset in net earnings by the effects of currency exchange rate changes on the underlying transactions. Through March 31, 2014, the Company has not recognized in earnings any amount from these contracts due to hedging ineffectiveness. The aggregate notional amount of these foreign currency contracts outstanding was$38.6 million at March 31, 2014 and $40.0 million at December 31, 2013.

Derivative Financial Instruments and Interest Rates. The senior credit facility agreement includes a requirement to cover 35% of the outstanding principal on our term loan with fixed or capped interest rates for certain specified periods. We executed an interest rate cap agreement covering an initial notional amount of $103.7 million of term loan principal outstanding that capped the maximum interest rate at 7.50% and matured on June 1, 2013. We also entered into a series of interest rate swap contracts whereby the interest rate we pay will be fixed at between 3.30% and 4.20% on $130.0 million of term loan principal for the period of June 2013 through varying maturity dates between December 2014 and August 2016. These interest rate swap and cap agreements are designated as cash flow hedges and are recorded on the Consolidated Balance Sheets at fair value. Through March 31, 2014, the Company has not recognized in earnings any amount from these contracts due to hedging ineffectiveness.

Derivatives held by the Company are summarized as follows:

Derivative Financial Instruments	Carrying Value on Consolidated Balance			Assets/Liabilities Measured at Fair Value							Consolidated Balance Sheets
(Amounts in thousands)	Sheets			Level 1		Level 2			Level 3		Classification
March 31, 2014
Current Assets:
Foreign currency hedge agreements	$	7		$	—	$	7		$	—	Other current assets
Current Liabilities:
Interest rate hedge agreements	(1,515		)	—		(1,515		)	—		Accrued expenses
Foreign currency hedge agreements	(836		)	—		(836		)	—		Accrued expenses
Long-Term Liabilities:
Interest rate hedge agreements	(1,129		)	—		(1,129		)	—		Other liabilities
December 31, 2013
Current Liabilities:
Interest rate hedge agreements	$	(1,509	)	$	—	$	(1,509	)	$	—	Accrued expenses
Foreign currency hedge agreements	(571		)	—		(571		)	—		Accrued expenses
Long-Term Liabilities:
Interest rate hedge agreements	(1,400		)	—		(1,400		)	—		Other liabilities

The fair value of these Level 2 derivatives was determined using a market approach based on daily market prices of similar instruments issued by financial institutions in an active market. The counterparties to the above mentioned derivative instruments are major financial institutions. In accordance with Accounting Standards Codification Section 820, the Company evaluates nonperformance risk of its counterparties in calculating fair value adjustments at each reporting period. The risk of nonperformance as of March 31, 2014 and December 31, 2013 is considered minimal.