Note 10 - Derivative Financial Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

10.   DERIVATIVE FINANCIAL INSTRUMENTS

As a matter of policy, the Company uses derivatives for risk management purposes, and does not use derivatives for speculative purposes. From time to time, the Company may enter into foreign currency forward contracts to fix exchange rates for net investments in foreign operations or to hedge foreign currency cash flow transactions. For cash flow hedges, gain or loss is recorded in the consolidated statements of operations upon settlement of the hedge. All of the Company’s hedges that are designated as hedges for accounting purposes were effective; therefore, no gain or loss was recorded in the Company’s consolidated statements of operations for the outstanding hedged balance. During each of the quarters and six months ended June 30, 2013 and 2012, the Company recorded less than $0.1 million as a gain on the consolidated statements of operations in the other income (expense) line item upon settlement of the cash flow hedges. At June 30, 2013, the Company recorded a net deferred gain of $0.1 million related to the cash flow hedges in other current assets and other comprehensive income on the consolidated balance sheets and on the foreign currency translation adjustment and derivative transactions line of the consolidated statements of equity. The Company presents derivative instruments in the consolidated financial statements on a gross basis. Based on the Company’s individual counterparties, its gross and net difference of financial position are immaterial to the financial statements.

The Company engages in regular inter-company trade activities with, and receives royalty payments from, its wholly-owned Canadian entities, paid in Canadian Dollars, rather than the Company’s functional currency, U.S. Dollars. In order to reduce the uncertainty of the U.S. Dollar settlement amount of that anticipated future payment from the Canadian entities, the Company uses forward contracts to sell a portion of the anticipated Canadian Dollars to be received at the future date and buys U.S. Dollars.

In November 2011, the Company entered into an interest rate swap agreement, for a notional amount of $83.0 million, which had an expiration date in November 2014. See Note 5 to the financial statements contained in this report for additional detail regarding the interest rate swap. See Note 11 to the financial statements contained in this report for detail regarding the Company’s new credit facility, effective July 1, 2013.

The following table provides a summary of the fair value amounts of our derivative instruments, all of which are Level 2 (as defined below) inputs (in thousands):

Designation of Derivatives	Balance Sheet Location	June 30, 2013		December 31, 2012
Derivatives Designated as Hedging Instruments
Forward Currency Contracts	Prepaid expenses and other current assets	$	67	–
	Total Assets	$	67	–
Forward Currency Contracts	Accrued expenses	–		$	9
Interest Rate Swaps	Other non-current liabilities		522		764
	Total Liabilities	$	522	$	773
Derivatives Not Designated as Hedging Instruments
Forward Currency Contracts	Prepaid expenses and other current assets	$	542	–
	Total Assets	$	542	–
Forward Currency Contracts	Accrued Expenses	$	–	$	585
	Total Derivative Assets		609	–
	Total Derivative Liabilities		522		1,358
	Total Net Derivative Asset (Liability)	$	87	$	(1,358	)

FASB ASC 820, Fair Value Measurements (“FASB ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements for interim and annual reporting periods. The guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1 – defined as quoted prices in active markets for identical instruments; Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. In accordance with FASB ASC 820, the Company determined that the instruments summarized below are derived from significant observable inputs, referred to as Level 2 inputs.

The following table represents assets and liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):

	Total Fair Value at June 30, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Forward Currency Contracts	$	609		–	$	609		–
Total	$	609		–	$	609		–
Liabilities
Interest Rate Swap	$	522		–	$	522		–
Total	$	522		–	$	522		–

	Total Fair Value at December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities
Forward Currency Contracts	$	594	$	–	$	594	$	–
Interest Rate Swap		764		–		764		–
Total	$	1,358		–	$	1,358		–

The following table summarizes the Company’s derivative positions at June 30, 2013:

	Position	Notional Amount		Weighted Average Remaining Maturity In Years		Average Exchange Rate
Canadian Dollar/USD	Sell	$	15,196,259		0.4		1.06
Singapore Dollar/USD	Sell		1,979,368		0.5		1.27
Hong Kong Dollar/USD	Sell		1,570,093		0.5		7.75
Australian Dollar/USD	Sell		3,579,286		0.5		0.90
Interest Rate Swap			68,186,250		1.4

The Company had no transfers between Level 1, 2 or 3 inputs during the six-month period ended June 30, 2013. Certain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments including cash and cash equivalents and short-term borrowings, including notes payable, are recorded at cost, which approximates fair value, which are based on Level 2 inputs as previously defined.