Note 4 - Fair value of financial instruments

6 Months Ended

Jun. 30, 2011

Note 4 - Fair value of financial instruments

Fair Value Disclosures [Text Block]

Note 4 – Fair value of financial instruments

We enter into derivative instruments for risk management purposes only.  We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We use forward contracts, a type of derivative instrument, to manage certain foreign currency exposures.

By nature, all financial instruments involve market and credit risks. We enter into forward contracts with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties.  While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.

Foreign Currency Forward Contracts. We hedge forecasted intercompany sales denominated in foreign currencies through the use of forward contracts.   We account for these forward contracts as cash flow hedges.  To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in current earnings but are included in accumulated other comprehensive loss.  These changes in fair value will be recognized into earnings as a component of sales when the forecasted transaction occurs.  The notional contract amounts for forward contracts outstanding at June 30, 2011 which have been accounted for as cash flow hedges totaled $99.6 million.  Net realized gains (losses) recognized for forward contracts accounted for as cash flow hedges approximated $1.3 million and ($2.3 million) for the three months ended June 30, 2010 and 2011, respectively and $2.2 million and ($3.5 million) for the six months ended June 30, 2010 and 2011, respectively.  Net unrealized losses on forward contracts outstanding, which have been accounted for as cash flow hedges and which have been included in other comprehensive income, totaled $2.0 million at June 30, 2011.  These unrealized losses and any subsequent changes in fair value will be recognized in the consolidated statements of operations in 2011 and 2012 as the related forward contracts mature and gains and losses are realized.

We also enter into forward contracts to exchange foreign currencies for United States dollars in order to hedge our currency transaction exposures on intercompany receivables denominated in foreign currencies.  These forward contracts settle each month at month-end, at which time we enter into new forward contracts.  We have not designated these forward contracts as hedges and have not applied hedge accounting to them.  The notional contract amounts for forward contracts outstanding at June 30, 2011 which have not been designated as hedges totaled $38.0 million.  Net realized gains (losses) recognized in connection with those forward contracts not accounted for as hedges approximated $1.0 million and ($0.6 million) for the three months ended June 30, 2010 and 2011, respectively, offsetting gains (losses) on our intercompany receivables of ($0.1 million) and $0.4 million for the three months ended June 30, 2010 and 2011, respectively.  Net realized gains (losses) recognized in connection with those forward contracts not accounted for as hedges approximated $1.3 million and ($1.6 million) for the six months ended June 30, 2010 and 2011, respectively, offsetting gains (losses) on our intercompany receivables of ($0.8 million) and $1.6 million for the six months ended June 30, 2010 and 2011, respectively.  These gains and losses have been recorded in selling and administrative expense in the consolidated statements of operations.

We record these forward foreign exchange contracts at fair value; the following table summarizes the fair value for forward foreign exchange contracts outstanding at June 30, 2011:

	Asset Balance Sheet Location	Fair Value			Liabilities Balance Sheet Location	Fair Value		Net Fair Value
Derivatives designated as hedged instruments:
Foreign Exchange Contracts	Other current liabilities	$	(135	)	Other current liabilities	$	3,339	$	3,204
Derivatives not designated as hedging instruments:
Foreign Exchange Contracts	Other current liabilities		-		Other current liabilities		89		89
Total derivatives		$	(135	)		$	3,428	$	3,293

Our forward foreign exchange contracts are subject to a master netting agreement and qualify for netting in the consolidated balance sheets.  Accordingly, we have recorded the net fair value of $3.3 million in other current liabilities.

Fair Value Disclosure. Financial Accounting Standards Board (“FASB”) guidance defines fair value and establishes a framework for measuring fair value and related disclosure requirements. This guidance applies when fair value measurements are required or permitted. The guidance indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is defined based upon an exit price model.

As of June 30, 2011, we do not have any significant non-recurring measurements of nonfinancial assets and nonfinancial liabilities.

Valuation Hierarchy. A valuation hierarchy was established for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from or corroborated by observable market data through correlation. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Valuation Techniques. Liabilities carried at fair value and measured on a recurring basis as of June 30, 2011 consist of forward foreign exchange contracts and two embedded derivatives associated with our 2.50% convertible senior subordinated notes (the “Notes”).  The value of the forward foreign exchange contracts was determined within Level 2 of the valuation hierarchy and is listed in the table above.  The value of the two embedded derivatives associated with the Notes was determined within Level 2 of the valuation hierarchy and was not material either individually or in the aggregate to our financial position, results of operations or cash flows.

The carrying amounts reported in our balance sheets for cash and cash equivalents, accounts receivable, accounts payable and long-term debt excluding the Notes approximate fair value.  The fair value of the Notes approximated $111.7 million and $112.8 million at December 31, 2010 and June 30, 2011, respectively, based on their quoted market price.  During the quarter ended June 30, 2010, we repurchased and retired $3.0 million of the Notes for $2.9 million and recorded a loss on the early extinguishment of debt of $0.1 million.