Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Fair Value Measurements

Fair Value of Financial Instruments

At December 31, 2011 and 2010, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable and derivative contracts. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximated carrying values due to the short-term nature of these instruments. In addition, derivative instruments, assets held for sale and certain fixed assets are recorded at fair value as discussed below.

Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets for identical assets); Level 2 (significant observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

The Company's non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized.

The Company assesses the impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The aggregate carrying amount of intangible assets was $321.7 million and $320.4 million at December 31, 2011 and 2010, respectively. The inputs used in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. Based upon the testing performed in 2011 and 2010, no impairment of intangible assets was deemed to have occurred.

The Company assesses the impairment of property, plant, and equipment whenever events or changes in circumstances indicate that the carrying amount of property, plant, and equipment assets may not be recoverable. As part of the Company's 2011 manufacturing redesign restructuring program, the Company recorded property, plant, and equipment impairments of $14.7 million in 2010 related to the Weatherford, Oklahoma facility. See Note 7 herein for further discussion of the previously announced restructuring initiatives.

During 2011 we acquired MXI Security and IronKey which resulted in goodwill of $21.9 million and $9.4 million, respectively. Also during 2011 we acquired Encryptx which resulted in goodwill of $1.6 million. In accordance with the accounting provisions for goodwill, goodwill related to the Encryptx acquisition was written-off as the carrying amount of our Americas-Commercial reporting unit, including Encryptx, significantly exceeded the implied fair value. This resulted in an impairment charge of $1.6 million, which was included in earnings in 2011. See Note 6 herein for further information regarding the assumptions used to assess this impairment.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The assets in our postretirement benefit plans are measured at fair value on a recurring basis (at least annually). See Note 9 herein for additional discussion concerning pension and postretirement benefit plans.

We revalue the contingent consideration obligation for acquisitions completed on a recurring basis each reporting period. Changes in the fair value of our contingent consideration obligations are recognized as a fair value adjustment of contingent consideration within our consolidated statements of income. These fair value measurements are based on significant inputs not observable in the market and therefore represent Level 3 measurements. The total of such contingent consideration obligations at December 31, 2011 was $10.5 million, related to our acquisitions of MXI Security and Encryptx in the amounts of $9.2 million and $1.3 million, respectively. Based on our analysis of fair value as of December 31, 2011, the value at acquisition of such contingent consideration obligations equaled the estimated fair value as of December 31, 2011 and no adjustments were required.

We maintain a foreign currency exposure management policy that allows the use of derivative instruments, principally foreign currency forward, option contracts and option combination strategies to manage risks associated with foreign exchange rate volatility. Generally, these contracts are entered into to fix the U.S. dollar amount of the eventual cash flows. The derivative instruments range in duration at inception from less than one to sixteen months. We do not hold or issue derivative financial instruments for speculative or trading purposes and we are not a party to leveraged derivatives.

As of December 31, 2011, we held derivative instruments that are required to be measured at fair value on a recurring basis. Our derivative instruments consist of foreign currency forwards, option contracts and option combination strategies. The fair value of our derivative instruments is determined based on inputs that are observable in the public market, but are other than publicly quoted prices (Level 2).

We are exposed to the risk of nonperformance by our counter-parties in foreign currency forward and option contracts, but we do not anticipate nonperformance by any of these counter-parties. We actively monitor our exposure to credit risk through the use of credit approvals and credit limits and by using major international banks and financial institutions as counter-parties.

Cash Flow Hedges

We attempt to substantially mitigate the risk that forecasted cash flows denominated in foreign currencies may be adversely affected by changes in currency exchange rates through the use of option, forward and combination option contracts. The degree of our hedging can fluctuate based on management judgment and forecasted projections. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking the hedge items. This process includes linking all derivatives to forecasted transactions.

We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in the cash flows of hedged items. Gains and losses related to cash flow hedges are deferred in accumulated other comprehensive income (loss) with a corresponding asset or liability. When the hedged transaction occurs, the gains and losses in accumulated other comprehensive income (loss) are reclassified into the Consolidated Statements of Operations in the same line as the item being hedged. If at any time it is determined that a derivative is not highly effective as a hedge, we discontinue hedge accounting prospectively, with deferred gains and losses being recognized in current period operations.

As of December 31, 2011 and 2010, cash flow hedges ranged in duration from one to 16 months and had a total notional amount of $208.2 million and $246.0 million, respectively. Hedge gains of $0.8 million in 2011, and hedge losses of $0.1 million, and $3.8 million in 2010 and 2009, respectively, were reclassified into the Consolidated Statements of Operations. The amount of net deferred gains on foreign currency cash flow hedges included in accumulated other comprehensive income (loss) in shareholders’ equity as of December 31, 2011 was $2.2 million, pre-tax, which depending on market factors is expected to reverse in the Consolidated Balance Sheets or be reclassified into operations in 2012.

Other Hedges

We enter into foreign currency forward contracts, generally with durations of one to three months, to manage the foreign currency exposure related to our monetary assets and liabilities denominated in foreign currencies. We record the estimated fair value of these forwards within other current assets or other current liabilities in the Consolidated Balance Sheets and all changes in their fair value are immediately recognized in the Consolidated Statements of Operations.

As of December 31, 2011 and 2010, we had a notional amount of forward contracts of $32.9 million and $47.1 million, respectively, to hedge our recorded balance sheet exposures.

Our financial assets and liabilities that are measured at fair value on a recurring basis were as follows:

	December 31, 2011							December 31, 2010
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
	(In millions)
Derivative assets
Foreign currency option contracts	$	—	$	2.3		$	—	$	—	$	3.5		$	—
Foreign currency forward contracts	—		1.1			—		—		—			—
Derivative liabilities
Foreign currency option contracts	—		(1.4		)	—		—		(2.3		)	—
Foreign currency forward contracts	—		—			—		—		—			—
Total	$	—	$	2.0		$	—	$	—	$	1.2		$	—

There were no transfers into or out of Level 1 or Level 2 during the year ended December 31, 2011.

The notional amounts and fair values of our derivative instruments in the Consolidated Financial Statements were as follows as of December 31, 2011:

			Fair Value
	Notional Amount		Other Current Assets		Other Current Liabilities
	(In millions)
Cash flow hedges designated as hedging instruments	$	208.2	$	3.4	$	(1.4	)
Other economic hedges not receiving hedge accounting	32.9		—		—
Total	$	241.1	$	3.4	$	(1.4	)

On December 31, 2011 we entered into certain economic hedges which do not meet the definition for hedge accounting treatment. In accordance with trade date accounting, these hedges and related exposures are recorded as of December 31, 2011, but do not have a value until the subsequent day.

The derivative gains and losses in the Consolidated Statements of Operations for the year ended December 31, 2011 were as follows:

	Pretax Gain/(Loss) Recognized in Other Comprehensive Income on Effective Portion of Derivative		Pretax Gain/(Loss) on Effective Portion of Derivative Reclassification from Accumulated Other Comprehensive Income to Cost of Goods Sold, Net		Pretax Gain/(Loss) Recognized in the Consolidated Statement of Operations in Other Expense, Net
	(In millions)
Cash flow hedges designated as hedging instruments	$	1.9	$	0.8	$	—
Other economic hedges not receiving hedge accounting	—		—		(1.7		)
Total	$	1.9	$	0.8	$	(1.7	)