Hedging Transactions, Derivative Financial Instruments and Fair Value

9 Months Ended

Sep. 30, 2011

Hedging Transactions, Derivative Financial Instruments and Fair Value [Abstract]

Hedging Transactions, Derivative Financial Instruments and Fair Value

Note 13 — Hedging Transactions, Derivative Financial Instruments and Fair Value

     The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, when deemed appropriate, uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed through the use of derivative financial instruments are foreign currency exchange rate risk and interest rate risk.

Foreign Exchange Risk Management

     A portion of the Company’s cash flows is derived from transactions denominated in foreign currencies. The United States dollar value of transactions denominated in foreign currencies fluctuates as the United States dollar strengthens or weakens relative to these foreign currencies. In order to reduce the uncertainty of foreign exchange rate movements on transactions denominated in foreign currencies, including the British Pound Sterling and the Euro, the Company enters into foreign exchange contracts with major international financial institutions. These forward contracts, which typically mature within one year, are designed to hedge anticipated foreign currency transactions, primarily inter-company inventory purchases and trade receivables. No components of the contracts are excluded in the measurement of hedge effectiveness. The critical terms of the foreign exchange contracts are the same as the underlying forecasted transactions; therefore, changes in the fair value of foreign exchange contracts should be highly effective in offsetting changes in the expected cash flows from the forecasted transactions.

     At September 30, 2011 and December 31, 2010, the Company had foreign currency exchange contracts with notional amounts of $4,884 and $13,468, respectively, and net liability and asset fair values of $(92) and $197, respectively. The foreign currency exchange contracts are reflected in the consolidated balance sheets at fair value. The fair value of the foreign currency exchange contracts is the estimated amount that the counter-parties would receive or pay to terminate the foreign currency exchange contracts at the reporting date, taking into account current foreign exchange spot rates. The fair value adjustment at September 30, 2011 and December 31, 2010 resulted in an unrealized net loss of $(58) and an unrealized net gain of $124, respectively, which are included in accumulated other comprehensive income (loss). As these hedges are 100% effective, there is no current impact on earnings due to hedge ineffectiveness. The Company anticipates that substantially all gains and losses in accumulated other comprehensive income (loss) related to these foreign exchange contracts will be reclassified into earnings by December 2011.

Interest Rate Risk Management

     As part of the Company’s risk management strategy, the Company periodically uses interest rate swap agreements to hedge the variability of cash flows on floating rate debt obligations. Accordingly, interest rate swap agreements are reflected in the consolidated balance sheets at fair value and the related gains and losses on these contracts are deferred in equity and recognized in interest expense over the same period in which the related interest payments being hedged are recognized in income. The fair value of an interest rate swap agreement is the estimated amount that the counterparty would receive or pay to terminate the swap agreement at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparty.

     At September 30, 2011, the Company had no interest rate swap agreements. At December 31, 2010, the Company had an interest rate swap with the notional amount of $135,374 and a net liability fair value of $2,244. The swap agreement had an unrealized net loss of $1,414 at December 31, 2010 which was included in accumulated other comprehensive income (loss). No component of the agreement was excluded in the measurement of hedge effectiveness. As the hedge was 100% effective, there was no current impact on earnings due to hedge ineffectiveness. The interest rate swap agreement matured on September 22, 2011.

Fair Value Measurement

      ASC Subtopic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC Subtopic 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

     The following tables show assets and liabilities as of September 30, 2011 and December 31, 2010, which are measured at fair value on a recurring basis:

			Significant
	Quoted Prices in		Other
	Active Markets for		Observable			Unobservable		Total as of
	Identical Assets or		Inputs			Inputs		September 30,
	Liabilities (Level 1)		(Level 2)			(Level 3)		2011
Derivative assets		—	$	8			—	$	8
Derivative liabilities		—		(100	)		—		(100	)

			Significant
	Quoted Prices in		Other
	Active Markets for		Observable			Unobservable
	Identical Assets or		Inputs			Inputs		Total as of
	Liabilities (Level 1)		(Level 2)			(Level 3)		December 31, 2010
Derivative assets		—	$	241			—	$	241
Derivative liabilities		—		(2,288	)		—		(2,288	)

     In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record other assets and liabilities at fair value on a nonrecurring basis, generally as a result of impairment charges.

     The carrying amounts for cash and cash equivalents, accounts receivables, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair value at September 30, 2011 and December 31, 2010 because of the short-term maturity of those instruments or their variable rates of interest.

     The carrying amount and fair value (based on market prices) of the term loans and the senior subordinated notes are as follows:

	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Term Loans	$	662,337	$	655,714	$	666,644	$	674,060
Senior Subordinated Notes		175,000		176,750		175,000		176,750

     The carrying amounts for other long-term debt approximate fair value at September 30, 2011 and December 31, 2010, based on the discounted future cash flow of each instrument at rates currently offered for similar debt instruments of comparable maturity.

     The following table summarizes the Company’s outstanding derivative instruments on a gross basis as recorded on its consolidated balance sheets as of September 30, 2011 and December 31, 2010.

					Derivative Assets						Derivative Liabilities
					September 30,			December 31,			September 30,				December 31,
					2011			2010			2011				2010
	Notional Amounts				Balance			Balance			Balance				Balance
	September 30,		December 31,		Sheet	Fair		Sheet	Fair		Sheet	Fair			Sheet	Fair
Derivative Instrument	2011		2010		Line	Value		Line	Value		Line	Value			Line	Value
Interest Rate Hedge	$	—	$	135,374		$	—		$	—		$	—		(b) AE	$	(2,244	)
Foreign Exchange Contracts		4,884		13,468	(a) PP		8	(a) PP		241	(b) AE		(100	)	(b) AE		(44	)
Total Hedges	$	4,884	$	148,842		$	8		$	241		$	(100	)		$	(2,288	)

(a)	PP = Prepaid expenses and other current assets
(b)	AE = Accrued expenses