Financial Instruments and Fair Value Measurements

The company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level One: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level Two: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level Three: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying values of financial instruments, including Trade receivables, other receivables and Accounts payable, approximate their fair values due to their short-term maturities. The estimated fair value of the Company’s debt of $1.5 billion and $1.7 billion as of December 31, 2013 and 2012, respectively, was based on current interest rates for similar types of borrowings and is in Level Two of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future.

A summary of the Company’s assets and liabilities that are measured at fair value for each fair value hierarchy level for the periods presented is as follows:



	December 31, 2013
	Level One		Level Two		Level Three		Total
	(In thousands)
Assets:
Cash equivalents	$	22,032	$	—	$	—	$	22,032
Foreign currency contracts related to sales - designated as hedges	—		11,241		—		11,241
Foreign currency contracts related to sales - not designated as hedges	—		3,642		—		3,642
Foreign currency contracts related to purchases - designated as hedges	—		428		—		428
Foreign currency contracts related to purchases - not designated as hedges	—		2,543		—		2,543
Deferred compensation plans	—		2,414		—		2,414
	$	22,032	$	20,268	$	—	$	42,300

Liabilities:
Foreign currency contracts related to sales - designated as hedges	$	—	$	1,126	$	—	$	1,126
Foreign currency contracts related to sales - not designated as hedges	—		3,625		—		3,625
Foreign currency contracts related to purchases - designated as hedges	—		742		—		742
Foreign currency contracts related to purchases - not designated as hedges	—		846		—		846
Deferred compensation plans	—		2,414		—		2,414
Liability for contingent payments	—		—		6,176		6,176
	$	—	$	8,753	$	6,176	$	14,929



	December 31, 2012
	Level One		Level Two		Level Three		Total
	(In thousands)
Assets:
Cash equivalents	$	133,878	$	—	$	—	$	133,878
Foreign currency contracts related to sales - designated as hedges	—		6,832		—		6,832
Foreign currency contracts related to sales - not designated as hedges	—		2,249		—		2,249
Foreign currency contracts related to purchases - designated as hedges	—		213		—		213
Foreign currency contracts related to purchases - not designated as hedges	—		1,077		—		1,077
Deferred compensation plans	—		2,542		—		2,542
	$	133,878	$	12,913	$	—	$	146,791

Liabilities:
Foreign currency contracts related to sales - designated as hedges	$	—	$	1,024	$	—	$	1,024
Foreign currency contracts related to sales - not designated as hedges	—		1,693		—		1,693
Foreign currency contracts related to purchases - designated as hedges	—		896		—		896
Foreign currency contracts related to purchases - not designated as hedges	—		1,062		—		1,062
Deferred compensation plans	—		2,542		—		2,542
Liability for contingent payments	—		—		6,517		6,517
	$	—	$	7,217	$	6,517	$	13,734

There were no transfers in or out of Level One, Two or Three during the year ended December 31, 2013.

Cash Equivalents

The Company’s cash equivalents consist of investments in interest-bearing deposit accounts and money market mutual funds which are valued based on quoted market prices. The fair value of these investments approximate cost due to their short-term maturities and the high credit quality of the issuers of the underlying securities.

Derivatives

The Company periodically enters into foreign currency, interest rate swap, and commodity derivative contracts. The Company uses interest rate swaps to manage exposure to interest rate fluctuations. Foreign currency contracts are used to manage exchange rate fluctuations. Commodity futures contracts are used to manage costs of raw materials used in the Company’s production processes.

There were no changes during the periods presented in the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis.

Interest Rate Swap. The Company’s interest rate swap was valued based on forward curves observable in the market. On January 11, 2012, the Company terminated its interest rate swap in conjunction with the repayment of the Bank of America Credit Agreement and reclassified $0.5 million of net losses from Accumulated other comprehensive loss to Interest expense in the Consolidated Statement of Operations.

Foreign Currency Contracts. Foreign currency contracts are measured using broker quotations or observable market transactions in either listed or over-the-counter markets. The Company primarily uses foreign currency contracts to mitigate the risk associated with customer forward sale agreements denominated in currencies other than the applicable local currency, and to match costs and expected revenues where production facilities have a different currency than the selling currency.

As of December 31, 2013 and 2012, the Company had foreign currency contracts with the following notional values:



	December 31,
	2013		2012
	(In thousands)
Foreign currency contracts sold - not designated as hedges	$	244,755	$	301,185
Foreign currency contracts sold - designated as hedges	206,220		238,537
Foreign currency contracts purchased - not designated as hedges	273,714		121,741
Foreign currency contracts purchased - designated as hedges	46,728		37,065
Total foreign currency derivatives	$	771,417	$	698,528

The Company recognized the following in its Consolidated Financial Statements related to its derivative instruments:



	Year Ended December 31,
	2013			2012			2011
	(In thousands)
Contracts Designated as Hedges:
Interest Rate Swap:
Unrealized loss	$	—		$	—		$	(161	)
Realized loss	—			(471		)	(1,479		)
Foreign Currency Contracts - related to customer sales contracts:
Unrealized gain	3,801			2,120			—
Realized gain	654			2,297			—
Foreign Currency Contracts - related to supplier purchase contracts:
Unrealized gain (loss)	397			(374		)	—
Realized loss	(298		)	(475		)	—
Unrealized loss on net investment hedges	(14,261		)	(7,783		)	—
Contracts Not Designated in a Hedge Relationship:
Foreign Currency Contracts - acquisition-related:
Unrealized loss	—			—			(21,013		)
Realized loss	—			(7,177		)	—
Foreign Currency Contracts - related to customer sales contracts:
Unrealized (loss) gain	(762		)	778			(204		)
Realized gain	1,112			712			152
Foreign Currency Contracts - related to supplier purchases contracts:
Unrealized gain (loss)	1,687			(560		)	81
Realized gain (loss)	1,359			868			(20		)

Liability for Contingent Payments

The Company’s liability for contingent payments represents the fair value of estimated additional cash payments related to its acquisitions of COT-Puritech in December of 2011 and Clarus in July 2013, which are subject to the achievement of certain performance goals, and are included in Other liabilities in the Consolidated Balance Sheets. The fair value of the liability for contingent payments represents the present value of probability weighted expected cash flows based upon the Company’s internal model and projections and is included in Level Three of the fair value hierarchy. Accretion is recognized in Interest expense in the Consolidated Statements of Operations and realized or unrealized gains or losses are recognized in Selling, general and administrative expense in the Consolidated Statements of Operations.

A summary of activity in the Company’s liability for contingent payments is as follows:



	(In thousands)
Balance, January 1, 2011	$	—
Additions	4,300
Interest accretion	59
Balance, December 31, 2011	4,359
Interest accretion	712
Unrealized loss	(1,446		)
Balance, December 31, 2012	6,517
Additions for Clarus acquisition	2,494
Interest accretion	665
Cash payment	(3,500		)
Balance, December 31, 2013	$	6,176