Note 11. Financial Instruments:

Fair Value

Accounting guidance on fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:

•

Level 1-Quoted prices for identical instruments in active markets.

•

Level 2-Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•

Level 3-Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. We generally use quoted market prices, as available, to determine fair value, and classify such items in Level 1. We determine the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the London InterBank Offer Rate ("LIBOR") swap curve and forward interest and exchange rates at period end. Such instruments are classified as Level 2 based on the observability of significant inputs to the model. We do not have any instruments classified as Level 3. These valuations take into consideration our credit risk and our counterparties' credit risk. The estimated change in the fair value of these instruments due to such changes in our own credit risk (or instrument-specific credit risk) was immaterial as of June 30, 2011.

Derivatives

We periodically enter into foreign currency forward contracts with the objective of reducing exposure to cash flow volatility associated with our intercompany loans, foreign currency receivables and payables, and anticipated purchases of certain raw materials used in operations. These contracts generally involve the exchange of one currency for a second currency at a future date, have maturities not exceeding twelve months and are with counterparties which are major international financial institutions.

In 2003, we executed a 10-year Yen - U.S. dollar currency swap related to the monthly sale and purchase of products between the U.S. and Japan which has been designated as a cash flow hedge.

In 2005, we entered into a six-year interest rate swap agreement effectively converting the fixed rate on our long-term Japanese Yen borrowings to a variable short-term rate based on the Tokyo InterBank Offering Rate ("TIBOR") plus an interest markup. This swap was designated as a fair value hedge. Amounts recognized in Interest expense for all periods presented have been immaterial.

During the year ended December 31, 2010, we entered into multiple forward currency contracts which qualified as net investment hedges, in order to mitigate a portion of our net European investments from foreign currency risk. Six of these forward currency contracts matured during the year ended December 31, 2010. The remaining outstanding foreign currency forward contacts matured during the six months ended June 30, 2011. Beginning in December 2010, the Company no longer designated these contracts as net investment hedges. Changes due to differences in the exchange rates for these contracts were recorded in earnings effective December 2010.

During the third quarter of 2010, we entered into two three-year interest rate swap agreements effectively converting the fixed rate on our long term borrowings to a variable short-term rate based on the LIBOR plus an interest mark-up. These swaps are designated as fair value hedges. Amounts recognized in Interest expense have been immaterial for the three and six months ended June 30, 2011.

During the first half of 2011, we entered into multiple forward currency contracts which qualified as net investment hedges, in order to mitigate a portion of our net European investments from foreign currency risk. The effective portions of net investment hedges are recorded in Other comprehensive income ("OCI") as a component of Foreign currency translation adjustments in the accompanying Consolidated Statement of Income. Realized gains/(losses) are deferred in AOCI where they will remain until the net investments in our European subsidiaries are divested. Three of these forward currency contracts matured during the three and six months ended June 30, 2011. The outstanding forward currency contacts have remaining maturities of less than one year.

During the first half of 2011 and the second half of 2010, we entered into several forward currency contracts which qualified as cash flow hedges. The objective of these hedges is to protect against the currency risk associated with forecasted US Dollar (USD) denominated raw material purchases made by Euro (EUR) functional currency entities which result from changes in the EUR/USD exchange rate. The effective portions of cash flow hedges are recorded in OCI as a component of (Losses) gains on derivatives qualifying as hedges in the accompanying Consolidated Statement of Income. Realized gains/(losses) in AOCI related to cash flow hedges of raw material purchases are recognized as a component of Cost of goods sold in the accompanying Consolidated Statement of Income in the same period as the related costs are recognized.

The following table shows the notional amount of the Company's derivative instruments outstanding as of June 30, 2011 and December 31, 2010:


(DOLLARS IN THOUSANDS)	June 30, 2011		December 31, 2010
Forward currency contracts	$	212,700	$	141,050
Interest rate swaps	$	116,209	$	116,209

The following tables show the Company's derivative instruments measured at fair value (Level 2 of the fair value hierarchy), as reflected in the Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010:


	June 30, 2011
(DOLLARS IN THOUSANDS)		Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets ^(a)
Foreign currency contracts		$	139	$	2,073	$	2,212
Interest rate swaps			425		—		425

		$	564	$	2,073	$	2,637
Derivative liabilities ^(b)
Foreign currency contracts		$	9,646	$	3,825	$	13,471

		December 31, 2010
(DOLLARS IN THOUSANDS)		Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets ^(a)
Foreign currency contracts		$	2,984	$	1,491	$	4,475
Interest rate swaps			112		—		112

		$	3,096	$	1,491	$	4,587
Derivative liabilities ^(b)
Foreign currency contracts		$	7,086	$	9,276	$	16,362
Interest rate swaps			348		—		348

		$	7,434	$	9,276	$	16,710

^(a)	Derivative assets are recorded to Prepaid expenses and other current assets in the Consolidated Balance Sheet.

^(b)	All derivative liabilities are recorded as Other current liabilities in the Consolidated Balance Sheet.

The following table shows the effect of the Company's derivative instruments which were not designated as hedging instruments in the Consolidated Statement of Income for the three and six months ended June 30, 2011 and 2010 (in thousands):


Derivatives Not Designated as Hedging Instruments under ASC 815	Amount of (Loss) Gain Recognized in Income on Derivative					Location of (Loss) Gain Recognized in Income on Derivative
	For the three months ended June 30,					Location of (Loss) Gain Recognized in Income on Derivative
	2011			2010
Foreign currency contracts	$	(5,299	)	$	16,342	Other expense, net

Derivatives Not Designated as Hedging Instruments under ASC 815	Amount of (Loss) Gain Recognized in Income on Derivative					Location of (Loss) Gain Recognized in Income on Derivative
	For the six months ended June 30,					Location of (Loss) Gain Recognized in Income on Derivative
	2011			2010
Foreign currency contracts	$	(11,435	)	$	14,442	Other expense, net

Most of these net losses offset any recognized gains arising from the revaluation of the related intercompany loans during the same respective periods.

The following table shows the effect of the Company's derivative instruments designated as cash flow and net investment hedging instruments in the Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010 (in thousands):


	Amount of (Loss) Gain Recognized in OCI on Derivative (Effective Portion)						Location of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
	For the three months ended June 30,							For the three months ended June 30,
	2011			2010				2011			2010
Derivatives in Cash Flow Hedging Relationships:
Cross currency swap ⁽¹⁾	$	93		$	(465	)	Other expense, net	$	(562	)	$	(314	)
Forward currency contracts	$	538		$	1,030		Cost of goods sold	$	(1,623	)	$
Derivatives in Net Investment Hedging Relationships:
Forward currency contracts	$	(962	)	$	4,185		N/A	$			$
Total	$	(331	)	$	4,750			$	(2,185	)	$	(314	)



	Amount of (Loss) Gain Recognized in OCI on Derivative (Effective Portion)						Location of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
	For the six months ended June 30,							For the six months ended June 30,
	2011			2010				2011			2010
Derivatives in Cash Flow Hedging Relationships:
Cross currency swap ⁽¹⁾	$	670		$	(184	)	Other expense, net	$	(1,087	)	$	(297	)
Forward currency contract	$	(2,126	)	$	1,030		Cost of goods sold	$	(2,620	)	$
Derivatives in Net Investment Hedging Relationships:
Forward currency contract	$	(2,413	)	$	4,809		N/A	$			$
Total	$	(3,869	)	$	5,655			$	(3,707	)	$	(297	)

⁽¹⁾	Ten year swap executed in 2003

No ineffectiveness was experienced in the above noted cash flow hedges during the three and six months ended June 30, 2011 and 2010. The ineffective portion of the net investment hedges was not material during the three and six months ended June 30, 2011 and 2010.

The Company expects that approximately $3.7 million (net of tax) of derivative losses included in AOCI at June 30, 2011, based on current market rates, will be reclassified into earnings within the next 12 months. The portion of derivative losses in AOCI associated with open hedge positions, which represents approximately half of this amount, will vary due to fluctuations in exchange rates until the contracts are closed.