Fair Value measurements

12 Months Ended

Dec. 31, 2011

Fair Value measurements

Fair Value measurements

Note 20 — Fair Value measurements

The fair value of our financial instruments are classified in one of the following categories:

· Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

· Level 2: Observable inputs other than quoted prices in active markets, but corroborated by market data.

· Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk.  At December 31, 2011 and 2010, we did not have any assets or liabilities that utilize Level 3 inputs.

For derivative assets and liabilities that utilize Level 2 inputs we prepare estimates of future cash flows to be generated by our derivatives, which are discounted to a net present value.  The estimated cash flows and the discount factors used in the valuation model are based on observable inputs, and incorporate non-performance risk (the credit standing of the counterparty when the derivative is in a net asset position, and the credit standing of Hexcel when the derivative is in a net liability position).  The fair value of these assets and liabilities was approximately $0.6 million and $10.4 million, respectively at December 31, 2011.  Below is a summary of valuation techniques for all Level 2 financial assets and liabilities:

· Interest rate swap — valued using LIBOR yield curves at the reporting date.  Fair value of liability was $0.5 million at December 31, 2011.

· Foreign exchange derivative assets and liabilities — valued using quoted forward foreign exchange prices at the reporting date.  Fair value of assets and liabilities at December 31, 2011 was $0.6 million and $9.9 million, respectively.

Counterparties to these contracts are highly rated financial institutions none of which experienced any significant downgrades in 2011 that would significantly reduce the receivable amount owed, if any, to the Company.