FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2011

FAIR VALUE MEASUREMENTS

NOTE 2 – FAIR VALUE MEASUREMENTS

The accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

● Level 1 – Quoted prices in active markets for identical assets or liabilities.

● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● 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.

Assets measured at fair value on a recurring basis, categorized by the level of inputs used in the valuation, include:

(Dollars in thousands)	Carrying amount as of December 31, 2011			Level 1		Level 2			Level 3
Auction rate securities	$	25,960		$	-	$	-		$	25,960
Foreign currency option contracts		68			-		68			-
Pension assets		120,565			75,227		32,072			13,266
Copper derivative contracts		(377	)		-		(377	)		-
	Carrying amount as of December 31, 2010			Level 1		Level 2			Level 3
Auction rate securities	$	33,778		$	-	$	-		$	33,778
Foreign currency option contracts		1,306			-		1,306			-
Pension assets		125,261			70,097		44,857			10,307

The following table presents information about our assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.  This asset represents our Richmond, Virginia facility for which we signed an agreement to sell in the first quarter of 2012.  We have written this asset down to the agreed upon sale price less costs to sell.

(Dollars in thousands)	Carrying amount as of December 31, 2011		Level 1		Level 2		Level 3
Asset held for sale	$	1,400	$	-	$	1,400	$	-

Auction Rate Securities

As of December 31, 2011, we held approximately $29.5 million of auction rate securities at par which was comprised 96% of student loan-backed auction rate securities and 4% of municipality-backed auction rate securities.  As of December 31, 2010, we held approximately $37.6 million of auction rate securities at par.  At the end of 2007, these securities were classified as available-for-sale and recorded at fair value based on market valuations at that time (Level 1 input in accordance with accounting guidance).  However, in the first quarter of 2008, the markets in which these securities traded became illiquid, causing us to reclassify these securities from a Level 1 input to a Level 3 input, as an active market no longer existed for these securities, and therefore we had to base our valuations on unobservable inputs.  Accordingly, our asset value was determined considering several factors, including an estimated time horizon for redeeming such securities, a discount factor to determine the present value of such securities, as well as the quality of the underlying securities, most of which were backed by investment grade student loans or municipalities.  Our initial valuations utilized a discount period of approximately two years, which represented our best estimates of the time period over which these securities would be redeemed.  However, as 2008 progressed, we determined, based on the market conditions at the time, that the estimated time horizon for redemption of such securities would be greater than two years and, in the fourth quarter of 2008, we adjusted our assumptions for this consideration.

During 2011, approximately $8.1 million of auction rate securities were redeemed, compared to $5.8 million in 2010.  We performed a fair value assessment of these securities based on a discounted cash flow model, utilizing various assumptions that included estimated interest rates, probabilities of successful auctions, the timing of cash flows, and the quality and level of collateral of the securities.  These inputs were chosen based on our current understanding of the expectations of the market and are consistent with the assumptions utilized during our assessment of these securities at year end 2011.  This analysis resulted in an insignificant change in the fair value of our auction rate securities in 2011 and total impairment of $3.5 million on our current portfolio.

Other-than-temporary impairment (“OTTI”) must be recognized in earnings for a security in an unrealized loss position when an entity either (a) has the intent to sell the security or (b) more likely than not will be required to sell the security before its anticipated recovery.

When an OTTI of a security has occurred, the amount of the OTTI recognized in earnings depends on whether we intend to sell the security or more likely than not will be required to sell the security before recovery of its cost basis. If we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before the recovery of its cost basis, the other-than-temporary loss should be separated into the amount representing the credit loss and the amount related to all other factors.  The amount representing the credit loss is recognized in earnings, and as long as the factors above are not met, the remaining amount is recorded in other comprehensive income.

We have concluded that the impairment on the auction rate securities is other-than-temporary and should be separated into two amounts, one amount representing a credit loss for $1.1 million and one amount representing an impairment due to all other factors for $2.7 million.  The credit loss of $1.1 million includes the impact of $0.3 million for a redemption in the third quarter for $3.7 million, which represented 92.6% of the par value.  The credit loss is primarily based on the underlying ratings of the securities.  As described above, we have determined that the amount representing the credit loss on our auction rate securities should be recorded in earnings, while the remaining impairment amount should be recorded in other comprehensive income (loss) in the equity section of our consolidated statements of financial position, as we do not have the intent to sell the impaired investments, nor do we believe that it is more likely than not that we will be required to sell these investments before the recovery of their cost basis.

Additionally, due to our belief that it may take over twelve months for the auction rate securities market to recover, we have classified the auction rate securities as long-term assets, with the exception of securities maturing within 12 months, which we classify as short-term investments.  As of December 31, 2011 all securities were classified as long term. The securities that we hold have maturities ranging from 20 to 36 years.

The reconciliation of our assets measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

(Dollars in thousands)	Auction Rate Securities
Balance at December 31, 2010	$	33,778
Cash received for redemptions at par		(4,150	)
Cash received for redemptions below par		(3,655	)
Reported in accumulated other comprehensive loss		183
Reported in earnings		(196	)
Balance at December 31, 2011	$	25,960

A roll forward of credit losses recognized in earnings is as follows:

(Dollars in thousands)
	Credit Losses
Balance at December 31, 2010	$	917
Credit losses recorded		278
Reduction in credit losses due to redemptions		(82	)
Balance at December 31, 2011	$	1,113

These securities currently earn interest at rates ranging from 1% to 2%.  Upon the failure of these securities at auction, a penalty interest rate is triggered.  Since the securities we hold are investment-grade securities, the penalty rates are market-based, and therefore the aggregate interest rate that we earned has declined to 1% to 2% from a historical rate of 3% to 7% due to reductions in the referenced interest rates by the Federal government.

Foreign Currency and Commodity Option Derivatives

As further explained below in Note 3 “Hedging Transactions and Derivative Financial Instruments”, we are exposed to certain risks relating to our ongoing business operations.  The primary risks being managed through the use of derivative instruments are foreign currency exchange rate risk and commodity pricing risk, specifically copper.  The fair value of the foreign currency option derivatives is based upon valuation models applied to current market information such as strike price, spot rate, maturity date and volatility, and by reference to market values resulting from an over-the-counter market or obtaining market data for similar instruments with similar characteristics.

The fair value of the copper derivatives is computed using a combination of intrinsic and time value valuation models.  The intrinsic valuation model reflects the difference between the strike price of the underlying copper derivative instrument and the current prevailing copper prices in an over-the-counter market at period end.  The time value valuation model incorporates the constant changes in the price of the underlying copper derivative instrument, the time value of money, the underlying copper derivative's strike price and the remaining time to the underlying copper derivative instrument's expiration date from the period end date.  Overall, fair value is a function of five primary variables: price of the underlying instrument, time to expiration, strike price, interest rate, and volatility.  We do not use derivative financial instruments for trading or speculation purposes.

Pension Assets

As further discussed in Note 9 “Pension Benefits and Retirement Health and Life Insurance Benefits”, our pension assets are stated at fair value.  There are categories of assets in Level 1, 2 and 3 of the fair value hierarchy.