Fair Value Measurements

3 Months Ended

Mar. 31, 2012

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.

From time to time we enter into various instruments that require fair value measurement, including foreign currency option contracts and copper derivative contracts.  As of March 31, 2012, the value of these instruments was de minimis.

(Dollars in thousands)	Carrying amount as of March 31, 2012			Level 1		Level 2			Level 3
Foreign currency option contracts	$	1		$	-	$	1		$	-
Copper derivative contracts		(21	)		-		(21	)		-

The following table presents information about our assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2012, 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 March 31, 2012		Level 1		Level 2		Level 3
Asset held for sale	$	1,400	$	-	$	1,400	$	-

Auction Rate Securities

During the first quarter of 2012, we liquidated our auction rate security portfolio, receiving net proceeds of $25.4 million on a stated par value of $29.5 million.  As a result of this liquidation, we recognized a loss on the discount of the securities of $3.2 million (the remaining difference between the liquidation and par value of $0.9 million had previously been recognized as an impairment loss) in our condensed consolidated statement of comprehensive income. Since the markets for these securities failed in the first quarter of 2008, we have redeemed $24.9 million of these securities, mostly at par.  However, due to the fact that par value redemptions had slowed in recent quarters with no clear path for full redemption over the next several years and the rate of return on these securities was very low, management determined that a discounted redemption at this time was in the best interests of the Company as the cash could be better utilized going forward.

Prior to the first quarter of 2012, we had recognized an Other–than-temporary impairment (OTTI) on these securities. An OTTI is 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 occurred, the amount of the OTTI recognized in earnings depended on whether we intended to sell the security or it was more likely than not that we would be required to sell the security before recovery of its cost basis. If we did not intend to sell the security and was not more likely than not that we would have been required to sell the security before the recovery of its cost basis, the other-than-temporary loss should have been separated into the amount representing the credit loss and the amount related to all other factors.  The amount representing the credit loss would have been recognized in earnings, and as long as the factors above were not met, the remaining amount is recorded in other comprehensive income.

Prior to the first quarter of 2008, our available-for-sale auction rate securities were recorded at fair value as determined in the active market at the time.  However, due to events in the credit markets, the auctions failed during the first quarter of 2008 for the auction rate securities that we held at the end of the first quarter of 2008, and all of our auction rate securities had been in a loss position since that time until the first quarter of 2012.  In addition, it was no longer possible to establish fair value using Level 1 methodology and valuation according to Level 3 methodology was adopted.

Due to our belief that it would have taken more than twelve months for the auction rate securities market to recover, these securities were classified as long-term assets, except for those that were scheduled to be redeemed within the next twelve months, which were classified as short-term investments.

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, 2011	$	25,960
Cash received for redemptions at par		-
Cash received for redemptions below par		(25,438	)
Reclassified from other comprehensive income		2,723
Reported in earnings		(3,245	)
Balance at March 31, 2012	$	-

There were no credit losses recognized for the three months ended March 31, 2012. Below is a roll forward of credit losses recognized in earnings for the three months ended March 31, 2011:

(Dollars in thousands)
	Credit Losses
Balance at December 31, 2010	$	917
Credit losses recorded		-
Reduction in credit losses due to redemptions		(2	)
Balance at March 31, 2011	$	915

(Dollars in thousands)

As of March 31, 2012, the carrying value of our derivative instruments was de minimis.  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.