Quarterly report pursuant to Section 13 or 15(d)

Derivative Contracts

v2.4.0.6
Derivative Contracts
6 Months Ended
Jun. 30, 2012
Derivative Contracts [Abstract]  
DERIVATIVE CONTRACTS

NOTE 8 DERIVATIVE CONTRACTS

We enter into foreign currency forward exchange contracts to cover the risk of exposure to exchange rate differences arising from inventory purchases on letters of credit. Under these forward contracts, for any rate above or below the fixed rate, we receive or pay the difference between the spot rate and the fixed rate for the given amount at the settlement date.

We record derivative financial instruments in Accrued expenses on our Condensed Consolidated Balance Sheets at their fair value and the corresponding gain or loss as Other income and expense, net. To qualify the derivative instrument as a hedge, we are required to meet strict hedge effectiveness and contemporaneous documentation requirements at the initiation of the hedge and assess the hedge effectiveness on an ongoing basis over the life of the hedge. At June 30, 2012, the forward contracts did not meet the documentation requirements to be designated as hedges. Accordingly, we recognize all changes in fair values in Other income and expense, net.

The outstanding forward contracts at June 30, 2012, have been recorded at fair value, and their maturity details are as follows (in thousands):

 

                         

Days until maturity

  Contract
value
    Fair
value at

June 30,
2012
    Effect
on loss
 

0 to 30

  $ 687     $ 681     $ (6

31 to 60

    517       503       (14

61 to 90

    269       263       (6

91 to 120

    —         —         —    

121 to 180

    60       59       (1

More than 180

    —         —         —    
   

 

 

   

 

 

   

 

 

 

Total

  $ 1,533     $ 1,506     $ (27
   

 

 

   

 

 

   

 

 

 

In addition, the Neovasc warrants are accounted for as derivatives as they are readily convertible into cash. As a result, the fluctuations in fair value are recorded in Other income and expense, net as an unrealized gain or loss. We value the Neovasc warrants based on the Black-Scholes-Merton valuation model. The conversion feature of the BZNE Notes and BZNE Warrants are also accounted for as derivatives and the changes in their fair value are recorded in Other income and expense, net.