Quarterly report pursuant to Section 13 or 15(d)

Derivative Contracts

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Derivative Contracts
9 Months Ended
Sep. 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 as Accrued expenses or Other current assets on our Condensed Consolidated Balance Sheets at their fair value and the corresponding gain or loss as Other income (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 September 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 (expense), net.

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

 

                         

Days until maturity

  Contract value     Fair value at
September 30,  2012
    Effect on loss  

0 to 30

  $ 1,798     $ 1,834     $ (36

31 to 60

    1,273       1,288       (15

61 to 90

    320       328       (8

91 to 120

    —         —         —    

121 to 180

    —         —         —    

More than 180

    —         —         —    
   

 

 

   

 

 

   

 

 

 

Total

  $ 3,391     $ 3,450     $ (59
   

 

 

   

 

 

   

 

 

 

In addition, the Neovasc warrants and vested Neovasc options 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 (expense), net as an unrealized gain or loss. We value the Neovasc warrants and options based on the Black-Scholes-Merton valuation model. The conversion feature of the BZNE Notes is also accounted for as a derivative and the changes in the fair value are recorded in Other income (expense), net.