Financial Instruments, Derivative Instruments And Hedging

12 Months Ended

Dec. 31, 2011

Financial Instruments, Derivative Instruments And Hedging [Abstract]

Financial Instruments, Derivative Instruments And Hedging

14. Financial Instruments, Derivative Instruments and Hedging

Financial Instruments

The carrying amount of cash equivalents and restricted cash approximates fair value because of the short maturity of those instruments. The fair value of short-term investments, investments in available-for-sale securities and supplemental retirement plan assets is based on market quotations. The fair value of derivatives is based on the income approach, using observable Level II market expectations at the measurement date and standard valuation techniques to discount future amounts to a single present value.

Foreign Currency

In the normal course of business, we are subject to the risks associated with fluctuations in foreign currency exchange rates. To limit this foreign exchange rate exposure, the Company seeks to denominate its contracts in U.S. dollars. If we are unable to enter into a contract in U.S. dollars, we review our foreign exchange exposure and, where appropriate, derivatives are used to minimize the risk of foreign exchange rate fluctuations to operating results and cash flows. We do not use derivative instruments for trading or speculative purposes.

As of December 31, 2011, SS/L had the following amounts denominated in Japanese yen and euros (which have been translated into U.S. dollars based on the December 31, 2011 exchange rates) that were unhedged:

		September 30,		September 30,
	Foreign Currency		U.S.$
	(In thousands)
Future revenues — Japanese yen	¥	50,062	$	650
Future expenditures — Japanese yen	¥	2,275,318	$	29,567
Future revenues — euros	€	17,635	$	22,867
Future expenditures — euros	€	5,317	$	6,894

Derivatives and Hedging Transactions

All derivative instruments are recorded at fair value as either assets or liabilities in our consolidated balance sheets. Each derivative instrument is generally designated and accounted for as either a hedge of a recognized asset or a liability ("fair value hedge") or a hedge of a forecasted transaction ("cash flow hedge"). Certain of these derivatives are not designated as hedging instruments and are used as "economic hedges" to manage certain risks in our business.

As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. The Company does not hold collateral or other security from its counterparties supporting its derivative instruments. In addition, there are no netting arrangements in place with the counterparties. To mitigate the counterparty credit risk, the Company has a policy of entering into contracts only with carefully selected major financial institutions based upon their credit ratings and other factors.

There were no derivative instruments in an asset position as of December 31, 2011. Therefore, there was no exposure to loss at such date as a result of the potential failure of the counterparties to perform as contracted.

Cash Flow Hedges

The Company enters into long-term construction contracts with customers and vendors, some of which are denominated in foreign currencies. Hedges of expected foreign currency denominated contract revenues and related purchases are designated as cash flow hedges and evaluated for effectiveness at least quarterly. Effectiveness is tested using regression analysis. The effective portion of the gain or loss on a cash flow hedge is recorded as a component of other comprehensive income ("OCI") and reclassified to income in the same period or periods in which the hedged transaction affects income. The ineffective portion of a cash flow hedge gain or loss is included in income.

In June 2010 and July 2008, SS/L was awarded satellite contracts denominated in euros and entered into a series of foreign exchange forward contracts with maturities through 2013 and 2011, respectively, to hedge associated foreign currency exchange risk because our costs are denominated principally in U.S. dollars. These foreign exchange forward contracts have been designated as cash flow hedges of future euro denominated receivables.

The maturity of foreign currency exchange contracts held as of December 31, 2011 is consistent with the contractual or expected timing of the transactions being hedged, principally receipt of customer payments under long-term contracts. These foreign exchange contracts mature as follows:

		September 30,		September 30,		September 30,
	To Sell
Maturity	Euro Amount		At Contract Rate		At Market Rate
	(In thousands)
2012	€	27,244	$	32,894	$	35,275
2013		27,000		32,967		35,208
	€	54,244	$	65,861	$	70,483

Balance Sheet Classification

The following summarizes the fair values and location in our consolidated balance sheet of all derivatives held by the Company as of December 31, 2011 (in thousands):

	September 30,		September 30,	September 30,		September 30,
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts				Other current liabilities	$	2,381
				Other liabilities		2,185
						4,566
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	$	1
				Other liabilities		56
Total derivatives		$	1		$	4,622

The following summarizes the fair values and location in our consolidated balance sheet of all derivatives held by the Company as of December 31, 2010 (in thousands):

	September 30,		September 30,	September 30,		September 30,
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets	$	4,152	Other current liabilities	$	9,451
				Other liabilities		5,360
		$	4,152			14,811
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	$	396	Other current liabilities		133
				Other liabilities		63
Total derivatives		$	4,548		$	15,007

Cash Flow Hedge Gains (Losses) Recognition

The following summarizes the gains (losses) recognized in the consolidated statements of operations and in accumulated other comprehensive loss for all derivatives for the years ended December 31, 2011 and 2010 (in thousands):

		September 30,		September 30,		September 30,		September 30,		September 30,
Derivatives in Cash Flow Hedging Relationships	Loss Recognized in OCI  on Derivatives (Effective Portion)			Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Gain (Loss) on Derivative Ineffectiveness and Amounts Excluded from Effectiveness Testing
				Location	Amount			Location	Amount
Year ended December 31, 2011
Foreign exchange contracts	$	(8,821	)	Revenue	$	(17,935	)	Revenue	$	(411	)
								Interest income	$	(1	)
Year ended December 31, 2010
Foreign exchange contracts	$	(15,790	)	Revenue	$	6,054		Revenue	$	636
								Interest income	$	(13	)

		September 30,		September 30,
Cash Flow Derivatives Not Designated as Hedging Instruments	Gain (Loss) Recognized in Income on Derivatives
	Location		Amount
Year ended December 31, 2011
Foreign exchange contracts		Revenue	$	(254	)
Year ended December 31, 2010
Foreign exchange contracts		Revenue	$	33

We estimate that $6.5 million of net losses from derivative instruments included in accumulated other comprehensive loss will be reclassified into earnings within the next 12 months.