DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2011

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 5:  DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments, to reduce its exposure to adverse fluctuations in, interest rates and foreign currency exchange rates.

Interest Rate Swaps

On May 21, 2008, the Company entered into four interest rate swap agreements for purposes of managing its risk in interest rate fluctuations. These agreements each hedged a notional amount of $150.0 million of the Company’s borrowings under its revolving credit facility. Two of the agreements were effective June 9, 2009 and expired on June 9, 2010. On these two agreements, the Company paid a fixed rate of 3.51% and received a variable rate of interest equal to three-month London Interbank Offered Rate (LIBOR), as determined on the last day of each quarterly settlement period. The other two agreements were effective on June 9, 2010 and expired on June 9, 2011. The Company paid a fixed rate of 4.10% on these two agreements and received a variable rate of interest equal to three-month LIBOR as determined on the last day of each quarterly settlement period.

The Company elected to apply hedge accounting to these swap agreements.  Changes in the fair value of the effective portion of the interest rate swap agreements was recorded as a component of accumulated other comprehensive income (loss) in the equity section of the balance sheet.  The net amount received or paid upon quarterly settlements was recorded as an adjustment to interest expense, with a corresponding reduction in accumulated other comprehensive income (loss).

The effect of derivative instruments on the condensed consolidated statements of income for the three months ended September 30, 2010 was as follows (in thousands):

Cash Flow Hedge Relationship	Before - Tax Gain Recognized in OCI on Derivative (Effective Portion)		Locations of Loss Reclassified from AOCI into Income (Effective Portion)	Before - Tax Loss Reclassified from AOCI into Income (Effective Portion)			Locations of Loss Recognized in Income on Derivative (Ineffective Portion)	Before - Tax Loss Recognized in Income on Derivative (Ineffective Portion)
September 30, 2010
Interest rate swap contracts	$	248	Interest expense	$	(2,772	)	Other income (expense), net	$	(1,177	)
Total	$	248		$	(2,772	)		$	(1,177	)

The effect of derivative instruments on the condensed consolidated statements of income for the nine months ended September 30, 2011 and 2010 was as follows (in thousands):

Cash Flow Hedge Relationship	Before - Tax Loss Recognized in OCI on Derivative (Effective Portion)			Locations of Loss Reclassified from AOCI into Income (Effective Portion)	Before - Tax Loss Reclassified from AOCI into Income (Effective Portion)			Locations of Loss Recognized in Income on Derivative (Ineffective Portion)	Before - Tax Loss Recognized in Income on Derivative (Ineffective Portion)
September 30, 2011
Interest rate swap contracts	$	(41	)	Interest expense	$	(4,237	)	Other income (expense), net	$	—
Total	$	(41	)		$	(4,237	)		$	—
September 30, 2010
Interest rate swap contracts	$	(1,609	)	Interest expense	$	(7,731	)	Other income (expense), net	$	(1,177	)
Total	$	(1,609	)		$	(7,731	)		$	(1,177	)

The fair value of the Company’s derivative instruments included in current liabilities was $5.1 million (of which $0.9 million is not designated as a hedging instrument) at December 31, 2010.  The Company had no outstanding interest rate swap contracts as of September 30, 2011.

The Company will continue to review its exposure to interest rate fluctuations and evaluate whether it should manage such exposure through derivative transactions.  See Note 12 of the condensed consolidated financial statements for additional information regarding the fair value of the interest rate swaps.

Foreign Currency Contracts

From time to time, the Company enters into foreign currency forward exchange contracts and foreign currency option contracts to manage its exposure to foreign exchange rates associated with short-term operating receivables of a Canadian subsidiary that are payable by the U.S. operations. The terms of these contracts are generally less than a year. Changes in the fair value of such contracts are reported in earnings as a component of other income (expense), net.

As of September 30, 2011, the Company had one outstanding foreign currency contract.  This contract has a notional amount of $75.0 million which represents the Company’s short term operating receivables of its Canadian subsidiary that are payable by the Company’s U.S. operations.  This contract has a settlement date of October 31, 2011 and as of September 30, 2011 this contract had no fair value.

The effect of the derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three and nine months ended September 30, 2011 and 2010 were as follows (in thousands):

	Location of Gain (Loss)	Three months ended					Nine months ended
Derivatives Not Designated as Hedging Instruments	Recognized in Income on Derivative	September 30, 2011			September 30, 2010		September 30, 2011			September 30, 2010
Foreign currency contracts	Other income (expense), net	$	(1,610	)	$	—	$	(1,147	)	$	—
Total		$	(1,610	)	$	—	$	(1,147	)	$	—