DERIVATIVE INSTRUMENTS & FAIR VALUE

9 Months Ended

Sep. 30, 2011

DERIVATIVE INSTRUMENTS & FAIR VALUE

DERIVATIVE INSTRUMENTS & FAIR VALUE

NOTE 9.  DERIVATIVE INSTRUMENTS & FAIR VALUE

The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, notes payable to bank, and variable interest rate debt approximate their fair values either due to the short period to maturity of the instruments or due to the nature of underlying assets or liabilities.

Derivative Instruments

We utilize foreign currency forward contracts to mitigate the impact of currency fluctuations on monetary assets and liabilities denominated in currencies other than the applicable functional currency as well as on forecasted transactions denominated in currencies other than the applicable functional currency. These contracts are considered derivative instruments and are recorded as either assets or liabilities which are measured at fair value using internal models based on observable market inputs such as spot and forward rates.

For contracts that are designated and qualify as cash flow hedges, the unrealized gains or losses on the contracts are reported as a component of other comprehensive income (“OCI”) and are reclassified from accumulated other comprehensive income (“AOCI”) into earnings on the consolidated statement of operations when the hedged transaction affects earnings.  As of September 30, 2011, $2.2 million of the unrealized loss is expected to be reclassified from AOCI into earnings over the next 12 months. For contracts that are not designated as hedges, the gains and losses on the contract are recognized in current earnings as other (income) expense.

Notional amounts of the derivative financial instruments not qualifying or designated as hedges were $47.1 million at September 30, 2011 and $20.0 million at December 31, 2010. For the three and nine months ended September 30, 2011, losses related to this type of derivative financial instruments were $1.0 million and $1.3 million, respectively. For the three and nine months ended September 30, 2010, losses related to this type of derivative financial instruments were $0.36 million and $0.04 million, respectively. The losses were recorded as other expense in our consolidated statement of operations.

Derivative financial instruments qualifying and designated as hedges are as follows:

	September 30, 2011				December 31, 2010
	Notional Amount		Unrealized (Loss)		Notional Amount		Unrealized (Loss)
	(in thousands)
Foreign currency forward contracts	$	84,330	$	(2,853)	$	2,161	$	(90)

Fair Value

The inputs to the valuation techniques used to measure fair value are classified into the following categories:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities.

Level 3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.

The following table presents the fair values and classification of our financial instruments measured on a recurring basis as of September 30, 2011:

	As of September 30, 2011
	Classification	Total		Level 1		Level 2		Level 3
		(in thousands)
Foreign currency forwards designated as hedges:
Prepaid expenses		$	225	$	-	$	225	$	-
Accrued expenses		$	3,078	$	-	$	3,078	$	-
Foreign currency forwards not designated as hedges:
Prepaid expenses		$	449	$	-	$	449	$	-
Accrued expenses		$	1,295	$	-	$	1,295	$	-

The following table presents the fair values and classification of our financial instruments measured on a recurring basis as of December 31, 2010:

	As of December 31, 2010
	Classification	Total		Level 1		Level 2		Level 3
		(in thousands)
Foreign currency forwards designated as hedges:
Prepaid expenses		$	-	$	-	$	-	$	-
Accrued expenses		$	90	$	-	$	90	$	-
Foreign currency forwards not designated as hedges:
Prepaid expenses		$	254	$	-	$	254	$	-
Accrued expenses		$	16	$	-	$	16	$	-