Foreign Currency Derivative Instruments

6 Months Ended

Jun. 30, 2011

Foreign Currency Derivative Instruments

Foreign Currency Derivative Instruments

Note 5 – Foreign Currency Derivative Instruments

Maxwell uses forward contracts to hedge certain monetary assets and liabilities, primarily receivables and payables, denominated in a foreign currency. The change in fair value of these instruments represents a natural hedge as gains and losses offset the changes in the underlying fair value of the monetary assets and liabilities due to movements in currency exchange rates. These contracts generally expire in one month. These contracts are considered economic hedges and are not designated as hedges under the Derivatives and Hedging Topic of the FASB ASC, therefore, the change in the fair value of the instrument is recognized currently in the consolidated statement of operations.

Net gains (losses) on foreign currency forward contracts included in cost of revenue and selling, general and administrative expense are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Cost of revenue	$	(122	)	$	87		$	(238	)	$	355
Selling, general and administrative		1,958			(81	)		2,015			(270	)
Total	$	1,836		$	6		$	1,777		$	85

As of June 30, 2011, the total notional amount of foreign currency forward contracts not designated as hedges was $26.1 million. The fair value of these derivatives was $244,000 (asset) at June 30, 2011. For additional information, refer to Note 4 – Fair Value Measurement.

The net gains and losses on foreign currency forward contracts were partially offset by net gains and losses on the underlying monetary assets and liabilities. Foreign currency gains and losses on those underlying monetary assets and liabilities included in cost of revenue and selling, general and administrative expense are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Cost of revenue	$	138		$	(133	)	$	223		$	(304	)
Selling, general and administrative		(2,088	)		19			(2,189	)		169
Total	$	(1,950	)	$	(114	)	$	(1,966	)	$	(135	)