Derivatives and Hedging Activities

6 Months Ended

Jun. 30, 2011

Derivatives and Hedging Activities [Abstract]

Derivatives and Hedging Activities

(7)       Derivatives and Hedging Activities

The Company operates internationally and is exposed to fluctuations in foreign exchange rates and interest rates in the normal course of business.  The Company considers the use of derivative financial instruments to reduce exposure to market risks resulting from fluctuations in interest rates and foreign exchange rates.

All financial instruments involve market and credit risks.  The Company is exposed to credit losses in the event of non-performance by the counterparties to the contracts.  While there can be no assurance, the Company does not anticipate non-performance by these counterparties.

Foreign Currency Forward Contracts

The Company enters into forward exchange contracts to hedge forecasted cash flows associated with foreign currency transaction exposures, as deemed appropriate.  This hedging strategy mitigates some of the impact of short-term foreign exchange rate movements on the Company's operating results, primarily in Sweden and Italy. The Company's primary market risk relates to exposures to foreign currency exchange rate fluctuations on transactions entered into by these international operations that are denominated primarily in U.S. dollars, Swedish krona, and euros.

The Company's forward exchange contracts substantially offset gains and losses on the transactions being hedged.  The forward exchange contracts have varying maturities with none exceeding twelve months.

All forward contracts outstanding at June 30, 2011 have been designated as cash flow hedges and, accordingly, changes in the fair value of these derivatives are not included in earnings but are included in accumulated other comprehensive income/(loss) (“AOCI”).  Changes in the fair value of the derivative instruments reported in AOCI will be recorded into earnings as a component of product revenue or expense, as applicable, when the forecasted transaction occurs.  The ineffective portion of all hedges is recognized in current-period earnings and is immaterial to the Company's financial results.

The notional amounts of foreign exchange forward contracts were $14,386 and $19,094 at June 30, 2011 and December 31, 2010, respectively.

Included in AOCI is the fair value of the Company's forward exchange contracts which is a loss of $258 and $101 as of June 30, 2011 and December 31, 2010, respectively.  These losses are located under the caption “Accrued expenses and other current liabilities” on the balance sheet as of June 30, 2011 and December 31, 2010, respectively.

The Company recognized a pre-tax loss in OCI from foreign exchange contracts of $59 and $157 for the three and six months ended June 30, 2011, respectively.  The Company reclassified a pre-tax gain of $106 and $139 from AOCI into other revenue related to foreign exchange forward contracts for the three and six months ended June 30, 2011, respectively.  Assuming current market conditions continue, the entire amount recorded in AOCI related to foreign exchange forward contracts is expected to be recorded into other revenue within the next 12 months to reflect the fixed prices obtained from the forward contracts.