Foreign Currency Exchange Contracts and Hedging

6 Months Ended

Jun. 30, 2011

Foreign Currency Exchange Contracts and Hedging

Foreign Currency Exchange Contracts and Hedging

(6) Foreign Currency Exchange Contracts and Hedging

The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk.  The Company may enter into foreign currency forward or option contracts, generally with maturities of 12 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in certain foreign currencies.  In addition, the Company utilizes foreign exchange forward and option contracts to mitigate foreign currency exchange rate risk associated with foreign currency-denominated assets and liabilities, primarily intercompany balances.  The Company does not use foreign currency contracts for speculative or trading purposes.

Certain of the Company’s foreign currency forward contracts are designated cash flow hedges of forecasted intercompany sales and are subject to foreign currency exposures. These contracts allow the Company to sell Euros and British Pounds in exchange for US dollars at specified contract rates.  At June 30, 2011, the outstanding contracts were expected to mature over the next six months.  Forward contracts are used to hedge forecasted intercompany sales over specific quarters.  Changes in the fair value of these forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive (loss) income (OCI) within stockholders’ equity, and are recognized in the condensed consolidated statements of operations during the period which approximates the time the corresponding third-party sales occur.  The Company may also enter into foreign exchange contracts that are not designated as hedging instruments for financial accounting purposes.  Accordingly, any gains or losses resulting from changes in the fair value of the non-designated contracts are reported in income.  These contracts are generally entered into to offset the gains and losses on certain intercompany balances until the expected time of repayment.  As of June 30, 2011, the Company’s total hedging contracts had notional amounts totaling approximately $57,000, held by two counterparties.

The Company has factored into the fair value measurements of its derivatives the nonperformance risk of the Company and the counterparty, and it did not have a material impact on the fair value of the derivatives.  The Company assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly. During the three and six months ended June 30, 2011, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of June 30, 2011.  As of June 30, 2011, the total amount in accumulated other comprehensive (loss) income (see note 3) is expected to be reclassified into income within the next nine months.

The following tables summarize the effect of derivative instruments on the condensed consolidated financial statements for the six months ended June 30, 2011:

					Amount of Gain (Loss)
	Amount of Gain (Loss)			Location of Gain (Loss)	Reclassified from
Derivatives in Designated	Recognized in OCI			Reclassified from	Accumulated OCI into		Location of Amount	Gain (Loss) from
Cash Flow Hedging	on Derivative			Accumulated OCI into Income	Income (Effective		Excluded from	Amount Excluded from
Relationships	(Effective Portion)			(Effective Portion)	Portion)		Effectiveness Testing	Effectiveness Testing
Foreign Exchange Contracts	$	(3,011	)	Net Sales	$	201	Selling, general and administrative expenses (SG&A)	$	(10	)

Derivatives Not	Location of Gain (Loss)	Amount of Gain (Loss)
Designated as Hedging	Recognized in Income on	Recognized in Income on
Instruments	Derivatives	Derivatives
Foreign Exchange Contracts	SG&A	$	(670	)