Derivative Instruments

6 Months Ended

Jun. 30, 2011

Derivative Instruments

Derivative Instruments

Note 7 — Derivative Instruments

The Company enters into derivative transactions to manage exposures arising in the normal course of business.  The Company recognizes all derivative instruments on the balance sheet at fair value.  Derivatives that are not hedges are adjusted to fair value through income.  If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in shareholders’ equity through other comprehensive income until the hedged item is recognized.  Gains or losses, if any, related to the ineffective portion of any hedge are recognized through earnings in the current period.

The Company enters into currency swap contracts that are not hedges to manage changes in the fair value of U.S. dollar denominated debt held in Brazil.  The contracts effectively convert a portion of that debt to the functional currency of its Brazilian operation.  The Company has not designated these derivative instruments as hedging instruments.  There were no outstanding currency swap contracts as of June 30, 2011.  At December 31, 2010, the Company had outstanding currency swap contracts with notional amounts aggregating $86.4 million.  The fair value related to active swap contracts is recorded on the balance sheet as either a current or long-term asset or liability and as an element of other non-operating (income) expense, net, which offsets the related transaction gains or losses.

The Company enters into forward exchange contracts to manage foreign currency exchange rate exposures associated with certain foreign currency denominated receivables and payables.  Forward exchange contracts generally have maturities of less than six months and relate primarily to major Western European currencies for our European operations, the U.S. dollar for our Brazilian operations, and the U.S. and Australian dollars for our New Zealand operations.  The Company has not designated these derivative instruments as hedging instruments.  At June 30, 2011, and December 31, 2010, the Company had outstanding forward exchange contracts with notional amounts aggregating $16.5 million and $12.0 million, respectively.  The net settlement amount (fair value) related to active forward exchange contracts is recorded on the balance sheet as either a current or long-term asset or liability and as an element of other operating (income) expense, net, which offsets the related transaction gains or losses.

The Company is exposed to credit loss in the event of non-performance by counterparties in currency swap and forward exchange contracts.  Collateral is generally not required of the counterparties or of the Company.  In the event a counterparty fails to meet the contractual terms of a currency swap or forward exchange contract, the Company’s risk is limited to the fair value of the instrument.  The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties.  The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any future instances of non-performance.

The fair values and balance sheet presentation of derivative instruments not designated as hedging instruments at June 30, 2011 and December 31, 2010 are presented in the table below:

		Fair Value		Fair Value
		As of		As of
(in thousands)	Balance Sheet Location	June 30, 2011		December 31, 2010
Asset Derivatives
Currency swaps	Accounts receivable	$		$
Forward exchange contracts	Accounts receivable	74		90
Total asset derivatives not designated as hedging instruments		$	74	$	90
Liability Derivatives
Currency swaps	Accounts payable	$		$	1,368
Forward exchange contracts	Accounts payable	72		77
Total liability derivatives not designated as hedging instruments		$	72	$	1,445

The income statement impact of derivative instruments not designated as hedging instruments is presented in the table below:

	Location of (Gain) Loss	Amount of (Gain) Loss Recognized in Income on Derivatives
	Recognized in Income	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	on Derivatives	2011			2010			2011			2010
Currency swap contracts	Other non-operating (income) expense, net	$	3,613		$	447		$	7,533		$	998
Forward exchange contracts	Other operating (income) expense, net	(670		)	(165		)	(1,856		)	(38		)
Total		$	2,943		$	282		$	5,677		$	960