Foreign Exchange Risk Management

9 Months Ended

Sep. 30, 2012

Foreign Exchange Risk Management [Abstract]

Foreign Exchange Risk Management

11.  Foreign Exchange Risk Management

In order to minimize earnings and cash flow volatility resulting from currency exchange rate changes, we may enter into derivative instruments, principally forward foreign currency contracts. These contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets and liabilities. All of our forward contracts are designated as freestanding derivatives and are designed to minimize foreign currency exposures between the U.S. Dollar and British Pound. We do not enter into currency exchange rate derivative instruments for speculative purposes.

The freestanding derivative forward contracts are used to offset our exposure to the change in value of specific foreign currency denominated assets and liabilities. These derivatives are not designated as hedges, and therefore, changes in the value of these forward contracts are recognized currently in earnings, thereby offsetting the current earnings effect of the related change in U.S. dollar value of foreign currency denominated assets and liabilities. The cash flows from these contracts are reported as operating activities in the condensed consolidated statements of cash flows. The gross notional amount of these contracts outstanding was $234 million at September 30, 2012 and $239 million at December 31, 2011.  We held no foreign currency derivative financial instruments at September 30, 2011.

We recognized $11.7 million of losses in 2012 from these forward contracts which are reported in the miscellaneous, net caption in the condensed consolidated statements of operations.  The losses from these forward contracts are more than offset by foreign exchange transaction gains of $21.4 million that are also recorded in the miscellaneous, net caption in our consolidated financial statements.