Derivative Instruments and Hedges

6 Months Ended

Jun. 30, 2011

Derivative Instruments and Hedges [Abstract]

4. Derivative Instruments and Hedges

Our risk management and derivatives policy specifies the conditions under which we may enter into derivative contracts. See Notes 1 and 6 to our consolidated financial statements included in our 2010 Annual Report and Note 7 of this Quarterly Report for additional information on our purpose for entering into derivatives not designated as hedging instruments and our overall risk management strategies. We enter into forward exchange contracts to hedge our cash flow risks associated with transactions denominated in currencies other than the local currency of the operation engaging in the transaction. At June 30, 2011 and December 31, 2010, we had $495.6 million and $358.5 million, respectively, of notional amount in outstanding forward exchange contracts with third parties. At June 30, 2011, the length of forward exchange contracts currently in place ranged from 8 days to 25 months. Also as part of our risk management program, we enter into interest rate swap agreements to hedge exposure to floating interest rates on certain portions of our debt. At June 30, 2011 and December 31, 2010, we had $340.0 million and $350.0 million, respectively, of notional amount in outstanding interest rate swaps with third parties. All interest rate swaps are highly effective. At June 30, 2011, the maximum remaining length of any interest rate swap contract in place was approximately 36 months.

We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under forward exchange contracts and interest rate swap agreements and expect all counterparties to meet their obligations. If material, we would adjust the values of our derivative contracts for our or our counterparties’ credit risks. We have not experienced credit losses from our counterparties.

The fair value of forward exchange contracts not designated as hedging instruments are summarized below:


	June 30,		December 31,
(Amounts in thousands)	2011		2010
Current derivative assets	$	8,430	$	4,397
Noncurrent derivative assets		2,706		50
Current derivative liabilities		2,762		2,949
Noncurrent derivative liabilities		45		473

The fair value of interest rate swaps in cash flow hedging relationships are summarized below:


	June 30,		December 31,
(Amounts in thousands)	2011		2010
Current derivative assets	$	-	$	-
Noncurrent derivative assets		775		608
Current derivative liabilities		1,694		1,232
Noncurrent derivative liabilities		382		3

Current and noncurrent derivative assets are reported in our condensed consolidated balance sheets in prepaid expenses and other and other assets, net, respectively. Current and noncurrent derivative liabilities are reported in our condensed consolidated balance sheets in accrued liabilities and retirement obligations and other liabilities, respectively.

The impact of net changes in the fair values of forward exchange contracts not designated as hedging instruments are summarized below:


	Three Months Ended June 30,					Six Months Ended June 30,
(Amounts in thousands)	2011		2010			2011		2010
Gain (loss) recognized in income	$	4,528	$	(16,223	)	$	10,103	$	(26,255	)

The impact of net changes in the fair values of interest rate swaps in cash flow hedging relationships are summarized below:


	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2011			2010			2011			2010

Loss reclassified from accumulated other comprehensive income into income for settlements, net of tax	$	(396	)	$	(1,278	)	$	(808	)	$	(2,673	)
Loss recognized in other comprehensive income, net of tax		(1,073	)		(49	)		(1,237	)		(888	)

Gains and losses recognized in our condensed consolidated statements of income for forward exchange contracts and interest rate swaps are classified as other income (expense), net, and interest expense, respectively.