DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2013

DERIVATIVE INSTRUMENTS [Abstract]

DERIVATIVE INSTRUMENTS

(6) DERIVATIVE INSTRUMENTS

The Company recognizes all derivative instruments at fair value in the balance sheet as either assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation, which is established at the inception date of a derivative. For derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in OCI until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the cumulative difference between the fair value of the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings.

Interest Rate Risk Management

From time to time, the Company has utilized derivative financial instruments with respect to a portion of its interest rate risks to achieve a more predictable cash flow by reducing its exposure to interest rate fluctuations. These transactions generally are interest rate swap agreements and are entered into with large multinational banks. On February 28, 2013, all of the Company’s outstanding interest rate swaps expired. These interest rate swaps, with a total notional amount of $200,000,000, were designated as cash flow hedges.

Foreign Currency Risk Management

From time to time, the Company has utilized derivative financial instruments with respect to its forecasted foreign currency transactions to attempt to reduce the risk of its exposure to foreign currency rate fluctuations in its transactions denominated in foreign currency. These transactions, which relate to foreign currency obligations for the purchase of equipment from foreign suppliers or foreign currency receipts from foreign customers, generally are forward contracts or purchased call options and are entered into with large multinational banks.

As of June 30, 2013, the Company had a forward contract with a notional amount of $469,000 to hedge its exposure to foreign currency rate fluctuations in expected foreign currency transactions. This contract expires in the first quarter of 2014. This forward contract is designated as a cash flow hedge, therefore, the change in fair value, to the extent the forward contract is effective, is recognized in OCI until the forward contract expires and is recognized in cost of sales and operating expenses.

Fair Value of Derivative Instruments

The following table sets forth the fair value of the Company’s derivative instruments recorded as liabilities located on the consolidated balance sheet at June 30, 2013 and December 31, 2012 (in thousands):

Liability Derivatives	Balance Sheet Location	June 30, 2013		December 31, 2012
Derivatives designated as hedging instruments under ASC 815:
Foreign currency contracts	Other accrued liabilities	$	30	$	−
Foreign currency contracts	Other long-term liabilities		−		39
Interest rate contracts	Other accrued liabilities		−		1,486
Total derivatives designated as hedging instruments under ASC 815		$	30	$	1,525
Total liability derivatives		$	30	$	1,525

Fair value amounts were derived as of June 30, 2013 and December 31, 2012 utilizing fair value models of the Company and its counterparties on the Company’s portfolio of derivative instruments. These fair value models use the income approach that relies on inputs such as yield curves, currency exchange rates and forward prices. The fair value of the Company’s derivative instruments is described above in Note 5, Fair Value Measurements.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Any ineffectiveness related to the Company’s hedges was not material for any of the periods presented.

The following table sets forth the location and amount of gains and losses on the Company’s derivative instruments in the consolidated statements of earnings for the three months and six months ended June 30, 2013 and 2012 (in thousands):

	Location of Gain (Loss)		Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)					Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Reclassified from		Three months ended					Three months ended
Derivatives in ASC 815 Cash	Accumulated OCI into Income		June 30,					June 30,
Flow Hedging Relationships:	(Effective Portion)		2013			2012		2013		2012
Interest rate contracts	Interest expense	$	─		$	2,030	$	─	$	(2,056	)
Foreign exchange contracts	Cost and sales of operating expenses		(8	)		172	─			─	)
Total		$	(8	)	$	2,202	$	─	$	(2,056	)

	Location of Gain (Loss)		Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)				Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Reclassified from		Six months ended				Six months ended
Derivatives in ASC 815 Cash	Accumulated OCI into Income		June 30,				June 30,
Flow Hedging Relationships:	(Effective Portion)		2013		2012		2013			2012
Interest rate contracts	Interest expense	$	1,486	$	3,623	$	(1,389	)	$	(4,100	)
Foreign exchange contracts	Cost and sales of operating expenses		7		249	─				(2	)
Total		$	1,493	$	3,872	$	(1,389	)	$	(4,102	)

The Company expects $30,000 of net losses on foreign currency contracts included in accumulated OCI will be transferred into earnings over the next year based on current spot rates.