DERIVATIVES

9 Months Ended

Sep. 30, 2011

DERIVATIVES

DERIVATIVES

NOTE 17 — DERIVATIVES

The Company uses derivatives to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business.  Derivative contracts to hedge currency and commodity exposures are generally written on a short-term basis but may cover exposures for up to two years while interest rate contracts may cover longer periods consistent with the terms of the underlying debt.  The Company does not enter into derivatives for trading or speculative purposes.

All derivatives are recognized at fair value on the Company’s Consolidated Balance Sheets.  The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting.  The Company formally documents the relationship of the hedge with the hedged item as well as the risk-management strategy for all designated hedges.  Both at inception and on an ongoing basis, the hedging instrument is assessed as to its effectiveness, when applicable.  If and when a derivative is determined not to be highly effective as a hedge, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.  The cash flows from settled derivative contracts are recognized in operating activities in the Company’s Consolidated Statements of Cash Flows.  Hedge ineffectiveness was immaterial in the nine months ended September 30, 2011 and 2010.

The Company is subject to the credit risk of the counterparties to derivative instruments.  Counterparties include a number of major banks and financial institutions.  The Company manages individual counterparty exposure by monitoring the credit rating of the counterparty and the size of financial commitments and exposures between the Company and the counterparty.  None of the concentrations of risk with any individual counterparty was considered significant at September 30, 2011.  The Company does not expect any counterparties to fail to meet their obligations.

Cash Flow Hedges

Certain foreign currency forward contracts were qualified and designated as cash flow hedges.  The dollar equivalent gross notional amount of these short-term contracts was $60,972 and $33,221 at September 30, 2011 and December 31, 2010, respectively.  The effective portions of the fair value gains or losses on these cash flow hedges are recognized in “Accumulated other comprehensive income” (“AOCI”) and subsequently reclassified to “Cost of goods sold” or “Sales” for hedges of purchases and sales, respectively, as the underlying hedged transactions affect earnings.

Derivatives Not Designated as Hedging Instruments

The Company has certain foreign exchange forward contracts that are not designated as hedges.  These derivatives are held as economic hedges of certain balance sheet exposures.  The dollar equivalent gross notional amount of these contracts was $157,283 and $173,116 at September 30, 2011 and December 31, 2010, respectively.  The fair value gains or losses from these contracts are recognized in “Selling, general and administrative expenses,” offsetting the losses or gains on the exposures being hedged.

The Company had short-term silver forward contracts with notional amounts of 340,000 troy ounces at September 30, 2011.  The notional amount of short-term silver contracts was 380,000 troy ounces at December 31, 2010.  Realized and unrealized gains and losses on these contracts were recognized in earnings.

Fair values of derivative instruments in the Company’s Consolidated Balance Sheets follow:

	September 30, 2011				December 31, 2010
	Other		Other		Other		Other
	Current		Current		Current		Current
Derivatives by hedge designation	Assets		Liabilities		Assets		Liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	1,711	$	637	$	381	$	728
Not designated as hedging instruments:
Foreign exchange contracts	1,532		1,131		252		1,228
Commodity contracts	3,195		—		—		1,051
Total derivatives	$	6,438	$	1,768	$	633	$	3,007

The effects of designated fair value hedges and undesignated derivative instruments on the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010 consisted of the following:

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
Derivatives by hedge designation	Classification of gains (losses)	2011		2010			2011			2010
Not designated as hedges:
Foreign exchange contracts	Selling, general & administrative expenses	$	5,645	$	(5,366	)	$	(243	)	$	(1,518	)
Commodity contracts	Cost of goods sold	1,984		(1,156		)	347			(1,592		)
Commodity contracts	Other income	—		—			(12		)	—

The effects of designated cash flow hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:

Total gain (loss) recognized
in AOCI, net of tax	September 30, 2011		December 31, 2010
Foreign exchange contracts	$	1,060	$	(352	)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
Derivative type	Gain (loss) reclassified from AOCI to:	2011			2010			2011			2010
Foreign exchange contracts	Sales	$	(113	)	$	44		$	(3	)	$	60
	Cost of goods sold	(407		)	(23		)	(1,610		)	(111		)
Commodity contracts	Cost of goods sold	—			(96		)	—			(1,029		)

The Company expects a gain of $1,060 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.