Derivatives and Hedging

9 Months Ended

Sep. 30, 2012

Derivatives and Hedging

16. Derivatives and Hedging

The Company accounts for its foreign currency exchange contracts in accordance with ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). ASC 815 requires the recognition of all derivatives as either assets or liabilities on the balance sheet, the measurement of those instruments at fair value and the recognition of changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures. In addition, it requires enhanced disclosures regarding derivative instruments and hedging activities to better convey the purpose of derivative use in terms of the risks the Company is intending to manage, specifically about (a) how and why the Company uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815, and (c) how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows.

In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries, including certain balance sheet exposures (payables and receivables denominated in foreign currencies). In addition, the Company is exposed to gains and losses resulting from the translation of the operating results of the Company’s international subsidiaries into U.S. dollars for financial reporting purposes. As part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses derivative financial instruments in the form of foreign currency forward contracts and put and call option contracts (“foreign currency exchange contracts”) to hedge transactions that are denominated primarily in British Pounds, Euros, Japanese Yen, Canadian Dollars, Australian Dollars and Korean Won. Foreign currency exchange contracts are used only to meet the Company’s objectives of minimizing variability in the Company’s operating results arising from foreign currency exchange rate movements. The Company does not enter into foreign currency exchange contracts for speculative purposes. Foreign currency exchange contracts usually mature within twelve months from their inception.

The Company did not designate any foreign currency exchange contracts as derivatives that qualify for hedge accounting under ASC 815. At September 30, 2012 and December 31, 2011, the notional amounts of the Company’s foreign currency exchange contracts used to hedge the exposures discussed above were approximately $197,130,000 and $165,533,000, respectively, of which $109,990,000 and $131,311,000, respectively, represent contracts used to hedge exposures in operating results from the translation of revenues and expenses of the Company’s international subsidiaries into U.S. dollars and $87,140,000 and $34,222,000, respectively, represents contracts used to hedge balance sheet exposures denominated in foreign currencies. The Company estimates the fair values of foreign currency exchange contracts based on pricing models using current market rates, and records all derivatives on the balance sheet at fair value with changes in fair value recorded in the statement of operations.

The following table summarizes the fair value of derivative instruments by contract type as well as the location of the asset and/or liability on the consolidated condensed balance sheets at September 30, 2012 and December 31, 2011 (in thousands):

	Asset Derivatives
	September 30, 2012			December 31, 2011
Derivatives not designated as hedging instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign currency exchange contracts	Other current assets	$	569	Other current assets	$	2,514
	Liability Derivatives
	September 30, 2012			December 31, 2011
Derivatives not designated as hedging instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign currency exchange contracts	Accounts payable and accrued expenses	$	1,529	Accounts payable and accrued expenses	$	3,746

The following table summarizes the location of gains and losses in the consolidated condensed statements of operations that were recognized during the three and nine months ended September 30, 2012 and 2011, respectively, in addition to the derivative contract type (in thousands):

		Amount of Loss Recognized in Income on Derivative Instruments
Derivatives not designated as hedging instruments	Location of loss recognized in income on derivative instruments	Three Months Ended September 30,						Nine Months Ended September 30,
		2012			2011			2012			2011
Foreign currency exchange contracts	Other expense	$	(4,884	)	$	(709	)	$	(1,399	)	$	(7,763	)

The net realized and unrealized contractual net gains recognized for the three and nine months ended September 30, 2012 were used to offset actual foreign currency transactional losses of $2,752,000 and $60,000, respectively. The net realized and unrealized contractual net losses recognized for the three and nine months ended September 30, 2011 were used to offset actual foreign currency transactional gains of $2,508,000 and $36,000, respectively.