Derivative Instruments And Hedging

9 Months Ended

Sep. 30, 2011

Derivative Instruments And Hedging [Abstract]

Derivative Instruments And Hedging

NOTE 17.     DERIVATIVE INSTRUMENTS AND HEDGING

Disclosure within this footnote is presented to provide transparency about how and why we use derivative instruments, how the instruments and related hedged items are accounted for, and how the instruments and related hedged items affect our financial position, results of operations and cash flows. Derivative instruments are recognized on the balance sheet as either assets or liabilities at fair value with a corresponding offset to other comprehensive income ("OCI"), which is presented net of tax.

We are exposed to certain risks related to our ongoing business operations. The primary risks that we manage by using derivative instruments are foreign currency exchange risk and interest rate risk. Our subsidiaries enter into foreign currency exchange contracts to manage the exchange risk associated with their forecasted intercompany inventory purchases and sales for the next year. From time to time, we may also enter into foreign currency exchange contracts to minimize the impact of foreign currency fluctuations associated with specific, significant transactions. We enter into interest rate swaps to minimize the impact of interest rate fluctuations associated with our variable-rate debt.

The primary purpose of our foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions. We also utilize natural hedges to mitigate our transaction and commitment exposures. Our corporate policy prescribes the range of allowable hedging activity. We enter into exchange contracts with large multinational financial institutions and we do not hold or engage in transactions involving derivative instruments for purposes other than risk management. Our accounting policies for these contracts are based on our designation of such instruments as hedging transactions. Market gains and losses are deferred in OCI until the contract matures, which is the period when the related obligation is settled. We primarily utilize forward exchange contracts with durations of less than 24 months. We present our derivative assets and liabilities on the balance sheet on a gross basis.

Cash Flow Hedges

We have designated our foreign currency exchange contracts and variable-to-fixed interest rate swaps as cash flow hedges. For derivative instruments that are designated as cash flow hedges, changes in the fair value of the derivatives are recognized in OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We de-designate derivative instruments from hedge accounting when the probability of the hedged transaction occurring becomes less than probable, but remains reasonably possible. For de-designated instruments, the gain or loss from the time of de-designation through maturity of the instrument is recognized in earnings. Any gain or loss in OCI at the time of de-designation is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We immediately record in earnings the extent to which a hedge is not effective in achieving offsetting changes in fair value of the hedged item.

We did not de-designate any instruments from hedge accounting treatment during the three and nine months ended September 30, 2011 or 2010. Gains or losses related to hedge ineffectiveness recognized in earnings during the three and nine months ended September 30, 2011 and 2010 were not material. At September 30, 2011, the estimated net amount of gains, net of tax, that are expected to be reclassified out of OCI and into earnings within the next 12 months was $1.3 million if exchange and interest rates do not fluctuate from the levels at September 30, 2011.

We enter into foreign currency exchange contracts for amounts that are less than the full value of forecasted intercompany inventory purchases and sales. Our hedging strategy related to intercompany inventory purchases and sales is to employ the full amount of our hedges for the succeeding year at the conclusion of our budgeting process for that year, which is complete by the end of the preceding year. Quarterly, we enter into contracts to hedge incremental portions of anticipated foreign currency transactions for the current and following year. As a result, the notional value of foreign currency exchange contracts outstanding may be higher throughout the year in comparison to the amounts outstanding at the end of the year. Accordingly, our risk with respect to foreign currency exchange rate fluctuations may vary throughout each annual cycle.

In March 2009, we entered into two forward fixed interest rate swap agreements to manage the economic effect of variable interest obligations on amounts borrowed under the terms of our Credit Facility. Under these agreements, beginning on March 31, 2010 the variable interest rate associated with $80 million of borrowings outstanding under the Credit Facility became effectively fixed at 2% plus the Credit Spread through March 30, 2012. In August 2011, we entered into two additional forward fixed interest rate swap agreements for the same purpose. Under these agreements, beginning on March 30, 2012, the variable interest rate associated with $40 million of borrowings outstanding under the Credit Facility will become effectively fixed at 1.36% plus the Credit Spread through June 30, 2016 and beginning on March 28, 2013, the variable interest rate associated with an additional $40 million of borrowings outstanding under the Credit Facility will become effectively fixed at 1.64% plus the Credit Spread through June 30, 2016.

The notional amount of foreign currency exchange contracts to hedge forecasted intercompany inventory purchases and sales consisted of the following (in thousands):

Currency Sold	U.S. Dollar Equivalent
	September 30,		December 31,
	2011		2010
Euro	$	75,404	$	59,360
British pound		24,767		21,144
Canadian dollar		25,642		21,776
Australian dollar		10,700		7,930
Japanese yen		13,487		10,427
	$	150,000	$	120,637

Currency Purchased	U.S. Dollar Equivalent
	September 30,		December 31,
	2011		2010
Swiss franc	$	20,631	$	12,542

The notional amount of forward fixed interest rate swap agreements to manage variable interest obligations consisted of the following (in thousands):

	U.S. Dollar Equivalent
	September 30,		December 31,
	2011		2010
Interest rate swaps expiring March 30, 2012	$	80,000	$	80,000
Interest rate swaps expiring June 30, 2016		80,000		-
Total interest rate swaps	$	160,000	$	80,000

The fair values of derivative instruments and their respective classification in the condensed consolidated balance sheet consisted of the following (in thousands):

	Asset Derivatives
	September 30, 2011			December 31, 2010
	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedging instruments
Foreign currency exchange contracts	Other current assets	$	4,905	Other current assets	$	-
Foreign currency exchange contracts	Other long-term assets, net		1,338	Other long-term assets, net		-
Total derivative instruments		$	6,243		$	-

	Liability Derivatives
	September 30, 2011			December 31, 2010
	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedging instruments
Foreign currency exchange contracts	Accrued expenses	$	1,931	Accrued expenses	$	2,234
Foreign currency exchange contracts	Other long-term liabilities		254	Other long-term liabilities		-
Interest rate swaps	Accrued expenses		1,141	Accrued expenses		1,611
Total derivative instruments		$	3,326		$	3,845

The effect of derivative instruments designated as cash flow hedges on the condensed consolidated balance sheet for the three and nine months ended September 30, 2011 and 2010 consisted of the following (in thousands):

	Gain (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Derivative instruments		2011			2010			2011		2010
Foreign currency exchange contracts, net of tax	$	5,324		$	(5,655	)	$	4,348	$	640
Interest rate swaps, net of tax		(57	)		(83	)		296		(856	)
Total derivative instruments, net of tax	$	5,267		$	(5,738	)	$	4,644	$	(216	)

The effect of derivative instruments designated as cash flow hedges on the condensed consolidated statement of operations for the three and nine months ended September 30, 2011 and 2010 consisted of the following (in thousands):

	Classification of Gain (Loss)	Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Reclassified from OCI into Income	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Derivative instruments	(Effective Portion)		2011			2010			2011			2010
Foreign currency exchange contracts	Cost of revenue	$	(1,385	)	$	(199	)	$	(4,962	)	$	236
Interest rate swaps	Interest expense		(371	)		(340	)		(1,070	)		(685	)
		$	(1,756	)	$	(539	)	$	(6,032	)	$	(449	)