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Derivative Financial Instruments
9 Months Ended
Sep. 30, 2011
Derivative Financial Instruments
6.
Derivative Financial Instruments:

The Company enters into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency. Before entering into a derivative transaction for hedging purposes, it is determined that a high degree of initial effectiveness exists between the change in value of the hedged item and the change in the value of the derivative instrument from movement in exchange rates. High effectiveness means that the change in the cash flows of the derivative instrument will effectively offset the change in the cash flows of the hedged item. The effectiveness of each hedged item is measured throughout the hedged period and is based on the dollar offset methodology and excludes the portion of the fair value of the foreign currency forward exchange contract attributable to the change in spot-forward difference which is reported in current period earnings. Any hedge ineffectiveness is also recognized as a gain or loss on foreign currency in the income statement. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses accumulated in other comprehensive income are reclassified to earnings. If it is probable that the forecasted transaction will no longer occur, then any gains or losses accumulated in other comprehensive income are reclassified to current-period earnings. Cash-flow hedges were highly effective, in all material respects.
 
The following table presents gains and losses in derivatives designated as hedges and the location of those gains and losses in the financial statements (in thousands):
 
Derivatives 
Designated as 
Hedging 
Instruments
  
Amount of Gain 
(Loss) Recognized in
OCI on Derivative
(Effective Portion)
  
Location of Gain 
(Loss) Reclassified 
from Accumulated 
OCI into Income 
(Effective Portion)
  
Amount of Gain (Loss)
Reclassified from
Accumulated OCI into 
Income (Effective 
Portion)
  
Location of Gain 
(Loss) Recognized in 
Income on Derivative 
(Effective Portion)
  
Amount of Gain (Loss)
Recognized in Income
On Derivative (Effective 
Portion) (A)
  
   
Nine months ended 
September 30,
      
Nine months ended
September 30,
      
Nine months ended 
September 30,
  
   
2011
    
2010
      
2011
    
2010
      
2011
    
2010
  
Foreign exchange contracts
   $ —       1,291  
Gain (loss) on foreign currency
   $ —       —  
Gain (loss) on foreign currency
   $ —       (2,725 )
 
   
Three months ended 
September 30,
                                         
Three months ended 
September 30,
                                           
Three months ended 
September 30,
  
   
2011
    
2010
      
2011
    
2010
      
2011
    
2010
  
Foreign exchange contracts
   $ —       1,291  
Gain (loss) on foreign currency
   $ —       —  
Gain (loss) on foreign currency
   $ —       —  
  
(A) The amount of gain (loss) recognized in income represents the amount excluded from the assessment of hedge effectiveness.
        
The following table presents gains and losses in derivatives not designated as hedges and the location of those gains and losses in the financial statements (in thousands):
 
Derivatives Not Designated
as Hedging Instruments
  
Location of Gain (Loss)
recognized in Income on
Derivative
  
Nine months ended
September 30,
2011
    
Nine months ended
September 30,
2010
  
                 
Interest rate swaps
  
Interest expense
   $ 230     $ 262  
Foreign exchange contracts
  
Gain (loss) on foreign currency
   $ (181 )   $ (85 )
 
Derivatives Not Designated
as Hedging Instruments
  
Location of Gain (Loss)
recognized in Income on
Derivative
  
Three months ended 
September 30, 
2011
    
Three months ended 
September 30, 
2010
  
                 
Interest rate swaps
  
Interest expense
   $ 37     $ 125  
Foreign exchange contracts
  
Gain (loss) on foreign currency
   $ (138 )   $ (16 )
 
All derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. The valuation of interest rate swaps resulted in a liability which is included in long-term debt on the accompanying balance sheets. The valuation of foreign currency forward exchange contracts not accounted for using hedge accounting as of September 30, 2011 resulted in a liability and is included in accrued expenses and as of December 31, 2010, such valuation resulted in an asset which is included in other current assets on the accompanying balance sheets. Generally, increases or decreases in the fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If the derivative instrument is designated and qualifies as a cash flow hedge, the changes in fair value of the derivative instrument will be recorded as a separate component of shareholders’ equity.
 
At September 30, 2011, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $68 million and GB pounds 8.1 million which all have maturities of less than one year.