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Derivative Instruments And Hedging Activities
 9 Months Ended
Sep. 30, 2011
Derivative Instruments And Hedging Activities [Abstract]  
Derivative Instruments And Hedging Activities
4. Derivative Instruments and Hedging Activities

The Company conducts business in various foreign countries and, from time to time, settles transactions in foreign currencies. The Company has established a program that utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures, typically arising from sales contracts denominated in Canadian currency. These derivative contracts are consistent with the Company's strategy for financial risk management. The Company uses cash flow hedge accounting treatment for qualifying foreign currency forward contracts. The Company initially reports any gain or loss on the effective portion of a cash flow hedge as a component of other comprehensive income and subsequently reclassifies any gain or loss to net sales when the underlying hedged revenue is recorded. Instruments that do not qualify for cash flow hedge accounting treatment are re-measured at fair value on each balance sheet date and resulting gains and losses are recognized in net income. As of September 30, 2011 and December 31, 2010, the total notional amount of the derivative contracts not designated as hedges was $2.6 million (CAD$2.7 million) and $1.3 million (CAD$1.3 million), respectively. As of September 30, 2011 and December 31, 2010, the total notional amount of the derivative contracts designated as hedges was $15.3 million (CAD$16.0 million) and $15.1 million (CAD$15.0 million), respectively.

For each derivative contract entered into in which the Company seeks to obtain cash flow hedge accounting treatment, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific firm commitments or forecasted transactions and the derivatives are designated as cash flow hedges. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivative contracts that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion of these hedged items is reflected in other comprehensive income (loss). If it is determined that a derivative contract is not highly effective, or that it has ceased to be a highly effective hedge, the Company will be required to discontinue hedge accounting with respect to that derivative contract prospectively.

There were no Canadian forward contracts with maturities longer than 12 months at September 30, 2011.

The balance sheet location and the fair values of derivative instruments are (in thousands):

 

Foreign Currency Forward Contracts    September 30,
2011		      December 31,
2010		  

Assets

      
Derivatives designated as hedging instruments      

Prepaid expenses and other

    $ 272       $ —     
Derivatives not designated as hedging instruments      

Prepaid expenses and other

      533         —     
  

 

 

     

 

 

  

Total assets

    $ 805       $ —     
  

 

 

     

 

 

  

Liabilities

      
Derivatives designated as hedging instruments      

Accrued liabilities

    $ —         $ 317   
Derivatives not designated as hedging instruments      

Accrued liabilities

      48         305   
  

 

 

     

 

 

  

Total liabilities

    $ 48       $ 622   
  

 

 

     

 

 

  

 

The amounts of the gains and losses related to the Company's derivative contracts designated as hedging instruments for the three and nine months ended September 30, 2011 and September 30, 2010 are (in thousands):

 

            Pretax Gain (Loss) Recognized in Comprehensive Income on
Effective Portion of Derivative		  
            Three months ended
September 30,		     Nine months ended
September 30,		  
             2011     2010     2011     2010  

Derivatives in Cash Flow Hedging Relationships

            

Foreign currency forward contracts

       $ 357      $ (24 )    $ 4      $ 134   
     

 

 

    

 

 

    

 

 

    

 

 

  
            Pretax Gain (Loss) Recognized in Income on Effective Portion
of Derivative as a Result of Reclassification from
Accumulated Other Comprehensive Loss		  
            Three months ended
September 30,		     Nine months ended
September 30,		  
     Location      2011     2010     2011     2010  

Derivatives in Cash Flow Hedging Relationships

            

Foreign currency forward contracts

      Net sales       $ (52 )    $ 5      $ (558 )    $ (8 ) 
     

 

 

    

 

 

    

 

 

    

 

 

  
            Loss on Ineffective Portion of Derivative and Amount
Excluded from Effectiveness Testing Recognized in Income		  
            Three months ended
September 30,		     Nine months ended
September 30,		  
     Location      2011     2010     2011     2010  

Derivatives in Cash Flow Hedging Relationships

            

Foreign currency forward contracts

      Net sales       $ (15 )    $ (27 )    $ (72 )    $ (29 ) 
     

 

 

    

 

 

    

 

 

    

 

 

  

At September 30, 2011, there are $291,000 of deferred pretax gains on outstanding derivatives accumulated in other comprehensive loss, a majority of which is expected to be reclassified to net sales within the next 12 months as a result of underlying hedged transactions also being recorded in net sales.

For the three and nine months ended September 30, 2011, gains from our derivative contracts not designated as hedging instruments recognized in net sales were $0.9 million and $0.3 million, respectively. For the three and nine months ended September 30, 2010, losses from our derivative contracts not designated as hedging instruments recognized in net sales were $0.3 million and $0.4 million, respectively.