XML 12 R9.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Instruments And Hedging Activities
 6 Months Ended
Jun. 30, 2011
Derivative Instruments And Hedging Activities  
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 June 30, 2011 and December 31, 2010, the total notional amount of the derivative contracts not designated as hedges was $0.7 million (CAD$0.8 million) and $1.3 million (CAD$1.3 million), respectively. As of June 30, 2011 and December 31, 2010, the total notional amount of the derivative contracts designated as hedges was $18.3 million (CAD$19.0 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.

Though most Canadian forward contracts have maturities not longer than 12 months at June 30, 2011, two of the Company's contracts at that date with a total notional value of $3.3 million (CAD$3.4 million) have maturities greater than 12 months, with the greatest maturity being 15 months.

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

 

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

Liabilities

      

Derivatives designated as hedging instruments

      

Accrued liabilities

    $ 149       $ 317   

Derivatives not designated as hedging instruments

      

Accrued liabilities

      598         305   
  

 

 

     

 

 

  

Total liabilities

    $ 747       $ 622   
  

 

 

     

 

 

  

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

 

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

Derivatives in Cash Flow Hedging Relationships

          

Foreign currency forward contracts

    $ (101 )    $ 292       $ (353 )    $ 158   
  

 

 

    

 

 

     

 

 

    

 

 

  

 

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

Derivatives in Cash Flow Hedging Relationships

             

Foreign currency forward contracts

      Net sales       $ (258 )    $ 91       $ (506 )    $ (13 ) 
     

 

 

    

 

 

     

 

 

    

 

 

  

 

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

Derivatives in Cash Flow Hedging Relationships

            

Foreign currency forward contracts

      Net sales       $ (32 )    $ (22 )    $ (57 )    $ (2 ) 
     

 

 

    

 

 

    

 

 

    

 

 

  

At June 30, 2011, there is $118,000 of deferred pretax losses on outstanding derivatives accumulated in other comprehensive loss all 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 six months ended June 30, 2011, losses from our derivative contracts not designated as hedging instruments recognized in net sales were $0.4 million and $0.6 million, respectively. For the three months ended June 30, 2010, gains from our derivative contracts not designated as hedging instruments recognized in net sales were $0.4 million, which brought the year-to-date net gains (losses) for these contracts to zero as of June 30, 2010.