For the Years Ended December 31, 2011, 2010 and 2009
The Company is exposed to certain risks relating to its ongoing business operations, including market risks relating to fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are recognized on the consolidated balance sheets as either assets or liabilities and are measured at fair value. Changes in the fair values of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of a hedged transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item.
The Company does not use derivative instruments for speculative purposes.
The Company's Term Loan Credit Agreement ("Term Loan") contains floating rate obligations and is subject to interest rate fluctuations. During 2009, the Company entered into interest rate swap agreements for the purposes of hedging the eight quarterly variable-rate interest payments on its Term Loan due in 2010 and 2011. These interest rate swap agreements were designated as cash flow hedges and intended to manage interest rate risk associated with the Company's variable-rate borrowings and minimize the impact of interest rate fluctuations attributable to changes in LIBOR rates on the Company's earnings and cash flows. As of December 31, 2011, these interest rate swap agreements had all matured.
The Company holds forward exchange contracts designed to hedge forecasted transactions denominated in foreign currencies and to minimize the impact of foreign currency fluctuations on the Company's earnings and cash flows. Some of these contracts were designated as cash flow hedges. The Company will include in earnings amounts currently included in accumulated other comprehensive income upon recognition of cost of sales related to the underlying transaction.
The following table shows the fair value of derivative instruments designated as cash flow hedging instruments (in thousands):
| Fair Value | ||||
|
Balance Sheet Location |
December 31, 2011 | December 31, 2010 |
Notional Amount |
|
| Derivative Liabilities | ||||
| Interest rate swap contracts | Other liabilities | $ — | $ 806 | $0 - $40,000 |
| Total | $ — | $ 806 | ||
The following table shows the gain or (loss) recognized in other comprehensive income for derivatives designated as cash flow hedges:
| For the year ended December 31, | |||
| 2011 | 2010 | 2009 | |
| In thousands | |||
| Foreign exchange contracts (a) | $ — | $ — | $ (37 ) |
| Foreign exchange contracts (b) | — | — | (1,941) |
| Interest rate swap contracts | (52) | (792) | (607) |
| Total | $ (52) | $ (792 ) | $ (2,585) |
a) Forward exchange contract dedesignated on July 4, 2009. See information below for amounts recognized in the Consolidated Statement of Operations after dedesignation.
b) Forward exchange contract dedesignated on February 12, 2009. See information below for amounts recognized in the Consolidated Statement of Operations after dedesignation.
During 2011, the loss reclassified to income from other comprehensive income for derivative instruments designated as cash flow hedges was $0.9 million. During 2010, the loss reclassified to income from other comprehensive income for derivative instruments designated as cash flow hedges was $0.6 million. During 2009, the loss reclassified from other comprehensive income for derivative instruments designated as cash flow hedges was not material. Over the next twelve months the income related to cash flow hedges expected to be reclassified from other comprehensive income is $0.1 million.
During 2011 and 2010, there was no amount recorded in other income for the ineffective portion of derivative instruments designated as cash flow hedges. During 2009, the amount recorded in other income for the ineffective portion of derivative instruments designated as cash flow hedges was not material.
The following table shows the fair value of derivative instruments not designated as hedging instruments:
| Fair Value | ||||
|
Balance Sheet Location |
December 31, 2011 | December 31, 2010 |
Notional Amount |
|
| Derivative Assets | ||||
| Foreign exchange contracts | Other current assets | $ — | $ 10 | 350 Euro |
| Foreign exchange contracts | Other current assets /Other assets | 3,517 | 12,613 | 9,816 / 36,516 Australian Dollars |
| Foreign exchange contracts | Other current assets | 1 | — | $5,418 / $0 |
| Total | $ 3,518 | $ 12,623 | ||
On February 12, 2009, the Company dedesignated the forward contract it had entered into to hedge $36.5 million (AUD) of its $39.5 million (AUD) future minimum required payments to the Commonwealth of Australia. At December 31, 2011, the U.S. dollar value of the $9.8 million (AUD) payable was $10.1 million.
On July 4, 2009, the Company dedesignated the forward contract it had entered into to hedge future Euro obligations, due to a change in the timing of those payments.
The following table shows the location and amount of the gain or (loss) recognized on the Consolidated Statements of Operations for derivatives not designated as hedge instruments:
| For the year ended December 31, | ||||
|
Income Statement Location |
2011 | 2010 | 2009 | |
| In thousands | ||||
| Derivative Assets | ||||
| Foreign exchange contracts | Other expense, net | $ — | $ 5 | $ 45 |
| Foreign exchange contracts | Other expense, net | — | (55) | 85 |
| Foreign exchange contracts | Other expense, net | — | 10 | — |
| Foreign exchange contracts (a) | Other expense, net | 507 | 5,654 | 8,122 |
| Foreign exchange contracts | Other expense, net | (142 ) | — | — |
| Total | $ 365 | $ 5,614 | $ 8,252 | |
| Derivative Liabilities | ||||
| Foreign exchange contracts | Other expense, net | $ (2) | $ (61) | $ (57) |
| Total | $ (2) | $ (61) | $ (57) | |
Prior to 2010, the Company maintained a Euro note, part of the revolving credit facility, which qualified and had been designated as an effective hedge against the Company's investment in its German subsidiary (RWG). This loan was repaid during the fourth quarter of 2009.
The following table shows the amount of the translation gain associated with the Euro note recorded in other comprehensive income:
| For the year ended December 31, | ||||
| Location | 2011 | 2010 | 2009 | |
| In thousands | ||||
| Euro note | Cumulative Translation Adjustment | $ — | $ — | $ 706 |
| Total | $ — | $ — | $ 706 | |
The Company did not reclassify any amounts associated with this note from other comprehensive income to earnings during the years ended December 31, 2011, 2010 and 2009 and the Company does not expect to reclassify any such amounts over the next twelve months.