Derivatives

9 Months Ended

Sep. 25, 2011

Derivatives

Derivatives

Note 6 – Derivatives

Derivatives. The company uses derivative instruments to manage exposures to changes in foreign currency exchange rates and interest rates. In accordance with the requirements of the Derivatives and Hedging Topic of the FASB ASC, the fair value of these hedges is recorded on the balance sheet. For the fair value of derivatives, see Note 5.

Foreign Currency Derivatives. The company uses currency forward and combination option contracts to hedge a portion of its forecasted foreign exchange denominated revenues and expenses. The company monitors its foreign currency exposures to maximize the overall effectiveness of its foreign currency hedge positions. Currencies hedged include the euro, Japanese yen, Philippine peso, Malaysian ringgit, Korean won and Chinese yuan. The company's objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures. The maturities of the cash flow hedges are 27 months or less.

Changes in the fair value of derivative instruments related to time value are included in the assessment of hedge effectiveness. Hedge ineffectiveness, determined in accordance the Derivatives and Hedging Topic of the FASB ASC, did not have a material impact on earnings for the three and nine months ended September 25, 2011 and September 26, 2010. No cash flow hedges were derecognized or discontinued during the three and nine months ended September 25, 2011 and September 26, 2010.

Derivative gains and losses included in accumulated other comprehensive income (AOCI) are reclassified into earnings at the time the forecasted transaction is recognized. The company estimates that $2.5 million of net unrealized derivative losses included in AOCI will be reclassified into earnings within the next twelve months.

The company also uses currency forward and combination option contracts to offset the foreign currency impact of balance sheet translation. These derivatives have one month terms and the initial fair value, if any, and the subsequent gains or losses on the change in fair value are reported in earnings within the same income statement line as the impact of the foreign currency translation. From time to time, the company will also hedge the liability for an expected cash payment in foreign currency. These derivatives have terms that match the expected payment timing. The initial fair value, if any, and the subsequent gains or losses on the change in fair value are reported in earnings within the same income statement line as the change in value of the liability due to changes in currency value.

Interest Rate Derivatives. The company's variable-rate debt exposes the company to variability in interest payments due to changes in interest rates. The company used a forward interest rate swap to mitigate the interest rate risk on a portion of its variable-rate borrowings in order to manage fluctuations in cash flows resulting from changes in interest rates on variable-rate debt. This hedge expired on December 31, 2009.

Effectiveness of this hedge was calculated by comparing the fair value of the derivative to a hypothetical derivative that would be a perfect hedge of floating rate debt. The value of the hedge at inception was zero and any ineffectiveness during the life of the swap was immaterial.

Derivative gains and losses included in AOCI were reclassified into earnings at the time the forecasted transaction was recognized. The amounts were reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affect earnings.

The tables below show the notional principal and the location and amounts of the derivative fair values in the consolidated balance sheet as of September 25, 2011 and December 26, 2010 as well as the location of derivative gains and losses in the statement of operations for the nine months ended September 25, 2011 and September 26, 2011. Pursuant to the Derivatives and Hedging Topic of the FASB ASC, the company nets the fair value of all derivative financial instruments with counterparties for which a master netting arrangement is utilized. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of the end of the period and do not represent the amount of the company's exposure to credit or market loss. The estimates of fair value are based on applicable and commonly used pricing models using prevailing financial market information as of September 25, 2011 and December 26, 2010. Although the following table reflects the notional principal and fair value of amounts of derivative financial instruments, it does not reflect the gains or losses associated with the exposures and transactions that these financial instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures will depend on actual market conditions during the remaining life of the instruments.

The following tables present derivatives designated as hedging instruments under the Derivatives and Hedging Topic of the FASB ASC.

	As of September 25, 2011									As of December 26, 2010
	Balance Sheet Classification	Notional Amount		Fair Value			Amount of Gain  (Loss) Recognized In AOCI			Balance Sheet Classification	Notional Amount		Fair Value			Amount of Gain  (Loss) Recognized In AOCI
	(In millions)									(In millions)
Derivatives in Cash Flow Hedges
Foreign exchange contracts
Derivatives for forecasted revenues	Current assets	$	38.6	$	0.4		$	0.4		Current assets	$	41.9	$	0.8		$	0.8
Derivatives for forecasted revenues	Current liabilities		13.3		—			—		Current liabilities	$	12.0	$	(0.2	)		(0.2	)
Derivatives for forecasted expenses	Current assets		24.6		—			—		Current assets		110.3		1.8			1.8
Derivatives for forecasted expenses	Current liabilities		195.2		(7.9	)		(7.9	)	Current liabilities		—		—			—
Total foreign exchange contract derivatives		$	271.7	$	(7.5	)	$	(7.5	)		$	164.2	$	2.4		$	2.4

	For the Nine Months Ended September 25, 2011							For the Nine Months Ended September 26, 2010
	Income Statement Classification of Gain (Loss)	Amount of Gain (Loss) Recognized In Income			Amount of Gain  (Loss) Reclassified from AOCI			Income Statement Classification of Gain (Loss)	Amount of Gain  (Loss) Recognized In Income			Amount of Gain (Loss) Reclassified from AOCI
Derivatives in Cash Flow Hedges
Foreign Currency contracts	Revenue	$	(3.0	)	$	(3.0	)	Revenue	$	0.4		$	0.4
Foreign Currency contracts	Expenses		4.5			4.5		Expenses		2.6			2.6
Interest Rate contract	Interest Expense		—			—		Interest Expense		(1.8	)		(1.8	)
		$	1.5		$	1.5			$	1.2		$	1.2

Gain (Loss) Recognized in OCI for Derivative Instruments (1)
	Nine Months Ended September 25, 2011
Foreign exchange contracts	$	(9.7	)

(1) This amount is inclusive of both realized and unrealized gains and losses recognized in OCI.

The following tables present derivatives not designated as hedging instruments under Derivatives and Hedging Topic of the FASB ASC.

	As of September 25, 2011					As of December 26, 2010
	Balance Sheet Classification	Notional Amount		Fair Value		Balance Sheet Classification	Notional Amount		Fair Value
	(In millions)					(In millions)
Derivatives Not Designated as Hedging Instruments
Foreign Exchange Contracts	Current assets	$	6.7	$	—	Current assets	$	—	$	—
Foreign Exchange Contracts	Current liabilities		44.9		0.1	Current liabilities		20.7		(0.0	)
Total derivatives, net		$	51.6	$	0.1		$	20.7	$	(0.0	)

	For the Nine Months Ended September 25, 2011				For the Nine Months Ended September 26, 2010
	Income Statement Classification of Gain (Loss)	Amount of Gain (Loss) Recognized In Income			Income Statement Classification of Gain (Loss)	Amount of Gain  (Loss) Recognized In Income
	(In millions)				(In millions)
Derivatives Not Designated as Hedging Instruments
Foreign Exchange Contracts	Revenue	$	(0.2	)	Revenue	$	(0.1	)
Foreign Exchange Contracts	Expenses		(1.3	)	Expenses		0.7
Net gain (loss) recognized in income		$	(1.5	)		$	0.6