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 12 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 months ended March 31, 2013. No cash flow hedges were derecognized or discontinued during the three months ended March 31, 2013.

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 $1.3 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.

The tables below show the notional principal and the location and amounts of the derivative fair values in the consolidated balance sheet as of March 31, 2013 and December 30, 2012 as well as the location of derivative gains and losses in the statement of operations for the three months ended March 31, 2013 and April 1, 2012. 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 March 31, 2013 and December 30, 2012. 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 March 31, 2013									As of December 30, 2012
	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	$	89.5	$	0.7		$	0.7		Current assets	$	6.4	$	0.3		$	0.3
Derivatives for forecasted revenues	Current liabilities		—		—			—		Current liabilities		51.7		(0.9	)		(0.9	)
Derivatives for forecasted expenses	Current assets		211.6		1.6			1.6		Current assets		213.3		7.6			7.6
Derivatives for forecasted expenses	Current liabilities		5.5		(0.1	)		(0.1	)	Current liabilities		2.8		—			—

Total foreign exchange contract derivatives		$	306.6	$	2.2		$	2.2			$	274.2	$	7.0		$	7.0


	For the Three Months Ended March 31, 2013					For the Three Months Ended April 1, 2012
	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

Foreign Currency contracts	Revenue	$	—	$	—	Revenue	$	0.5	$	0.5
Foreign Currency contracts	Expenses		1.5		1.5	Expenses		0.2		0.2

		$	1.5	$	1.5		$	0.7	$	0.7

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 gross amounts of the above assets and liabilities are as follows:


As of March 31, 2013				As of December 30, 2012

Gross Assets	$	3.5		Gross Assets	$	8.1
Gross Liabilities		(1.2	)	Gross Liabilities		(0.2	)

Current Assets	$	2.3		Current Assets	$	7.9


Gross Assets	$	—		Gross Assets	$	0.5
Gross Liabilities		(0.1	)	Gross Liabilities		(1.4	)

Current Liabilities	$	(0.1	)	Current Liabilities	$	(0.9	)


Gain (Loss) Recognized in OCI for Derivative Instruments (1)
	Three Months Ended March 31, 2013
Foreign exchange contracts	$	2.2

(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 March 31, 2013						As of December 30, 2012
	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	$	—	$	—		Current assets	$	—	$	—
Foreign Exchange Contracts	Current liabilities		28.7		(0.1	)	Current liabilities		12.1		—

Total derivatives, net		$	28.7	($	0.1	)		$	12.1	$	—


	For the Three Months Ended March 31, 2013				For the Three Months Ended April 1, 2012
	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	$	0.1		Revenue	$	0.1
Foreign Exchange Contracts	Expenses		(0.2	)	Expenses		0.4

Net gain (loss) recognized in income		$	(0.1	)		$	0.5