Derivative Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments

NOTE 9: Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations including foreign currency exchange rate risk and interest rate risk. The Company currently mitigates certain foreign currency exchange rate risks with derivative instruments. The Company does not currently manage its interest rate risk with derivative instruments.

The Company faces exposure to foreign currency exchange rate fluctuations, as a significant portion of its revenues, expenses, assets, and liabilities are denominated in currencies other than the functional currencies of the Company’s subsidiaries or the reporting currency of the Company, which is the U.S. Dollar. The Company faces two types of foreign currency exchange rate exposures:

• transactional currency/functional currency exchange rate exposures from transactions that are denominated in currencies other than the functional currency of the subsidiary (for example, a U.S. Dollar receivable on the Company’s Irish subsidiary’s books for which the functional currency is the Euro), and

• functional currency/reporting currency exchange rate exposures from transactions that are denominated in currencies other than the U.S. Dollar, which is the reporting currency of the Company.

The Company currently uses derivative instruments to provide an economic hedge against its transactional currency/functional currency exchange rate exposures. Forward contracts on currencies are entered into to manage the transactional currency/functional currency exposure of the Company’s Irish subsidiary’s accounts receivable denominated in U.S. dollars and intercompany receivables denominated in Japanese Yen. These forward contracts are used to minimize foreign currency gains or losses, as the gains or losses on these contracts are intended to offset the losses or gains on the underlying exposures. In addition, during the third quarter of 2012, the Company entered into forward contracts to exchange Euros for U.S. Dollars at fixed exchange rates to protect against a potential devaluation of the Euro as it was converting a large amount of Euro-denominated cash into U.S. Dollars.

These forward contracts do not qualify for hedge accounting. Both the underlying exposures and the forward contracts are recorded at fair value on the Consolidated Balance Sheets and changes in fair value are reported as “Foreign currency loss” on the Consolidated Statements of Operations. The Company recorded net foreign currency losses of $409,000 and $1,077,000 in the three-month and nine-month periods ended September 30, 2012, respectively, and net foreign currency losses of $231,000 and $80,000 in the three-month and nine-month periods ended October 2, 2011, respectively.

As of September 30, 2012, the Company had the following outstanding forward contracts that were entered into to mitigate foreign currency exchange rate risk:

Currency	Amount
Japanese Yen/Euro	212,000,000 Japanese Yen
U.S. Dollar/Euro	3,385,000 U.S. Dollars

Information regarding the fair value of the forward contracts outstanding as of September 30, 2012 and December 31, 2011 was as follows (in thousands):

	Asset Derivatives					Liability Derivatives
		Fair Value					Fair Value
	Balance Sheet Location	September 30, 2012		December 31, 2011		Balance Sheet Location	September 30, 2012		December 31, 2011
Currency forward contracts	Prepaid expenses and other current assets	$	56	$	14	Accrued expenses	$	18	$	165

Information regarding the effect of the forward contracts, net of the underlying exposure, on the Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2012 and October 2, 2011 was as follows (in thousands):

	Location of Loss Recognized in Income on Derivatives	Amount of Loss Recognized in Income on Derivatives						Location of Loss Recognized in Income on Derivatives	Amount of Loss Recognized in Income on Derivatives
		Three-months ended							Nine-months ended
		September 30, 2012			October 2, 2011				September 30, 2012			October 2, 2011
Currency forward contracts	Foreign currency loss	$	(546	)	$	(171	)	Foreign currency loss	$	(637	)	$	(43	)