Derivative Instruments and Hedging

9 Months Ended

Sep. 29, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging

Derivative Instruments and Hedging

The majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, we also enter into these transactions in other currencies, primarily Japanese yen as we have direct sales operations in Japan and orders are often denominated in Japanese yen. This subjects us to a higher degree of risk from currency exchange rate fluctuations.

Our policy is to minimize foreign currency denominated transaction and remeasurement exposure with derivative instruments, mainly forward contracts. We enter into foreign currency forward contracts that generally have maturities of nine months or less. The gains and losses on these derivatives are intended to mitigate the translation gains and losses recognized in earnings. We do not enter into foreign exchange forward contracts for speculative purposes.

Under ASC Topic 815, Derivatives and Hedging (“ASC 815”), all derivatives are recorded on the balance sheet at fair value. The gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. All of our derivatives are designated as hedging instruments under ASC 815. The fair value of derivative instruments recorded in our Condensed Consolidated Balance Sheets is as follows:

	Derivatives
		Fair Value as of
(In thousands)	Balance Sheet Location	September 29, 2012			December 31, 2011
Foreign exchange contracts	Other current assets	$	8		$	3
	Other current liabilities	(19		)	(1		)
Total derivatives		$	(11	)	$	2

Our derivative financial instruments are subject to both credit and market risk. Credit risk is the risk of loss due to failure of a counterparty to perform its obligations in accordance with contractual terms. Market risk is the potential change in an investment’s value caused by fluctuations in interest and currency exchange rates, credit spreads or other variables. We monitor the credit-worthiness of the financial institutions that are counterparties to our derivative financial instruments and do not consider the risks of counterparty nonperformance to be material. Credit and market risks, as a result of an offset by the underlying assets being hedged, related to derivative instruments were not considered material at September 29, 2012 and December 31, 2011.

Fair Value Hedging

We manage the foreign currency risk associated with Japanese yen denominated assets and liabilities using foreign exchange forward contracts. The change in fair value of these derivatives is recognized as a component of interest and other income (expense), net and is intended to offset the remeasurement gains and losses associated with the non-functional currency denominated assets and liabilities. At September 29, 2012, we had one currency buy-forward contract for the purchase of 77.4 million Japanese yen, or approximately $1.0 million and one currency sell-forward contract for the sale of 31.2 million Japanese yen, or approximately $0.4 million. The fair value of derivatives classified as balance sheet hedges at September 29, 2012 and December 31, 2011, respectively, was insignificant. The following sets forth the effect of the derivative instruments on our Condensed Consolidated Statements of Operations for the three and nine month periods ended September 29, 2012 and October 1, 2011, respectively:

		Amount of Loss Recognized in Income on Derivatives During
Derivatives in ASC 815 Fair Value Hedging Relationship	Location of Loss Recognized in Income on Derivatives	The three months ended, September 29, 2012 (in thousands)			The nine months ended, September 29, 2012 (in thousands)
Foreign exchange contracts	Interest and other income (expense), net	$	(8	)	$	(13	)
		Amount of Gain (Loss) Recognized in Income on Derivatives During
Derivatives in ASC 815 Fair Value Hedging Relationship	Location of Gain (Loss) Recognized in Income on Derivatives	The three months ended, October 1, 2011 (in thousands)			The nine months  ended, October 1, 2011 (in thousands)
Foreign exchange contracts	Interest and other income (expense), net	$	(3	)	$	22