Derivative Instruments and Hedging Activities

6 Months Ended

Jul. 01, 2012

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 7: Derivative Instruments and Hedging Activities

We are exposed to various market risks, including fluctuations in foreign currency exchange rates. From time to time, we manage a portion of this risk through the use of derivative financial instruments to reduce our exposure to foreign currency risk. We do not hold or issue any derivative instrument for trading or speculative purposes.

We have entered into foreign currency forward contracts that have been formally designated and qualify as net investment hedges of our operations in certain European subsidiaries. The forward contracts are recorded at fair value on our Condensed Consolidated Balance Sheets. To the extent that the hedge relationship is effective, the gains or losses on the forward contracts are reported in Accumulated Other Comprehensive Income (AOCI) as part of the cumulative translation component of equity. We utilize the forward-rate method of assessing hedge ineffectiveness. Any ineffectiveness is recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income.

The forward contracts expose us to credit risk to the extent that the counterparties to our forward contracts are unable to meet the terms of the agreements. We seek to mitigate such risks by limiting the counterparties to major financial institutions and by executing our agreements across multiple counterparties. Additionally, our forward contracts are short-term in duration. No significant concentration of credit risk existed at July 1, 2012.

The following tables summarize our forward contracts outstanding as of July 1, 2012 and the effect on the Condensed Consolidated Financial Statements:

	Notional Amount (in USD)		Notional Amount (in EUR)		Maturity Date		Fair Value Included Within Accrued Liabilities
	(In thousands)
Euro foreign currency forward contracts	$	93,541	€	75,000		July 23, 2012	$	(215	)

	Pre-tax Gain Recognized in AOCI
	Three Months Ended July 1, 2012		Six Months Ended July 1, 2012
	(In thousands)
Euro foreign currency forward contracts	$	2,518	$	2,518

There was no ineffectiveness and no amount reclassified from AOCI into earnings for the three and six months ended July 1, 2012. There were no outstanding derivatives as of December 31, 2011 or as of or for the three and six months ended July 3, 2011.

All cash flows associated with derivatives are classified as financing cash flows in the Condensed Consolidated Cash Flow Statements. We collected $2.7 million in proceeds upon the settlement of foreign currency forward contracts for the six months ended July 1, 2012.

Foreign currency forward contracts are valued using a present value calculation based on forward foreign currency prices adjusted for credit and non-performance risk and are classified within Level 2 of the fair value hierarchy.