Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities

Note 10: 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.

During the nine months ended September 30, 2012, we entered into foreign currency forward contracts that were formally designated and qualified as net investment hedges of our operations in certain European subsidiaries. The forward contracts were recorded at fair value on our Condensed Consolidated Balance Sheets. To the extent that the hedge relationships were effective, the gains or losses on the forward contracts were reported in Accumulated Other Comprehensive Income (AOCI) as part of the cumulative translation component of equity. We utilized the forward-rate method of assessing hedge ineffectiveness. Any ineffectiveness would be recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income.

The forward contracts exposed us to credit risk to the extent that the counterparties to our forward contracts would have been unable to meet the terms of the agreements. We sought to mitigate such risks by limiting the counterparties to major financial institutions and by executing our agreements across multiple counterparties. Additionally, our forward contracts were short-term in duration. No significant concentration of credit risk existed at September 30, 2012.

The following table summarizes the effect of our forward contracts on the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2012:

	Pre-tax Gain Recognized in AOCI
	Three Months Ended September 30, 2012		Nine Months Ended September 30, 2012
	(In thousands)
Euro foreign currency forward contracts	$	1,506	$	4,024

There was no ineffectiveness and no amount reclassified from AOCI into earnings for the three and nine months ended September 30, 2012. There were no outstanding derivatives as of September 30, 2012, December 31, 2011, or as of or for the three and nine months ended October 2, 2011.

All cash flows associated with derivatives are classified as financing cash flows in the Condensed Consolidated Cash Flow Statements. We collected $4.0 million in proceeds upon the settlement of foreign currency forward contracts for the nine months ended September 30, 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.