Derivative Instruments And Hedging Activities

12 Months Ended

Dec. 31, 2011

Derivative Instruments And Hedging Activities [Abstract]

Derivative Instruments And Hedging Activities

Note 4 – Derivative instruments and hedging activities

     We recognize all of our derivative instruments as either assets or liabilities in our statements of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.

     We have operations in over 40 countries. Sales outside of the Americas accounted for 60% and 59% of our revenues for the years ended December 31, 2011 and 2010, respectively. Our activities expose us to a variety of market risks, including the effects of changes in foreign currency exchange rates. These financial risks are monitored and managed by us as an integral part of our overall risk management program.

     We maintain a foreign currency risk management strategy that uses derivative instruments (foreign currency forward and purchased option contracts) to help protect our earnings and cash flows from fluctuations caused by the volatility in currency exchange rates. Movements in foreign currency exchange rates pose a risk to our operations and competitive position, since exchange rate changes may affect our profitability and cash flow, and the business or pricing strategies of our non-U.S. based competitors.

     The vast majority of our foreign sales are denominated in the customers' local currency. We purchase foreign currency forward and option contracts as hedges of forecasted sales that are denominated in foreign currencies and as hedges of foreign currency denominated receivables. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash inflows resulting from such sales or firm commitments will be adversely affected by changes in exchange rates. We also purchase foreign currency forward contracts as hedges of forecasted expenses that are denominated in foreign currencies. These contracts are entered into to help protect against the risk that the eventual dollar-net-cash outflows resulting from foreign currency operating and cost of revenue expenses will be adversely affected by changes in exchange rates.

     We designate foreign currency forward and purchased option contracts as cash flow hedges of forecasted revenues or forecasted expenses. In addition, we hedge our foreign currency denominated balance sheet exposures using foreign currency forward contracts that are not designated as hedging instruments. None of our derivative instruments contain a credit-risk-related contingent feature.

Cash flow hedges

     To help protect against the reduction in value caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales over the next one to two years, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted revenue and forecasted expenses denominated in foreign currencies with forward and purchased option contracts. For forward contracts, when the dollar strengthens significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the forward contracts designated as hedges. For option contracts, when the dollar strengthens significantly against the foreign currencies, the change in the present value of future foreign currency cash flows may be offset by the change in the fair value of the option contracts net of the premium paid designated as hedges. Our foreign currency purchased option contracts are purchased "at-the-money" or "out-of-the-money". We purchase foreign currency forward and option contracts for up to 100% of our forecasted exposures in selected currencies (primarily in Euro, Japanese yen, British pound sterling, Korean won and Hungarian forint) and limit the duration of these contracts to 40 months or less.

     For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income ("OCI") and reclassified into earnings in the same line item (net sales, operating expenses, or cost of sales) associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings or expenses during the current period and are classified as a component of "net foreign exchange gain (loss)". Hedge effectiveness of foreign currency forwards and purchased option contracts designated as cash flow hedges are measured by comparing the hedging instrument's cumulative change in fair value from inception to maturity to the forecasted transaction's terminal value.

     We held forward contracts with a notional amount of $61.0 million dollar equivalent of Euro, $43.6 million dollar equivalent of Japanese yen, $3.3 million dollar equivalent of Korean won and $28.2 million dollar equivalent of Hungarian forint at December 31, 2011. These contracts are for terms of up to 24 months. At December 31, 2010, we held forward contracts with a notional amount of $28.3 million dollar equivalent of Euro, $6.0 million dollar equivalent of British pound sterling, $18.4 million dollar equivalent of Japanese yen, and $33.4 million dollar equivalent of Hungarian forint.

We did not have any purchased option contracts at December 31, 2011 and December 31, 2010.

     At December 31, 2011, we expect to reclassify $1.8 million of gains on derivative instruments from accumulated other comprehensive income to net sales during the next twelve months when the hedged international sales occur, $856,000 of losses on derivative instruments from accumulated OCI to cost of sales when the cost of sales are incurred and $486,000 of losses on derivative instruments from accumulated OCI to operating expenses during the next twelve months when the hedged operating expenses occur. Expected amounts are based on derivative valuations at December 31, 2011. Actual results may vary as a result of changes in the corresponding exchange rate subsequent to this date.

We did not record any ineffectiveness from our hedges during the year ended December 31, 2011.

Other Derivatives

     Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge our foreign denominated net receivable or net payable positions to protect against the change in value caused by a fluctuation in foreign currency exchange rates. We typically attempt to hedge up to 90% of our outstanding foreign denominated net receivables or net payables and typically limit the duration of these foreign currency forward contracts to approximately 120 days. The gain or loss on the derivatives as well as the offsetting gain or loss on the hedge item attributable to the hedged risk is recognized in current earnings under the line item "net foreign exchange gain (loss)". As of December 31, 2011 and December 31, 2010, we held foreign currency forward contracts with a notional amount of $53.8 million and $41.3 million, respectively.

     The following tables present the fair value of derivative instruments on our Consolidated Balance Sheets and the effect of derivative instruments on our Consolidated Statements of Income.

Fair Values of Derivative Instruments (in thousands):

			Asset Derivatives
	December 31, 2011				December 31, 2010
	Balance Sheet Location	Fair Value			Balance Sheet Location		Fair Value
Derivatives designated as hedging
instruments
Foreign exchange contracts - ST	Prepaid expenses and other				Prepaid expenses and other
forwards	current assets	$	2,500		current assets	$	1,104
Foreign exchange contracts - LT
forwards	Other long-term assets		190		Other long-term assets		490
Total derivatives designated as
hedging instruments		$	2,690			$	1,594
Derivatives not designated as
hedging instruments
Foreign exchange contracts - ST	Prepaid expenses and other				Prepaid expenses and other
forwards	current assets	$	1,607		current assets	$	731
Total derivatives not designated as
hedging instruments		$	1,607			$	731
Total asset derivatives		$	4,297			$	2,325
			Liability Derivatives
	December 31, 2011				December 31, 2010
	Balance Sheet Location	Fair Value			Balance Sheet Location		Fair Value
Derivatives designated as hedging
instruments
Foreign exchange contracts - ST	Accrued expenses and other				Accrued expenses and other
forwards	liabilities	$	(2,007	)	liabilities	$	(2,677	)
Foreign exchange contracts - LT
forwards	Other long-term liabilities		(1,770	)	Other long-term liabilities		0
Total derivatives designated as
hedging instruments		$	(3,777	)		$	(2,677	)
Derivatives not designated as
hedging instruments
Foreign exchange contracts - ST	Accrued expenses and other				Accrued expenses and other
forwards	liabilities	$	(765	)	liabilities	$	(1,056	)
Total derivatives not designated as
hedging instruments		$	(765	)		$	(1,056	)
Total liability derivatives		$	(4,542	)		$	(3,733	)

     The following table shows the effect of derivative instruments on the Consolidated Statements of Income for the years ended December 31, 2011 and 2010, respectively (in thousands):

December 31, 2011

				Location of Gain or		Gain or (Loss)
		Gain or (Loss)		(Loss) Reclassified		Reclassified from		Location of Gain or	Gain or (Loss)
Derivatives in Cash		Recognized in OCI on		from Accumulated	Accumulated OCI into			(Loss) Recognized in	Recognized in Income
Flow Hedging		Derivative (Effective		OCI into Income		Income (Effective		Income on Derivative	on Derivative
Relationship		Portion)		(Effective Portion)		Portion)		(Ineffective Portion)	(Ineffective Portion)
Foreign exchange
contracts - forwards and								Net foreign exchange
options	$	3,980		Net sales	$	(3,855	)	gain (loss)	$	0
Foreign exchange
contracts - forwards and								Net foreign exchange
options		(2,889	)	Cost of sales		1,378		gain (loss)		0
Foreign exchange
contracts - forwards and								Net foreign exchange
options		(1,396	)	Operating expenses		556		gain (loss)	$	0
Total	$	(305	)		$	(1,921	)		$	0

December 31, 2010
				Location of Gain or	Gain or (Loss)
	Gain or (Loss)			(Loss) Reclassified	Reclassified from		Location of Gain or		Gain or (Loss)
Derivatives in Cash	Recognized in OCI on			from Accumulated	Accumulated OCI into		(Loss) Recognized in		Recognized in Income
Flow Hedging	Derivative (Effective			OCI into Income	Income (Effective		Income on Derivative		on Derivative
Relationship	Portion)			(Effective Portion)	Portion)		(Ineffective Portion)		(Ineffective Portion)
Foreign exchange
contracts - forwards and							Net foreign exchange
options	$	(5,058	)	Net sales	$	5,852	gain (loss)		$	0
Foreign exchange
contracts - forwards and							Net foreign exchange
options		(3,166	)	Cost of sales		2,457	gain (loss)			0
Foreign exchange
contracts - forwards and							Net foreign exchange
options		(1,669	)	Operating expenses		1,237	gain (loss)		$	0
Total	$	(9,893	)		$	9,546			$	0
Derivatives not Designated as						Amount of Gain (Loss)			Amount of Gain (Loss)
Hedging Instruments		Location of Gain (Loss) Recognized in Income				Recognized in Income			Recognized in Income
						December 31, 2011			December 31, 2010
Foreign exchange contracts - forwards		Net foreign exchange gain/(loss)				$	951	$	(1,576		)
Total						$	951	$	(1,576		)