Derivative Instruments And Hedging Activities

3 Months Ended

Mar. 31, 2013

Derivative Instruments And Hedging Activities [Abstract]

Derivative Instruments And Hedging Activities

 Note 5 – Derivative instruments and hedging activities  

We recognize all of our derivative instruments as either assets or liabilities in our statement 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 approximately 58% and 59% of our revenues during each of the three month periods ended March 31, 2013 and 2012, 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, 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 the following notional amounts:

(In thousands)		US Dollar Equivalent
		As of March 31, 2013		As of December 31,
		(Unaudited)		2012
Euro	$	72,632	$	84,770
Japanese yen		35,257		42,209
Hungarian forint		37,342		36,005
Total forward contracts notional amount	$	145,231	$	162,984

The contracts in the foregoing table had contractual maturities of 36 months or less at March 31, 2013 and December 31, 2012.  

At March 31, 2013, we expect to reclassify $6.3 million of gains on derivative instruments from accumulated OCI to net sales during the next twelve months when the hedged international sales occur, $1.4 million of losses on derivative instruments from accumulated OCI to cost of sales when the cost of sales are incurred and $781,000 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 March 31, 2013. 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 three month periods ended March 31, 2013 and 2012.  

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 loss”. As of March 31, 2013 and December 31, 2012, we held foreign currency forward contracts with a notional amount of $50 million and $69 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:

	Asset Derivatives
	March 31, 2013			December 31, 2012
(In thousands)	(Unaudited)
	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts - ST forwards	Prepaid expenses and other current assets	$	4,201	Prepaid expenses and other current assets	$	2,956
Foreign exchange contracts - LT forwards	Other long-term assets		2,517	Other long-term assets		1,046
Total derivatives designated as hedging instruments		$	6,718		$	4,002
Derivatives not designated as hedging instruments
Foreign exchange contracts - ST forwards	Prepaid expenses and other current assets	$	949	Prepaid expenses and other current assets	$	244
Total derivatives not designated as hedging instruments		$	949		$	244
Total derivatives		$	7,667		$	4,246

	Liability Derivatives
	March 31, 2013			December 31, 2012
(In thousands)	(Unaudited)
	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts - ST forwards	Accrued expenses and other liabilities	$	(1,707)	Accrued expenses and other liabilities	$	(1,292)
Foreign exchange contracts - LT forwards	Other long-term liabilities		(915)	Other long-term liabilities		(798)
Total derivatives designated as hedging instruments		$	(2,622)		$	(2,090)
Derivatives not designated as hedging instruments
Foreign exchange contracts - ST forwards	Accrued expenses and other liabilities	$	(170)		$	(714)
Total derivatives not designated as hedging instruments		$	(170)		$	(714)
Total derivatives		$	(2,792)		$	(2,804)

The following tables present the effect of derivative instruments on our Consolidated Statements of Income for three month periods ended March 31, 2013 and 2012, respectively:

March 31, 2013
(In thousands)
(Unaudited)
Derivatives in Cash Flow Hedging Relationship		Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)	Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)		Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Foreign exchange contracts - forwards and options	$	4,263	Net sales	$	1,158	Net foreign exchange gain (loss)	$	-
Foreign exchange contracts - forwards and options		(1,427)	Cost of sales		108	Net foreign exchange gain (loss)		-
Foreign exchange contracts - forwards and options		(758)	Operating expenses		(1)	Net foreign exchange gain (loss)		-
Total	$	2,078		$	1,265		$	-

March 31, 2012
(In thousands)
(Unaudited)
Derivatives in Cash Flow Hedging Relationship		Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)	Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)		Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Foreign exchange contracts - forwards and options	$	462	Net sales	$	476	Net foreign exchange gain (loss)	$	-
Foreign exchange contracts - forwards and options		2,248	Cost of sales		(8)	Net foreign exchange gain (loss)		-
Foreign exchange contracts - forwards and options		1,175	Operating expenses		55	Net foreign exchange gain (loss)		-
Total	$	3,885		$	523		$	-

(In thousands)
Derivatives not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income
			March 31, 2013		March 31, 2012
			(Unaudited)		(Unaudited)
Foreign exchange contracts - forwards	Net foreign exchange gain/(loss)	$	1,324	$	(1,030)
Total		$	1,324	$	(1,030)