Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments And Risk Management

v2.4.0.6
Financial Instruments And Risk Management
 3 Months Ended
Mar. 31, 2012
Financial Instruments And Risk Management [Abstract]  
Financial Instruments And Risk Management

NOTE 10 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks. These risks include risks associated with financial markets, primarily currency exchange rate risk and, to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established policies and business practices designed to mitigate them. The Company does not engage in speculative trading in any financial market.

The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated U.S. dollar denominated inventory purchases by subsidiaries that use European euros, Canadian dollars, Japanese yen or Korean won as their functional currency. The Company manages this risk by using currency forward contracts formally designated and effective as cash flow hedges. Hedge effectiveness is determined by evaluating the ability of a hedging instrument's cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. For forward contracts, the change in fair value attributable to changes in forward points are excluded from the determination of hedge effectiveness and included in current cost of sales. Hedge ineffectiveness was not material during the three months ended March 31, 2012 and 2011.

 

The Company also uses currency forward contracts not formally designated as hedges to manage the currency exchange rate risk associated with the remeasurement of non-functional monetary assets and liabilities. Non-functional monetary assets and liabilities consist primarily of cash and cash equivalents, short-term investments, intercompany loans and payables.

The following table presents the gross notional amount of outstanding derivative instruments (in thousands):

 

     March 31,
2012		      December 31,
2011		      March 31,
2011		  

Derivative instruments designated as cash flow hedges:

         

Currency forward contracts

    $ 118,525       $ 144,000       $ 148,085   

Derivative instruments not designated as cash flow hedges:

         

Currency forward contracts

      104,605         138,807         158,797   

At March 31, 2012, approximately $5,128,000 of deferred net gains on both outstanding and matured derivatives accumulated in other comprehensive income are expected to be reclassified to net income during the next twelve months as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to net income are dependent on U.S. dollar exchange rates in effect against the European euro, Canadian dollar, Japanese yen and Korean won when outstanding derivative contracts mature.

At March 31, 2012, the Company's derivative contracts had a remaining maturity of approximately two years or less. All the counterparties to these transactions had both long-term and short-term investment grade credit ratings and as a result, the Company does not require collateral to facilitate transactions. The maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts with that counterparty, was less than $2,000,000 at March 31, 2012. The Company does not hold derivatives featuring credit-related contingent terms. In addition, the Company is not a party to any derivative master agreement featuring credit-related contingent terms. Finally, the Company has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions.

The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):

 

    

Balance Sheet Classification

    March 31,
2012		      December 31,
2011		      March 31,
2011		  

Derivative instruments designated as cash flow hedges:

            

Derivative instruments in asset positions:

            

Currency forward contracts

    Prepaid expenses and other current assets    $ 4,250       $ 6,591       $ 156   

Currency forward contracts

    Other non-current assets      565         1,117         —     

Derivative instruments in liability positions:

            

Currency forward contracts

    Accrued liabilities      67         824         5,321   

Currency forward contracts

    Other long-term liabilities      —           91         —     
     

Balance Sheet Classification

    March 31,
2012		      December 31,
2011		      March 31,
2011		  

Derivative instruments not designated as cash flow hedges:

            

Derivative instruments in asset positions:

            

Currency forward contracts

    Prepaid expenses and other current assets    $ 1,193       $ 645       $ 4,302   

Derivative instruments in liability positions:

            

Currency forward contracts

    Accrued liabilities      421         2,962         2,528   

 

The following table presents the effect and classification of derivative instruments (in thousands):

 

          Three Months Ended March 31,  
     Statement Of Operations
Classification		    2012     2011  

Currency Forward Contracts:

        

Derivative instruments designated as cash flow hedges:

        

Loss recognized in other comprehensive income

    —    $ (1,170 )    $ (2,943 ) 

Gain (loss) reclassified from accumulated other comprehensive income to income for the effective portion

    Cost of sales      311        (368 ) 

Gain reclassified from accumulated other comprehensive income to income as a result of cash flow hedge discontinuance

    Cost of sales      441        —     

Gain (loss) recognized in income for amount excluded from effectiveness testing and for the ineffective portion

    Cost of sales      91        (189 ) 

Derivative instruments not designated as cash flow hedges:

        

Gain (loss) recognized in income

    SG&A      (2,773 )      4,662