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Hedging Transactions And Derivative Financial Instruments
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Jul. 02, 2011
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| Hedging Transactions And Derivative Financial Instruments |
NOTE 11. Hedging Transactions and Derivative Financial Instruments The Company maintains a foreign currency hedging strategy, which uses derivative financial instruments to mitigate the risks associated with changes in foreign currency exchange rates. This strategy takes into consideration all of the Company's foreign currency consolidated exposures. The Company does not use derivative financial instruments for trading or speculative purposes. In applying its strategy, from time to time, the Company uses foreign currency forward contracts to hedge certain forecasted expenses denominated in foreign currencies, primarily the Canadian dollar. The Company designated these contracts as cash flow hedges of forecasted expenses, to the extent eligible under the accounting rules, and evaluates hedge effectiveness prospectively and retrospectively. As such, the effective portion of the gain or loss on these contracts is reported as a component of accumulated other comprehensive income (loss) and reclassified to earnings in the same line item as the associated forecasted transaction and in the same period during which the hedged transaction affects earnings. Any ineffective portion is immediately recorded in earnings. During the first quarter of 2011, the Company reassessed its hedging needs related to its Euro foreign exchange contracts and liquidated its Euro currency forward contracts. As a result, during the six months ended July 2, 2011, the Company recorded a gain of $6 million in other income (expense), net, in its condensed consolidated statement of operations. The Company may economically hedge any material Euro exposure by entering into Euro currency forward contracts it identifies in the future. The Company also uses, from time to time, foreign currency forward contracts to economically hedge recognized foreign currency exposures on the balance sheets of various subsidiaries, primarily those denominated in the Canadian dollar. The Company does not designate these forward contracts as hedging instruments. Accordingly, the gain or loss associated with these contracts is immediately recorded in earnings. The following table shows the amount of gain (loss) reclassified from accumulated other comprehensive income (loss) and included in earnings related to the foreign currency forward contracts designated as cash flow hedges and the amount of gain (loss) included in other income (expense), net, related to foreign currency contracts not designated as hedging instruments, which was allocated in the condensed consolidated statement of operations:
The following table shows the fair value amounts included in prepaid expenses and other current assets should the foreign currency forward contracts be in a gain position or included in accrued liabilities should these contracts be in a loss position. These amounts were recorded in the condensed consolidated balance sheet as follows:
For the foreign currency contracts designated as cash flow hedges, the ineffective portions of the hedging relationship and the amounts excluded from the assessment of hedge effectiveness were immaterial. As of July 2, 2011 and December 25, 2010, the notional value of the Company's outstanding foreign currency forward contracts was $154 million and $302 million, respectively. All the contracts mature within 12 months, and upon maturity the amounts recorded in accumulated other comprehensive income are expected to be reclassified into earnings. The Company hedges its exposure to the variability in future cash flows for forecasted transactions over a maximum of 12 months. As of July 2, 2011, the Company's outstanding contracts were in a $4 million net gain position. The Company is required to post collateral should the derivative contracts be in a net loss position exceeding certain thresholds. As of July 2, 2011, the Company was not required to post any collateral.
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