Derivative Instruments And Hedging Activities

9 Months Ended

Aug. 01, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments And Hedging Activities

Derivative Instruments and Hedging Activities

In the normal course of business, the Company is exposed to fluctuations in interest rates and the exchange rates associated with foreign currencies. The Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk. The Company currently does not manage its exposure to credit risk by entering into derivative instruments. However, the Company manages its exposure to credit risk through its investment policies. As part of these investment policies, the Company generally enters into transactions with high-credit quality counterparties and, by policy, limits the amount of credit exposure to any one counterparty based on its analysis of that counterparty’s relative credit standing.

The amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which a counterparty’s obligations exceed the Company’s obligations with that counterparty.

Foreign Currency Exchange Rate Risk

A majority of the Company’s revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, the Company is exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies. The Company is primarily exposed to foreign currency fluctuations related to operating expenses denominated in currencies other than the U.S. dollar, of which the most significant to its operations for the three and nine months ended August 1, 2015, and August 2, 2014, were the British pound, the euro, the Indian rupee, the Chinese yuan, the Singapore dollar, the Japanese yen, and the Swiss franc. The Company has established a foreign currency risk management program to protect against the volatility of future cash flows caused by changes in foreign currency exchange rates. This program reduces, but does not eliminate, the impact of foreign currency exchange rate movements.

The Company utilizes a rolling hedge strategy for the majority of its foreign currency derivative instruments with cash flow hedge accounting designation that hedges exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S.-dollar-denominated cash flows. The Company’s foreign currency risk management program includes foreign currency derivatives with a cash flow hedge accounting designation that utilizes foreign currency forward and option contracts to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S.-dollar-denominated cash flows. These instruments generally have a maturity of less than 15 months. For these derivatives, the Company reports the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive loss in stockholders’ equity and reclassifies it into earnings in the same period in which the hedged transaction affects earnings. The tax effect allocated to cash flow hedge-related components of other comprehensive income was not significant for the three and nine months ended August 1, 2015, and August 2, 2014.

Ineffective cash flow hedges are included in the Company’s net income as part of “Interest and other income, net.” The amount recorded on ineffective cash flow hedges was not significant for the three and nine months ended August 1, 2015, and August 2, 2014, respectively.

Net gains (losses) relating to the effective portion of foreign currency derivatives recorded in the Condensed Consolidated Statements of Income are as follows (in thousands):

	Three Months Ended						Nine Months Ended
	August 1, 2015			August 2, 2014			August 1, 2015			August 2, 2014
Cost of revenues	$	(141	)	$	53		$	(605	)	$	173
Research and development	(206		)	(80		)	(273		)	(665		)
Sales and marketing	(542		)	236			(1,866		)	657
General and administrative	(52		)	37			(135		)	75
Total	$	(941	)	$	246		$	(2,879	)	$	240

Alternatively, the Company may choose not to hedge the foreign currency risk associated with its foreign currency exposures if the Company believes such exposure acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency or if the currency is difficult or too expensive to hedge.

The net foreign currency exchange gains and losses recorded as part of “Interest and other income, net” were gains of $0.3 million and losses of $0.6 million for the three and nine months ended August 1, 2015, respectively, and losses of $0.2 million and $0.3 million for the three and nine months ended August 2, 2014, respectively.

As of August 1, 2015, the Company had gross unrealized loss positions of $1.7 million and $0.1 million included in “Other accrued liabilities” and “Other non-current liabilities,” respectively, and gross unrealized gain positions of $0.9 million and $0.4 million included in “Prepaid expenses and other current assets” and “Other assets,” respectively.

Volume of Derivative Activity

Total gross notional amounts, presented by currency, are as follows (in thousands):

	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
In U.S. dollars	As of August 1, 2015		As of November 1, 2014		As of August 1, 2015		As of November 1, 2014
British pound	$	56,916	$	11,168	$	3,638	$	14,891
Euro	52,429		14,404		4,206		19,200
Indian rupee	41,192		19,413		—		—
Chinese yuan	18,240		10,406		—		—
Singapore dollar	16,193		9,242		—		—
Swiss franc	11,338		7,468		—		—
Japanese yen	10,585		8,856		—		—
Total	$	206,893	$	80,957	$	7,844	$	34,091