Financial Instruments Measured at Fair Value

9 Months Ended

Oct. 01, 2011

Financial Instruments Measured at Fair Value [Abstract]

Financial Instruments Measured At Fair Value [Text Block]

Financial Instruments Measured at Fair Value

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.  The fair value hierarchy has three levels of inputs that may be used to measure fair value:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

The following table presents assets/(liabilities) measured at fair value on a recurring basis at October 1, 2011:

	Level 1		Level 2			Level 3		Total
Cash equivalents	$	99,064	$	—		$	—	$	99,064
Available-for-sale securities	46,181		—			—		46,181
Interest rate swaps	—		(287		)	—		(287		)
Foreign exchange contracts	—		280			—		280
	$	145,245	$	(7	)	$	—	$	145,238

The following table presents assets/(liabilities) measured at fair value on a recurring basis at December 31, 2010:

	Level 1		Level 2			Level 3		Total
Cash equivalents	$	254,296	$	282,900		$	—	$	537,196
Available-for-sale securities	68,746		—			—		68,746
Interest rate swaps	—		14,082			—		14,082
Foreign exchange contracts	—		(494		)	—		(494		)
	$	323,042	$	296,488		$	—	$	619,530

Available-For-Sale Securities

The company has a 2.0% equity ownership interest in WPG Holdings Co., Ltd. ("WPG") and an 8.4% equity ownership interest in Marubun Corporation ("Marubun"), which are accounted for as available-for-sale securities.

The fair value of the company's available-for-sale securities is as follows:

	October 1, 2011					December 31, 2010
	Marubun			WPG		Marubun		WPG
Cost basis	$	10,016		$	10,798	$	10,016	$	10,798
Unrealized holding gain (loss)	(146		)	25,513		3,726		44,206
Fair value	$	9,870		$	36,311	$	13,742	$	55,004

The company concluded that the decline in its Marubun investment is temporary and, accordingly, has not recognized a loss in the consolidated statements of operations. In making this determination, the company considered its intent and ability to hold the investment until the cost is recovered, the financial condition and near-term prospects of Marubun, the magnitude of the loss compared to the investment's cost, and publicly available information about the industry and geographic region in which Marubun operates. In addition, the fair value of the Marubun investment has been below the cost basis for less than twelve months.

The fair value of these investments are included in "Other assets" in the accompanying consolidated balance sheets, and the related unrealized holding gains or losses are included in "Other" in the shareholders' equity section in the accompanying consolidated balance sheets

Derivative Instruments

The company uses various financial instruments, including derivative financial instruments, for purposes other than trading.  Derivatives used as part of the company's risk management strategy are designated at inception as hedges and measured for effectiveness both at inception and on an ongoing basis.

The fair values of derivative instruments in the consolidated balance sheets are as follows:

	Asset/(Liability) Derivatives
		Fair Value
	Balance Sheet Location	October 1, 2011			December 31, 2010
Derivative instruments designated as hedges:
Interest rate swaps designated as fair value hedges	Other assets	$	—		$	14,756
Interest rate swaps designated as fair value hedges	Other liabilities	—			(674		)
Interest rate swaps designated as cash flow hedges	Other liabilities	(287		)	—
Foreign exchange contracts designated as cash flow hedges	Other current assets	120			271
Foreign exchange contracts designated as cash flow hedges	Accrued expenses	(541		)	(177		)
Total derivative instruments designated as hedging instruments		(708		)	14,176
Derivative instruments not designated as hedges:
Foreign exchange contracts	Other current assets	4,396			1,778
Foreign exchange contracts	Accrued expenses	(3,695		)	(2,366		)
Total derivative instruments not designated as hedging instruments		701			(588		)
Total		$	(7	)	$	13,588

The effect of derivative instruments on the consolidated statement of operations is as follows:

	Gain/(Loss) Recognized in Income
	Quarter Ended					Nine Months Ended
	October 1, 2011		October 2, 2010			October 1, 2011			October 2, 2010
Derivative instruments not designated as hedges:
Foreign exchange contracts (a)	$	510	$	(4,608	)	$	(2,667	)	$	(1,171	)
Total	$	510	$	(4,608	)	$	(2,667	)	$	(1,171	)

	Quarter Ended October 1, 2011								Nine Months Ended October 1, 2011
	Effective Portion						Ineffective Portion		Effective Portion						Ineffective Portion
	Gain/(Loss) Recognized in Other Comprehensive Income			Gain/(Loss) Reclassified into Income			Gain/(Loss) Recognized in Income		Gain/(Loss) Recognized in Other Comprehensive Income			Gain/(Loss) Reclassified into Income			Gain/(Loss) Recognized in Income
Cash Flow Hedges:
Foreign exchange contracts (b)	$	(1,150	)	$	(116	)	$	—	$	(435	)	$	(77	)	$	—
Interest rate swaps (c)	(287		)	—			—		(287		)	—			—
Total	$	(1,437	)	$	(116	)	$	—	$	(722	)	$	(77	)	$	—

	Quarter Ended October 2, 2010						Nine Months Ended October 2, 2010
	Effective Portion				Ineffective Portion		Effective Portion					Ineffective Portion
	Gain/(Loss) Recognized in Other Comprehensive Income		Gain/(Loss) Reclassified into Income		Gain/(Loss) Recognized in Income		Gain/(Loss) Recognized in Other Comprehensive Income		Gain/(Loss) Reclassified into Income			Gain/(Loss) Recognized in Income
Cash Flow Hedges:
Foreign exchange contracts (b)	$	1,257	$	83	$	—	$	637	$	(7	)	$	—
Total	$	1,257	$	83	$	—	$	637	$	(7	)	$	—
Net Investment Hedges:
Cross-currency swaps (c)	$	—	$	—	$	—	$	52,158	$	—		$	(91	)
Total	$	—	$	—	$	—	$	52,158	$	—		$	(91	)

(a) The amount of gain/(loss) recognized in income on derivatives is recorded in "Cost of sales" in the accompanying consolidated statements of operations.

(b) Both the effective and ineffective portions of any gain/(loss) reclassified or recognized in income are recorded in "Cost of sales" in the company's consolidated statements of operations.

(c) Both the effective and ineffective portions of any gain/(loss) reclassified or recognized in income are recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations.

Interest Rate Swaps

The company enters into interest rate swap transactions that convert certain fixed-rate debt to variable-rate debt or variable-rate debt to fixed-rate debt in order to manage its targeted mix of fixed- and floating-rate debt.  The effective portion of the change in the fair value of interest rate swaps designated as fair value hedges is recorded as a change to the carrying value of the related hedged debt, and the effective portion of the change in fair value of interest rate swaps designated as cash flow hedges is recorded in the shareholders' equity section in the company's consolidated balance sheets in "Other."  The ineffective portion of the interest rate swap, if any, is recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations.

In June 2004 and November 2009, the company entered into interest rate swaps, with an aggregate notional amount of $275,000.  The swaps modified the company's interest rate exposure by effectively converting a portion of the fixed 6.875% senior notes to a floating rate, based on the six-month U.S. dollar LIBOR plus a spread (an effective rate of 4.37% at December 31, 2010), through its maturity.  The swaps were classified as fair value hedges and had a fair value of $14,756 at December 31, 2010. In September 2011, $275,000 notional amount of the interest rate swap agreements were terminated for proceeds of $12,203, net of accrued interest. The proceeds of the swap terminations, less accrued interest, were reflected as a premium to the underlying debt and will be amortized as a reduction to interest expense over the remaining term of the underlying debt.

In December 2010, the company entered into interest rate swaps, with an aggregate notional amount of $250,000. The swaps modified the company's interest rate exposure by effectively converting the fixed 3.375% notes to a floating rate, based on the three-month U.S. dollar LIBOR plus a spread (an effective rate of approximately 1.38% at December 31, 2010), through its maturity. The swaps were classified as fair value hedges and had a negative fair value of $674 at December 31, 2010. In September 2011, $250,000 notional amount of the interest rate swap agreements were terminated for proceeds of $11,856, net of accrued interest. The proceeds of the swap terminations, less accrued interest, were reflected as a premium to the underlying debt and will be amortized as a reduction to interest expense over the remaining term of the underlying debt.

In September 2011, the company entered into a ten-year forward-starting interest rate swap (the "2011 swap") locking in a treasury rate of 2.6255% with an aggregate notional amount of $175,000. This swap manages the risk associated with changes in treasury rates and the impact of future interest payments. The 2011 swap relates to the interest payments for anticipated debt issuances. Such anticipated debt issuances are expected to replace the outstanding debt maturing in July 2013. The 2011 swap is classified as a cash flow hedge and had a negative fair value of $287 at October 1, 2011.

Cross-Currency Swaps

The company occasionally enters into cross-currency swaps to hedge a portion of its net investment in euro-denominated net assets. The company’s cross-currency swaps are derivatives designated as net investment hedges.  The effective portion of the change in the fair value of derivatives designated as net investment hedges is recorded in "Foreign currency translation adjustment" included in the company's consolidated balance sheets and any ineffective portion is recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations.  As the notional amounts of the company’s cross-currency swaps are expected to equal a comparable amount of hedged net assets, no material ineffectiveness is expected.  The company uses the hypothetical derivative method to assess the effectiveness of its net investment hedges on a quarterly basis.

Foreign Exchange Contracts

The company enters into foreign exchange forward, option, or swap contracts (collectively, the "foreign exchange contracts") to mitigate the impact of changes in foreign currency exchange rates.  These contracts are executed to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and generally have terms of no more than six months. Gains or losses on these contracts are deferred and recognized when the underlying future purchase or sale is recognized or when the corresponding asset or liability is revalued. The company does not enter into foreign exchange contracts for trading purposes. The risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the company minimizes by limiting its counterparties to major financial institutions.  The fair value of the foreign exchange contracts, which are nominal, are estimated using market quotes.  The notional amount of the foreign exchange contracts at October 1, 2011 and December 31, 2010 was $370,601 and $297,868, respectively.

Other

The carrying amount of cash and cash equivalents, accounts receivable, net, and accounts payable approximate their fair value due to the short maturities of these financial instruments.

Cash equivalents consist primarily of overnight time deposits and institutional money market funds with quality financial institutions.  These financial institutions are located in many different geographical regions, and the company's policy is designed to limit exposure with any one institution.  As part of its cash and risk management processes, the company performs periodic evaluations of the relative credit standing of these financial institutions.