Derivatives

We enter into derivative contracts that are foreign currency forward contracts to hedge the risks of certain identified and anticipated transactions in currencies other than the functional currency of the respective operating unit. The types of risks hedged are those arising from the variability of future earnings and cash flows caused by fluctuations in foreign currency exchange rates. These contracts are for forecasted transactions and committed receivables and payables denominated in foreign currencies and are not entered into for speculative purposes. Consequently, any market-related loss on the forward contract would be offset by changes in the value of the hedged item, and, as a result, we are generally not exposed to net market risk associated with these instruments.

We are exposed to certain foreign currency risks in the normal course of our global business operations. For derivative contracts that are designated and qualify for a cash flow hedge, the effective portion of the gain or loss of the derivative contract is recorded as a component of other comprehensive income, net of tax. This amount is reclassified into the income statement on the line associated with the underlying transaction for the period(s) in which the hedged transaction affects earnings. The amounts recorded in accumulated other comprehensive income for existing cash flow hedges are generally expected to be reclassified into earnings within one year and all of the existing hedges will be reclassified into earnings by June 2014. Ineffectiveness related to these derivative contracts was recorded in the Condensed Consolidated Statement of Income as gains of $0.4 million for each of the quarters ended April 26, 2013 and April 27, 2012. Ineffectiveness related to these derivative contracts was recorded in the Condensed Consolidated Statement of Income as a gain of $0.7 million and a gain of $1.6 million for the six months ended April 26, 2013 and April 27, 2012, respectively.

For derivative contracts that are designated and qualify as a fair value hedge, gain or loss is recorded in the Condensed Consolidated Statement of Income under the heading Cost of sales. For the quarters ended April 26, 2013 and April 27, 2012, we recorded a loss of $0.6 million and a loss of $2.3 million, respectively, in the Condensed Consolidated Statement of Income related to fair value hedges, which were offset by foreign exchange fluctuations of the underlying receivables. For the six months ended April 26, 2013 and April 27, 2012, we recorded a loss of $1.2 million and a loss of $3.2 million, respectively, in the Condensed Consolidated Statement of Income related to fair value hedges, which were offset by foreign exchange fluctuations of the underlying receivables.

For derivative contracts entered into to hedge revaluation of net balance sheet exposures in non-functional currency that are not designated as a fair value hedge or a cash flow hedge, the gain or loss is recorded in the Condensed Consolidated Statement of Income under the heading Cost of sales. For the quarters ended April 26, 2013 and April 27, 2012, we recorded a loss of $1.6 million and a gain of $1.1 million, respectively, in the Condensed Consolidated Statement of Income related to undesignated hedges, which were offset by foreign exchange fluctuations. For the six months ended April 26, 2013 and April 27, 2012, we recorded a loss of $3.2 million and a gain of $1.1 million, respectively, in the Condensed Consolidated Statement of Income related to undesignated hedges, which were offset by foreign exchange fluctuations.

The following table summarizes the effect of cash flow hedges on the Condensed Consolidated Financial Statements:



(in thousands)	Effective Portion
	Amount of Gain/(Loss) Recognized in Other Comprehensive Income			Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
Derivative Hedging Relationship				Location	Amount
Foreign currency forward contracts
Quarter ended April 26, 2013	$	1,250		Cost of sales	$	2,408
				Sales	(189		)
Six months ended April 26, 2013	$	4,559		Cost of sales	$	3,622
				Sales	(182		)
Quarter ended April 27, 2012	$	(1,076	)	Cost of sales	$	1,307
				Sales	193
Six months ended April 27, 2012	$	658		Cost of sales	$	2,107
				Sales	(41		)

We are exposed to credit risk in the event of nonperformance by counterparties to the forward contracts. The contract amount, along with other terms of the forward, determines the amount and timing of amounts to be exchanged, and the contract is generally subject to credit risk only when it has a positive fair value.