14.

Derivatives

We enter into derivative contracts, primarily 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. We have designated substantially all of these contracts as either cash flow or fair value hedges. These contracts are for forecasted transactions and committed receivables and payables denominated in foreign currencies and are not entered into for speculative purposes.

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 December 2013. Ineffectiveness related to these derivative contracts was recorded in the Consolidated Statement of Income as a gain of $3.0 million and $2.7 million for the years ended October 26, 2012 and October 28, 2011, respectively.

For derivative contracts that are designated and qualify as a fair value hedge, gain or loss is recorded in the Consolidated Statement of Income under the heading Cost of Sales. For the years ended October 26, 2012 and October 28, 2011, we recorded a loss of $3.0 million and a gain of $1.6 million, respectively, in the Consolidated Statement of Income related to fair value hedges which was offset by foreign exchange fluctuations of the underlying receivables.

For derivative contracts that are not designated as a fair value hedge or a cash flow hedge the gain or loss is recorded in the Consolidated Statement of Income under the heading Cost of Sales. For the year ended October 26, 2012 we recorded a $3.1 million loss in the Consolidated Statement of Income related to undesignated hedges which was offset by foreign exchange fluctuations.

The following table summarizes the effect of cash flow hedges on the Consolidated Statement of Income:


(in thousands)	Effective Portion
	Amount of Gain		Gain/(Loss) Reclassified from AOCI into Earnings
Derivative Hedging Relationship	Recognized in OCI		Location	Amount
Foreign currency forward contracts
Year ended October 26, 2012	$	5,558	Cost of sales	$	(1,374	)
			Sales		460

Year ended October 28, 2011	$	6,841	Cost of sales	$	5,871
			Sales		4,039

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 the contract has a positive fair value.

Forward exchange contracts are entered into to protect the value of forecasted transactions and committed future foreign currency receipts and disbursements and consequently any market-related loss on the forward contract would be offset by changes in the value of the hedged item. As a result, we are generally not exposed to net market risk associated with these instruments.