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FOREIGN CURRENCY DERIVATIVES
3 Months Ended
Jun. 30, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
FOREIGN CURRENCY DERIVATIVES
11. FOREIGN CURRENCY DERIVATIVES


Non-Designated Hedges


The Company enters into foreign exchange forward contracts to reduce the impact of foreign currency fluctuations on assets and liabilities denominated in currencies other than the functional currency of the reporting entity.  These foreign exchange forward contracts are not subject to the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC, but are carried at fair value with changes in the fair value recorded within Interest and other income, net, on the Condensed consolidated statement of operations in accordance with the Foreign Currency Matters Topic of the FASB ASC.  Gains and losses on these contracts are intended to offset the impact of foreign exchange rate changes on the underlying foreign currency denominated assets and liabilities, and therefore, do not subject the Company to material balance sheet risk.  The Company does not enter into foreign currency forward contracts for trading purposes.


As of June 30, 2011, the Company had foreign currency forward contracts denominated in Euros ("EUR"), Great Britain Pounds ("GBP"), and Australian Dollars ("AUD").  These forward contracts hedge against a portion of the Company’s foreign currency-denominated cash balances, receivables and payables. The following table summarizes the notional value of the Company’s outstanding foreign exchange currency contracts and approximate U.S. dollar equivalent (“USD Equivalent”) at June 30, 2011:
 
Local Currency
 
USD Equivalent
 
Position
 
Maturity
 
(in thousands)
 
(in thousands)
 
 
 
 
EUR
15,000


 
$
21,744


 
Sell EUR
 
1 month
GBP
4,700


 
$
7,548


 
Sell GBP
 
1 month
AUD
4,700


 
$
5,038


 
Sell AUD
 
1 month




Foreign currency transactions, net of the effect of forward contract hedging activity, resulted in immaterial net gains in the three months ended June 30, 2011 and immaterial net losses in the three months ended June 30, 2010, which are included in Interest and other income, net, in the Condensed consolidated statement of operations.


Cash Flow Hedges


The Company’s hedging activities include a hedging program to hedge the economic exposure from anticipated EUR and GBP denominated sales.  The Company hedges a portion of these forecasted foreign denominated sales with put and call currency option contracts used as collars.  These transactions are designated as cash flow hedges and are accounted for under the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC.  The effective portion of the hedge gain or loss is initially reported as a component of Accumulated other comprehensive income and subsequently reclassified into Net revenues when the hedged exposure affects earnings.  Any ineffective portion of related gains or losses is recorded in the Condensed consolidated statements of operations immediately.  On a monthly basis, the Company enters into option contracts with a one-year term.  The Company does not purchase options for trading purposes.  As of June 30, 2011, the Company had foreign currency put and call option contracts of approximately €58.3 million and £16.6 million.  As of March 31, 2011, the Company had foreign currency put and call option contracts of approximately €52.7 million and £14.5 million.


In the three months ended June 30, 2011, realized losses on cash flow hedges of $2.0 million were recognized in Net revenues in the Condensed consolidated statements of operations compared to realized gains of $1.0 million for the same period in the prior year.  The Company expects to reclassify the entire loss of $3.1 million, net of tax, in Accumulated other comprehensive income to Net revenues during the next 12 months due to the recognition of the hedged forecasted sales.


The Company hedges expenditures denominated in Mexican Peso (“MX$”), which are designated as cash flow hedges and are accounted for under the hedge accounting provisions of the Derivatives and Hedging Topic of the FASB ASC.  The Company hedges a portion of the forecasted MX$ denominated expenditures with a cross-currency swap.  The effective portion of the hedge gain or loss is initially reported as a component of Accumulated other comprehensive income and subsequently reclassified into Cost of revenues when the hedged exposure affects operations.  Any ineffective portion of related gains or losses is recorded in the Condensed consolidated statements of operations immediately.  As of June 30, 2011 and March 31, 2011, the Company had foreign currency swap contracts of approximately MX$268.9 million and MX$343.9 million, respectively.


In the three months ended June 30, 2011 and 2010, there were no material realized gains on MX$ cash flow hedges recognized in Cost of revenues in the Condensed consolidated statements of operations.  The Company expects to reclassify the entire gain of $0.6 million, net of tax, in Accumulated other comprehensive income to Cost of revenues during the next 12 months due to the recognition of the hedged forecasted expenditures.


The following table summarizes the notional value of the Company’s outstanding MX$ currency swaps and approximate USD Equivalent at June 30, 2011:
 
Local Currency
 
USD Equivalent
 
Position
 
Maturity
 
(in thousands)
 
(in thousands)
 
 
 
 
MX$
268,850


 
$
21,858


 
Buy MX$
 
Monthly over 9 months




The amounts in the tables below include fair value adjustments related to the Company’s own credit risk and counterparty credit risk.


Fair Value of Derivative Contracts


Fair value of derivative contracts under the Derivatives and Hedging Topic of the FASB ASC were as follows:
 
 
Derivative Assets
Reported in Other Current Assets
 
Derivative Liabilities
Reported in Accrued Liabilities
 
 
June 30,
 
March 31,
 
June 30,
 
March 31,
(in thousands)
 
2011
 
2011
 
2011
 
2011
Foreign exchange contracts designated as cash flow hedges
 
$
777


 
$
360


 
$
3,316


 
$
4,201


Foreign exchange contracts not designated
 


 


 


 


Total derivatives
 
$
777


 
$
360


 
$
3,316


 
$
4,201






Effect of Designated Derivative Contracts on Accumulated Other Comprehensive Income


The following table represents only the balance of designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC as of June 30, 2011 and March 31, 2011, and the impact of designated derivative contracts before tax on Accumulated other comprehensive income for the three months ended June 30, 2011:
(in thousands)
 
March 31, 2011
 
Amount of gain (loss)
recognized in OCI
(effective portion)
 
Amount of gain (loss)
reclassified from OCI
to income (loss)
(effective portion)
 
June 30, 2011
Foreign exchange contracts designated as cash flow hedges
 
$
(3,841
)
 
$
(312
)
 
$
(1,614
)
 
$
(2,539
)




Effect of Designated Derivative Contracts on the Condensed Consolidated Statements of Operations


The effect of designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC on results of operations recognized in gross profit in the Condensed consolidated statements of operations was as follows:
 
 
Three Months Ended
 
 
June 30,
(in thousands)
 
2011
 
2010
Gain (loss) on foreign exchange contracts designated as cash flow hedges
 
$
(1,614
)
 
$
1,092






Effect of Non-Designated Derivative Contracts on the Condensed Consolidated Statements of Operations


The effect of non-designated derivative contracts under the Derivatives and Hedging Topic of the FASB ASC on results of operations recognized in Interest and other income (expense), net in the Condensed consolidated statement of operations was as follows:
 
 
Three Months Ended
 
 
June 30,
(in thousands)
 
2011
 
2010
Gain (loss) on foreign exchange contracts
 
$
(797
)
 
$
2,046