Netgear 2011 Annual Report Download - page 83

Table of Contents
The following is a summary of the accrued restructuring charges related to ceasing use of certain buildings:
Note 5—Derivative Financial Instruments
The Company’s subsidiaries have had and will continue to have material future cash flows, including revenue and expenses, that are
denominated in currencies other than the Company’s functional currency. The Company and all its subsidiaries designate the U.S. dollar as the
functional currency. Changes in exchange rates between the Company’s functional currency and other currencies in which the Company
transacts will cause fluctuations in cash flow expectations and cash flow realized or settled. Accordingly, the Company uses derivatives to
mitigate its business exposure to foreign exchange risk. The Company enters into foreign currency forward contracts in Australian dollars,
British pounds, Euros, and Japanese yen to manage the exposures to foreign exchange risk related to expected future cash flows on certain
forecasted revenue, costs of revenue, operating expenses, and on certain existing assets and liabilities. The Company does not enter into
derivatives transactions for trading or speculative purposes.
Cash flow hedges
To help manage the exposure of gross and operating margins to fluctuations in foreign currency exchange rates, the Company hedges a
portion of its anticipated foreign currency revenue, costs of revenue, and certain operating expenses. These hedges are designated at the
inception of the hedge relationship as cash flow hedges under the authoritative guidance for derivatives and hedging. Effectiveness is tested at
least quarterly both prospectively and retrospectively using regression analysis to ensure that the hedge relationship has been effective and is
likely to remain effective in the future. The Company typically hedges portions of its anticipated foreign currency exposure for three to five
months. The Company enters into about five forward contracts per quarter with an average size of about $6 million USD equivalent related to its
cash flow hedge program.
The Company expects to reclass to earnings all of the amounts recorded in other comprehensive income associated with its cash flow
hedges over the next 12 months. Other comprehensive income associated with cash flow hedges of foreign currency revenue is recognized as a
component of net revenue in the same period as the related revenue is recognized. Other comprehensive income associated with cash flow
hedges of foreign currency costs of revenue and operating expenses are recognized as a component of cost of revenue and operating expense in
the same period as the costs of revenue and operating expenses are recognized, respectively.
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged
transaction will not occur within the designated hedge period or if not recognized within 60 days following the end of the hedge period. Deferred
gains and losses in other comprehensive income associated with such derivative instruments are reclassified immediately into earnings through
other income and expense. Any subsequent changes in fair value of such derivative instruments also are reflected in current earnings unless they
are re-designated as hedges of other transactions. The Company did not recognize any material net gains or losses related to the loss of hedge
designation on discontinued cash flow hedges during the years ended December 31, 2011, 2010, and 2009.
79
Accrued
Restructuring
Charges at
December 31,
2009
Adjustment
to Accrual
Recognition
Present
Value
Accretion
Cash
Payments
Accrued
Restructuring
Charges at
December 31,
2010
(In thousands)
Abandonment of excess leased facilities
$
516
$
(103
)
$
15
$
(428
)
$
—
Current portion
$
516
$
—
Long
-
term portion
$
—
$
—