Netgear 2011 Annual Report Download - page 84

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Table of Contents
Non-designated hedges
The Company enters into non-designated hedges under the authoritative guidance for derivatives and hedging to manage the exposure of
non-functional currency monetary assets and liabilities held on its financial statements to fluctuations in foreign currency exchange rates, as well
as to reduce volatility in other income and expense. The non-designated hedges are generally expected to offset the changes in value of its net
non-functional currency asset and liability position resulting from foreign exchange rate fluctuations. Foreign currency denominated accounts
receivable and payable are hedged with non-designated hedges when the related anticipated foreign revenue and expenses are recognized in the
Company’s financial statements. The Company also hedges certain non-functional currency monetary assets and liabilities which may not be
incorporated into the cash flow hedge program. The Company adjusts its non-designated hedges monthly and enters into about 11 non-
designated derivatives per quarter. The average size of its non-designated hedges is about $2 million USD equivalent and these hedges range
from one to five months in duration.
The Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to,
immateriality, accounting considerations, and the prohibitive economic cost of hedging particular exposures. There can be no assurance the
hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange rates. The Company’s accounting
policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with the
authoritative guidance for derivatives and hedging. The Company records all derivatives on the balance sheet at fair value. The effective portions
of cash flow hedges are recorded in other comprehensive income until the hedged item is recognized in earnings. Derivatives that are not
designated as hedging instruments and the ineffective portions of its designated hedges are adjusted to fair value through earnings in “Other
income (expense), net.”
The Company’s foreign currency forward contracts do not contain any credit-risk-related contingent features. The Company is exposed to
credit losses in the event of nonperformance by the counter-parties of its forward contracts. The Company enters into derivative contracts with
high-quality financial institutions. In addition, the derivative contracts are limited to a time period of less than six months and the Company
continuously evaluates the credit standing of its counter-party financial institutions. The counter-parties to these arrangements are large highly
rated financial institutions and the Company does not consider non-performance a material risk.
The fair values of the Company’s derivative instruments and the line items on the Consolidated Balance Sheets to which they were
recorded as of December 31, 2011 and December 31, 2010 are summarized as follows:
80
Derivative Assets
Balance
Sheet
Location
Fair Value at
December 31,
2011
Balance
Sheet
Location
Fair Value at
December 31,
2010
(In thousands)
Derivative assets not designated as hedging
instruments
Prepaid expenses and
other current assets
$
1,196
Prepaid expenses and
other current assets
$
1,381
Derivative assets designated as hedging
instruments
Prepaid expenses and
other current assets
41
Prepaid expenses and
other current assets
8
Total
$
1,237
$
1,389