Netgear 2012 Annual Report Download - page 77

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash flow hedges
To help manage the exposure of 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 $7 million USD equivalent related to its cash flow hedging program.
The Company expects to reclassify to earnings all of the amounts recorded in other comprehensive income ("OCI") associated with its cash
flow hedges over the next 12
months. OCI 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. OCI 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 related costs of revenue and operating
expenses are recognized.
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, 2012 , 2011 and 2010 .
The effects of the Company’
s derivative instruments on OCI and the consolidated statement of operations for the years ended December 31,
2012 , 2011 and 2010 are summarized as follows (in thousands):
73
Derivatives Designated as Hedging Instruments
Year Ended December 31, 2012
Gain or (Loss)
Recognized in
OCI -
Effective
Portion (a)
Location of
Gain or (Loss)
Reclassified
from OCI
into Income -
Effective
Portion
Gain or (Loss)
Reclassified
from
OCI into
Income -
Effective
Portion (a)
Location of
Gain or (Loss)
Recognized in
Income and
Excluded from
Effectiveness
Testing
Amount of Gain or
(Loss) Recognized in
Income and
Excluded from
Effectiveness
Testing
Cash flow hedges:
Foreign currency forward contracts
$
164
Net revenue
$
262
Other income
(expense),
net
$
(158
)
Foreign currency forward contracts
—
Cost of
revenue
(1
)
Other income
(expense),
net
—
Foreign currency forward contracts
—
Operating
expenses
(67
)
Other income
(expense),
net
—
Total
$
164
$
194
$
(158
)