Derivative Instruments And Hedging Activities

3 Months Ended

Jun. 30, 2011

Derivative Instruments And Hedging Activities

Derivative Instruments And Hedging Activities

10. Derivative Instruments and Hedging Activities

NetScout operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The exposures result from costs that are denominated in currencies other than the U.S. dollar, primarily the Euro, British Pound, Canadian Dollar, and Indian Rupee. During the year ended March 31, 2010, the Company began managing its foreign cash flow risk by hedging forecasted cash flows for operating expenses denominated in foreign currencies for up to twelve months, within specified guidelines through the use of forward contracts. The Company enters into foreign currency exchange contracts to hedge cash flow exposures from costs that are denominated in currencies other than the U.S. dollar. These hedges are designated as cash flow hedges at inception.

All of the Company's derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes. As of June 30, 2011 and March 31, 2011, the Company had open contracts with notional amounts totaling $12.4 million and $10.9 million, respectively. These contracts will mature over the next twelve months and are expected to impact earnings on or before maturity.

The location and amounts of derivative fair values on the condensed consolidated balance sheets as of June 30, 2011 and March 31, 2011 were as follows (in thousands):

	Balance  Sheet Location	Asset Derivatives				Liability Derivatives
		June  30, 2011		March  31, 2011		June  30, 2011		March  31, 2011
Derivatives Designated as Hedging Instruments:
Forward contracts	Other current assets / accrued other liabilities	$	144	$	158	$	23	$	92

The following table provides the effect foreign exchange forward contracts had on other comprehensive loss (OCI) and results of operations during the three months ended June 30, 2011 and June 30, 2010 (in thousands):

Derivatives in Cash Flow Hedging Relationships	Effective Portion													Ineffective Portion
	Gain (Loss) Recognized  in OCI on Derivative (a)						Gain (Loss) Reclassified from Accumulated OCI into Income (b)							Gain (Loss) Recognized in Income (Amount Excluded from Effectiveness Testing) (c)
	June  30, 2011			June  30, 2010			Location	June  30, 2011			June  30, 2010			Location	June  30, 2011			June  30, 2010
Forward contracts	$	(184	)	$	(562	)	Research and development	$	(14	)	$	7		Research and development	$	(56	)	$	(16	)
							Sales and marketing		(161	)		(269	)	Sales and marketing		(4	)		7
	$	(184	)	$	(562	)		$	(175	)	$	(262	)		$	(60	)	$	(9	)

(a) The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b) The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.

(c) The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. No amounts were recognized in income due to ineffectiveness. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.