DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Mar. 31, 2013

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 9 – 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. The Company manages 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. These contracts will mature over the next twelve months and are expected to impact earnings on or before maturity.

The notional amounts and fair values of derivative instruments in the consolidated balance sheets as of March 31, 2013 and 2012 were as follows (in thousands):

	Notional Amounts (a)				Other Current Assets				Accrued Other Liabilities
	March 31, 2013		March 31, 2012		March 31, 2013		March 31, 2012		March 31, 2013		March 31, 2012
Derivatives Designated as Hedging Instruments:
Forward contracts	$	17,071	$	11,203	$	71	$	150	$	249	$	166

(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss), (OCI) and results of operations as of March 31, 2013 and 2012 (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)
	March 31,			March 31,				March 31,			March 31,				March 31,			March 31,
	2013			2012			Location	2013			2012			Location	2013			2012
Forward contracts	$	(404	)	$	(339	)	Research and development	$	(307	)	$	(236	)	Research and development	$	152		$	145
							Sales and marketing		68			32		Sales and marketing		(4	)		46
	$	(404	)	$	(339	)		$	(239	)	$	(204	)		$	148		$	191

(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 gains or losses were reclassified as a result of discontinuance of cash flow hedges.