Our Foreign Exchange Risk Management Policy identifies target exposures such as balance sheet, cash flow and income statement risks, program objectives, approved financial instruments and counterparties, accounting and tax treatment, as well as oversight, reporting and controls. The functional currency of all our subsidiaries is the U.S. Dollar. Our exposure to foreign exchange risk originates both from the operating results of our foreign operations denominated in currencies other than the U.S. Dollar, as well as our net balances of monetary assets and liabilities within our foreign subsidiaries. These exposures have the potential to produce either gains or losses depending on the directional movement of the foreign currencies versus the U.S. Dollar and our operational profile in foreign subsidiaries. Certain balance sheet items are re-measured each period and the changes in value are recorded within Other income (expense), net.

We utilize a balance sheet hedging program with the stated objective of reducing volatility within Other income (expense), net. Under this program, we use derivatives in the form of foreign currency contracts to hedge certain balance sheet exposures. We do not designate these contracts as hedging instruments and therefore do not qualify for hedge accounting. Accordingly, these outstanding non-designated derivatives are recognized on the condensed consolidated balance sheet at fair value and the changes in fair value from these contracts are recorded in Other income (expense), net, in the condensed consolidated income statement. These derivative contracts typically have a one month term.

We have a cash flow hedging program primarily focused on reducing volatility in our forecasted research and development cash expenses and license revenues, some of which are denominated in non-U.S. Dollar currencies. Under this program, we use derivatives in the form of forward foreign currency contracts and foreign currency option contracts to hedge certain forecasted transactions. These derivatives, with durations ranging from less than one month to nine months, are designated as hedging instruments and qualify for hedge accounting. Accordingly, these outstanding designated derivatives are recognized on the condensed consolidated balance sheet at fair value. Changes in value that are highly effective are recognized in Accumulated other comprehensive income ("AOCI") on the condensed consolidated balance sheets, until the hedged item is recognized in the income statement. Any ineffective portion of a derivative's change in fair value is recorded in Other income (expense), net, in the condensed consolidated income statement. There was no material ineffectiveness in our cash flow hedging program for the nine months ended September 30, 2011.

We had the following notional amounts for our foreign currency contracts included in our consolidated balance sheets (in U.S. Dollars in thousands):

The following table provides the fair value of our foreign currency contracts included in our condensed consolidated balance sheets (in thousands):

Derivative Assets

Derivative Liabilities

September 30, 2011

December 31, 2010

September 30, 2011

December 31, 2010

Derivatives designated as hedging instruments

Balance Sheet Location

Fair Value ⁽¹⁾

Balance Sheet Location

Fair Value ⁽¹⁾

Balance Sheet Location

Fair Value⁽¹⁾

Balance Sheet Location

Fair Value ⁽¹⁾

Foreign currency contracts

Prepaid expenses and other current assets

337

Prepaid expenses and other current assets

1,123

Other accrued expenses

372

Other accrued expenses

424

Derivative Assets

Derivative Liabilities

September 30, 2011

December 31, 2010

September 30, 2011

December 31, 2010

Derivatives not designated as hedging instruments

Balance SheetLocation

Fair Value ⁽¹⁾

Balance SheetLocation

Fair Value ⁽¹⁾

Balance SheetLocation

Fair Value ⁽¹⁾

Balance SheetLocation

Fair Value ⁽¹⁾

Foreign currency contracts

Prepaid expenses and other current assets

2,458

Prepaid expenses and other current assets

—

Other accrued expenses

—

Other accrued expenses

956

(1)	See Note 16 – Fair Value Measurements for details.

The following tables provide the effect that derivative instruments had on our AOCI and results of operations (in thousands):