DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2012

DERIVATIVE INSTRUMENTS

NOTE 15 — DERIVATIVE INSTRUMENTS

Foreign Exchange Risk Management Policy

Our Foreign Exchange Risk Management Policy identifies target exposures such as balance sheet, cash flow and statement of operations 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 (expense) income, net.

We utilize a balance sheet hedging program with the stated objective of reducing volatility within Other (expense) income, 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 in the consolidated balance sheets at fair value and the changes in fair value from these contracts are recorded in Other (expense) income, net, in the consolidated statements of operations. 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 in the consolidated balance sheets at fair value. Changes in value that are highly effective are recognized in Accumulated other comprehensive income/(loss) (“AOCI”) in the consolidated balance sheets, until the hedged item is recognized in the statement of operations. Any ineffective portion of a derivative’s change in fair value is recorded in Other (expense) income, net, in the consolidated statements of operations. There was no material ineffectiveness in our cash flow hedging program for the six months ended June 30, 2012.

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

Currency	June 30 2012		December 31 2011
Derivatives designated as hedging instruments
Australian Dollar	$	3,678	$	4,078
Canadian Dollar		10,707		14,158
Chinese Yuan		3,398		2,777
Israeli Shekel		3,873		3,773
Russian Ruble		6,633		8,433
Euro		18,488		—
Total	$	46,777	$	33,219
Derivatives not designated as hedging instruments
Danish Krone	$	833	$	891
Norwegian Krone		653		1,073
Swedish Krona		1,236		446
Euro		30,964		40,397
Australian Dollar		6,779		8,138
South Korean Won		2,106		2,193
Brazil Real		2,924		3,826
Japanese Yen		6,401		6,439
British Pound		9,242		7,950
Total	$	61,138	$	71,353

Fair Value of Derivative Instruments

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

Derivative Assets

Derivative Liabilities

June 30, 2012

December 31, 2011

June 30, 2012

December 31, 2011

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

$

863

Prepaid expenses and other current assets

$

351

Other accrued expenses

$

627

Other accrued expenses

$

237

Foreign currency contracts

Prepaid expenses and other current assets

$

0

Prepaid expenses and other current assets

$

2,512

Other accrued expenses

$

1,385

Other accrued expenses

$

63

(1) Please refer to Note 16 – Fair Value Measurements for additional details.

The Effect of Derivative Instruments on Financial Performance

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

	Three Months Ended June 30
Derivatives designated as hedging instruments	Amount of gain (loss) recognized in AOCI (effective  portion)					Location of gain reclassified from AOCI into statement of operations (effective portion)	Amount of (loss) gain reclassified from  AOCI (effective portion)
	2012			2011			2012			2011
Foreign currency contracts	$	(503	)	$	306	Revenues	$	(2	)	$	(271	)
						Operating expenses	$	2		$	628

	Six Months Ended June 30
Derivatives designated as hedging instruments	Amount of (loss) gain recognized in AOCI (effective  portion)					Location of (loss) gain reclassified from AOCI into statement of operations (effective portion)	Amount of (loss) gain reclassified from AOCI (effective portion)
	2012		2011				2012			2011
Foreign currency contracts	$	206	$	(100	)	Revenues	$	(120	)	$	(1,301	)
						Operating expenses	$	338		$	1,128

	Three Months Ended June 30
Derivatives not designated as hedging instruments	Location of gain (loss) recognized on derivative instruments	Amount of (loss) gain recognized on derivative instruments
		2012		2011
Foreign currency contracts	Other income (expense), net	$	1,338	$	(881	)

	Six Months Ended June 30
Derivatives not designated as hedging instruments	Location of gain (loss) recognized on derivative instruments	Amount of (loss) gain recognized on derivative instruments
		2012			2011
Foreign currency contracts	Other income (expense), net	$	(405	)	$	(2,493	)