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Foreign Currency Hedging
 6 Months Ended
Jun. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Foreign Currency Hedging
5. Foreign Currency Hedging

We designate the foreign currency exchange contracts used to hedge our royalty revenues based on underlying Euro-denominated sales as cash flow hedges. Euro forward contracts are presented on a net basis on our Condensed Consolidated Balance Sheets as we have entered into a netting arrangement with the counterparty. As of June 30, 2013, and December 31, 2012, all outstanding Euro forward contracts and option contracts were classified as cash flow hedges.

In January 2012, we modified our existing Euro forward and option contracts related to our licensees’ sales through December 2012 into Euro forward contracts with more favorable rates. Additionally, we entered into a series of Euro forward contracts covering the quarters in which our licensees’ sales occur through December 2013.

During the third quarter of 2012, we reduced our forecasted exposure to the Euro for 2013 royalties. We de-designated and terminated certain forward contracts, due to our determination that certain cash flows under the de-designated contracts were probable to not occur, and recorded a gain of approximately $391,000 to interest and other income, net, which was reclassified from other comprehensive income (loss) net of tax effects. The termination of these contracts was effected through a reduction in the notional amount of the original hedge contracts.

The notional amounts, Euro exchange rates and fair values of our Euro forward contracts designated as cash flow hedges were as follows:

Euro Forward Contracts
 
June 30, 2013
 
December 31, 2012
 
 
 
 
 
 
(In thousands)
 
(In thousands)
Currency
 
Settlement Price
($ per Euro)
 
Type
 
Notional Amount
 
Fair Value
 
Notional Amount
 
Fair Value
Euro
 
1.230
 
Sell Euro
 
$
—

 
$
—

 
$
27,553

 
$
(2,036
)
Euro
 
1.240
 
Sell Euro
 
10,850

 
(534
)
 
10,850

 
(726
)
Euro
 
1.270
 
Sell Euro
 
44,450

 
(1,136
)
 
44,450

 
(1,950
)
Euro
 
1.281
 
Sell Euro
 
36,814

 
(651
)
 
36,814

 
(1,331
)
Euro
 
1.300
 
Sell Euro
 
57,200

 
(89
)
 
91,000

 
(1,538
)
Total
 
 
 
 
 
$
149,314

 
$
(2,410
)
 
$
210,667

 
$
(7,581
)

 
 The location and fair values of our Euro contracts in our Condensed Consolidated Balance Sheets were: 
 
Cash Flow Hedge
 
Location
 
June 30,
2013
 
December 31,
2012
(In thousands)
 
 
 
 
 
 
Euro contracts
 
Accrued liabilities
 
$
1,136

 
$
3,574

Euro contracts
 
Other long-term liabilities
 
$
1,274

 
$
4,007



The effect of our derivative instruments in our Condensed Consolidated Statements of Income and our Condensed Consolidated Statements of Comprehensive Income was:

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2013
 
2012
 
2013
 
2012
(In thousands)
 
 
 
 
 
 
 
 
Net gain (loss) recognized in OCI, net of tax (1)
 
$
(1,265
)
 
$
7,086

 
$
2,303

 
$
1,603

Gain (loss) reclassified from accumulated OCI into royalty revenue, net of tax (2)
 
$
268

 
$
(1,864
)
 
$
(979
)
 
$
(670
)
Net gain (loss) recognized in interest and other income, net -- cash flow hedges (3)
 
$
2

 
$
57

 
$
5

 
$
(27
)
Amount excluded from effectiveness testing
 
$
—

 
$
—

 
$
—

 
$
—


 _______________________________
(1) Net change in the fair value of the effective portion of cash flow hedges classified in OCI.
(2) Effective portion classified as royalty revenue.
(3) Ineffectiveness from excess hedge was approximately ($3) and ($57) for the three months ended June 30, 2013 and 2012, respectively, and ($5) and zero for the six months ended June 30, 2013 and 2012, respectively. Net loss from restructuring hedges was approximately zero for the three months ended June 30, 2013 and 2012, respectively, and zero and $27 for the six months ended June 30, 2013 and 2012, respectively.