Note 5 - Foreign Currency Hedging

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Text Block]

5. Foreign Currency Hedging

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.

The foreign currency exchange contracts used to hedge royalty revenues based on underlying Euro-denominated sales are designated 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.

The notional amounts, Euro exchange rates, fair values of our Euro forward contracts at June 30, 2012, and Euro forward and option contracts at December 31, 2011, designated as cash flow hedges were:

Euro Forward Contracts

			June 30, 2012					December 31, 2011
			(In thousands)					(In thousands)
Currency	Settlement Price ($ per Eurodollar)	Type		Notional Amount		Fair Value			Notional Amount		Fair Value
Euro	1.400	Sell Euro	$	-	$	-		$	25,150	$	1,837
Euro	1.200	Sell Euro		-		-			117,941		(9,783	)
Euro	1.230	Sell Euro		85,494		(2,122	)		-		-
Euro	1.300	Sell Euro		128,700		2,675			-		-
Total			$	214,194	$	553		$	143,091	$	(7,946	)

Euro Option Contracts

Currency	Strike Price ($ per Eurodollar)		Type	Notional Amount		Fair Value		Notional Amount		Fair Value
Euro		1.510	Purchased call option	$	-	$	-	$	27,126	$	-
Euro		1.315	Purchased call option		-		-		129,244		5,001
Total				$	-	$	-	$	156,370	$	5,001

The location and fair values of our Euro contracts in our Condensed Consolidated Balance Sheets were: 

Cash Flow Hedge	Location	June 30, 2012		December 31, 2011
(In thousands)
Euro contracts	Prepaid and other current assets	$	831	$	1,837
Euro contracts	Other assets		1,844		-
Euro contracts	Accrued liabilities		2,122		4,134
Euro contracts	Other long-term liabilities		-		648

The effect of derivative instruments designated as cash flow hedges in our Condensed Consolidated Statements of Income and our Condensed Consolidated Statements of Comprehensive Income were:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
(In thousands)
Net gain (loss) recognized in OCI, net of tax (1)	$	7,086		$	(1,695	)	$	1,603		$	(8,675	)
Gain (loss) reclassified from accumulated OCI into royalty revenue, net of tax (2)		(1,864	)		(218	)		(670	)		586
Net gain (loss) recognized in interest and other income, net (3)		57			(19	)		(27	)		(19	)
Amount excluded from effectiveness testing		-			-			-			-

(1) Net change in the fair value of the effective portion of cash flow hedges classified in other comprehensive income (loss) (OCI)

(2) Effective portion classified as royalty revenue

(3) Ineffective portion classified as interest and other income, net

For the three months ended June 30, 2012, we recognized a gain of approximately $57,000 associated with the ineffectiveness of the modified 2012 foreign exchange hedge. For the six months ended June 30, 2012, we recognized a loss, of approximately $27,000 associated with the ineffectiveness of the modified 2012 foreign exchange hedge. There was no ineffectiveness related to forecasted transactions for the three and six months ended June 30, 2012, and there was approximately $19,000 of ineffectiveness related to lower than forecasted Euro-based royalty transactions for the three and six months ended June 30, 2011. Approximately $0.8 million is expected to be reclassified from other comprehensive income (loss) against earnings in the next 12 months.