Derivative Instruments And Hedging Activities

6 Months Ended

Jun. 30, 2011

Derivative Instruments And Hedging Activities

Derivative Instruments And Hedging Activities

11. Derivative Instruments and Hedging Activities

We operate internationally and, in the normal course of business, are exposed to fluctuations in foreign currency exchange rates.  The exposures result from portions of our revenues, as well as the related receivables, and expenses that are denominated in currencies other than the U.S. dollar, primarily the Euro, Japanese Yen, Swiss Franc, British Pound and Australian dollar.  We manage our foreign currency transaction risk within specified guidelines through the use of derivatives.  All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes.

We enter into foreign exchange forward contracts, with durations of up to 36 months, to hedge exposures resulting from portions of our forecasted intercompany revenues that are denominated in currencies other than the U.S. dollar.  The purpose of the hedges of intercompany revenue is to reduce the volatility of exchange rate fluctuations on our operating results and to increase the visibility of the foreign exchange impact on forecasted revenues.  These hedges are designated as cash flow hedges upon contract inception.  As of June 30, 2011, we have open contracts with notional amounts totaling $404,578 that qualified for hedge accounting.

The impact on other comprehensive income (OCI) and earnings from foreign exchange contracts that qualified as cash flow hedges, for the three and six months ended June 30, 2011 and 2010, are as follows:

	Three months ended		Six months ended
	June 30,		June 30,
	2011	2010	2011	2010
(Loss) gain recognized in OCI, net of tax	$     (5,466)	$    10,986	$   (13,317)	$    23,476
(Loss) gain reclassified from OCI to net product sales (Effective portion)	$     (2,476)	$      3,634	$     (2,076)	$      2,511
(Loss) gain reclassified from OCI to other income and expense (Ineffective portion)	$        (428)	$         384	$     (1,086)	$         819

Assuming no change in foreign exchange rates from market rates at June 30, 2011, $13,431 of the loss recognized in other comprehensive income is expected to be reclassified to revenue over the next 12 months. 

We enter into foreign exchange forward contracts, with durations of approximately 30 days, designed to limit the balance sheet exposure of monetary assets and liabilities.  We enter into these hedges to reduce the impact of fluctuating exchange rates on our operating results.  These derivative instruments do not qualify for hedge accounting; however, gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheet exposures.  As of June 30, 2011, the notional amount of foreign exchange contracts that do not qualify for hedge accounting was $146,390.

We recognized a (loss) gain of $(5,433) and $6,445, in other income and expense, for the three months ended June 30, 2011 and 2010, respectively, and $(12,390) and $9,953, for the six months ended June 30, 2011 and 2010, respectively associated with foreign exchange contracts not designated as hedging instruments under the guidance.  These amounts were largely offset by gains or losses in monetary assets and liabilities.

The following tables summarize the fair value of outstanding derivatives at June 30, 2011 and December 31, 2010:

	June 30, 2011
	Asset Derivatives		Liability Derivatives
	Balance Sheet	Fair	Balance Sheet	Fair
	Location	Value	Location	Value
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Other current assets	$     1,056	Other current liabilities	$   15,473
Foreign exchange forward contracts	Other non-current assets	408	Other non-current liabilities	3,766
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets	1,282	Other current liabilities	2,003
Total fair value of derivative instruments		$   2,746		$ 21,242
	December 31, 2010
	Asset Derivatives		Liability Derivatives
	Balance Sheet	Fair	Balance Sheet	Fair
	Location	Value	Location	Value
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Other current assets	$     8,015	Other current liabilities	$     7,124
Foreign exchange forward contracts	Other non-current assets	590	Other non-current liabilities	3,380
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets	1,350	Other current liabilities	4,724
Total fair value of derivative instruments		$   9,955		$ 15,228