v2.4.0.6
Derivative Instruments
 9 Months Ended
Sep. 30, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Derivative Instruments
Foreign Currency Forward Contracts
Due to the global nature of our operations, portions of our revenues are earned in currencies other than the U.S. dollar. The value of revenues measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues.
Foreign currency forward contracts in effect as of September 30, 2012 and December 31, 2011 had durations of 1 to 15 months. These contracts have been designated as cash flow hedges and accordingly, to the extent effective, any unrealized gains or losses on these foreign currency forward contracts are reported in accumulated other comprehensive income (loss). Realized gains and losses for the effective portion of such contracts are recognized in revenue when the sale of product in the currency being hedged is recognized. To the extent ineffective, hedge transaction gains and losses are reported in other income (expense), net.
 
The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues is summarized as follows:
 
Notional Amount
Foreign Currency: (in millions)
As of
September 30,
2012
 
As of
December 31,
2011
Euro
$
593.6

 
$
496.4

Canadian dollar
6.3

 
22.9

Swedish krona
3.2

 
13.0

Total foreign currency forward contracts
$
603.1

 
$
532.3


The portion of the fair value of these foreign currency forward contracts that was included in accumulated other comprehensive income (loss) within total equity reflected gains of $5.9 million and $36.5 million as of September 30, 2012 and December 31, 2011, respectively. We expect all contracts to be settled over the next 15 months and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of September 30, 2012 and December 31, 2011, respectively, credit risk did not materially change the fair value of our foreign currency forward contracts.
In relation to our foreign currency forward contracts, due to hedge ineffectiveness we recognized in other income (expense) net gains of $0.8 million and $4.0 million for the three and nine months ended September 30, 2012, respectively, as compared to net losses of $2.8 million and $3.2 million, respectively, in the prior year comparative periods.
In addition, we recognized in product revenue net gains of $12.0 million and $31.0 million for the settlement of certain effective cash flow hedge instruments for the three and nine months ended September 30, 2012, respectively, as compared to net losses of $10.8 million and $37.6 million, respectively, in the prior year comparative periods. These settlements were recorded in the same period as the related forecasted revenues.
Summary of Derivatives Designated as Hedging Instruments
The following table summarizes the fair value and presentation in our condensed consolidated balance sheets for derivatives designated as hedging instruments:
(In millions)
Balance Sheet Location
Fair Value As of September 30, 2012
Foreign Currency Contracts:
 
 
Asset derivatives
Other current assets
$
6.4

Liability derivatives
Accrued expenses and other
$
(0.5
)
 
 
 
(In millions)
Balance Sheet Location
Fair Value As of December 31, 2011
Foreign Currency Contracts:
 
 
Asset derivatives
Other current assets
$
32.6

Liability derivatives
Accrued expenses and other
$
—



The following table summarizes the effect of derivatives designated as hedging instruments on our condensed consolidated statements of income:
(In millions)
Amount
Recognized in
Accumulated
Other
Comprehensive
Income (Loss)
on Derivative
Gain/(Loss)
 (Effective Portion)
 
Income
Statement
Location
 (Effective Portion)
 
Amount
Reclassified from
Accumulated
Other
Comprehensive
Income (Loss)
into Income
Gain/(Loss)
 (Effective Portion)
 
Income
Statement Location
(Ineffective Portion)
 
Amount of
Gain/(Loss)
Recorded
(Ineffective Portion)
For the Three Months Ended
 
 
 
 
 
 
 
 
 
September 30, 2012
 
 
 
 
 
 
Other income
 
 
Foreign currency contracts
$
5.9

 
Revenue
 
$
12.0

 
(expense)
 
$
0.8

September 30, 2011
 
 
 
 
 
 
Other income
 
 
Foreign currency contracts
$
13.5

 
Revenue
 
$
(10.8
)
 
(expense)
 
$
(2.8
)
For the Nine Months Ended
 
 
 
 
 
 
 
 
 
September 30, 2012
 
 
 
 
 
 
Other income
 
 
Foreign currency contracts
$
5.9

 
Revenue
 
$
31.0

 
(expense)
 
$
4.0

September 30, 2011
 
 
 
 
 
 
Other income
 
 
Foreign currency contracts
$
13.5

 
Revenue
 
$
(37.6
)
 
(expense)
 
$
(3.2
)

Other Derivatives
We also enter into other foreign currency forward contracts, usually with one month durations, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.
The aggregate notional amount of these other outstanding foreign currency contracts was $297.3 million as of September 30, 2012. The fair value of these contracts was a net liability of $4.3 million. A net loss of $5.7 million and a net gain of $5.6 million related to these contracts were recognized as a component of other income (expense), net, for the three and nine months ended September 30, 2012, respectively, as compared to net gains of $6.1 million and $1.8 million in the prior year comparative periods.