Financial Instruments and Hedging Activities

9 Months Ended

Jun. 30, 2011

Financial Instruments and Hedging Activities

7.   Financial Instruments and Hedging Activities

Cash Flow Hedges

Forward Currency Contracts

We enter into foreign currency contracts to hedge the variability of cash flows in Canadian Dollars (CAD) and Hungarian Forints (HUF) which are designated as cash flow hedges. These contracts settle monthly through October 2011. At June 30, 2011 and September 30, 2010, the notional value and the aggregate cumulative unrealized gains on the outstanding contracts were as follows:

					Aggregate Cumulative
	Notional Value				Unrealized Gains
	June 30,		September 30,		June 30,		September 30,
	2011		2010		2011		2010
Canadian Dollars	$	1,547	$	13,032	$	125	$	286
Hungarian Forints		636		4,564		155		443
Total contracts designated as cash flow hedges	$	2,183	$	17,596	$	280	$	729

Other Derivatives not Designated as Hedges

Forward Currency Contracts

We operate our business in countries throughout the world and transact business in various foreign currencies. Our foreign currency exposures typically arise from transactions denominated in currencies other than the local functional currency of our operations. During fiscal 2011, we commenced a program that primarily utilizes foreign currency forward contracts to offset the risks associated with foreign currency denominated assets and liabilities. We established this program so that gains and losses from remeasurement or settlement of these assets and liabilities are offset by gains or losses on the foreign currency forward contracts thus mitigating the risks and volatility associated with our foreign currency transactions. Generally, we enter into contracts with terms of 30 days or less, and at June 30, 2011 we had outstanding contracts with a total notional value of $165.4 million.

We have not designated these forward contracts as hedging instruments pursuant to ASC 815, Derivatives and Hedging and accordingly, we recorded the fair value of these contracts at the end of each reporting period in our consolidated balance sheet, with changes in the fair value recorded in earnings as other income (expense), net in our consolidated statement of operations. During the three and nine month periods ended June 30, 2011, we recorded losses of $0.2 million and $0.7 million, respectively, associated with these contracts.

Security Price Guarantees

From time to time we enter into agreements that allow us to issue shares of our common stock as part or all of the consideration related to partnering and technology acquisition activities. Generally these shares are issued subject to security price guarantees which are accounted for as derivatives. We have determined that these instruments would not be considered equity instruments if they were freestanding. The security price guarantees require payment from either us to a third party, or from a third party to us, based upon the difference between the price of our common stock on the issue date and an average price of our common stock approximately six months following the issue date. Changes in the fair value of these security price guarantees are reported in earnings in each period as other income (expense), net. During the three and nine months ended June 30, 2011, we recorded gains of $0.4 million and $10.8 million, respectively, associated with these contracts. We received cash totaling $10.0 million to settle certain of these contracts during the three months ended June 30, 2011.

The following table provides a summary of the fair value of our derivative instruments as of June 30, 2011 and September 30, 2010 (dollars in thousands):

		Fair Value
		June 30,			September 30,
Description	Balance Sheet Classification	2011			2010
Derivatives Not Designated as Hedges:
Foreign currency contracts	Prepaid expenses and other current assets	$	505		$	767
Foreign currency contracts	Accrued expenses and other current liabilities		(463	)		—
Security price guarantees	Prepaid expenses and other current assets		395			—
Security price guarantees	Accrued expenses and other current liabilities		—			(982	)
Net asset (liability) value of non-hedge derivative instruments		$	437		$	(215	)
Derivatives Designated as Hedges:
Foreign currency contracts	Prepaid expenses and other current assets	$	280		$	729
Interest rate swaps	Accrued expenses and other current liabilities		—			(503	)
Net asset value of hedge derivative instruments		$	280		$	226

The following tables summarize the activity of derivative instruments for the three and nine months ended June 30, 2011 and 2010, respectively (dollars in thousands):

Derivatives Designated as Hedges for the Three Months Ended June 30,

	Amount of Gain (Loss)					Location and Amount of Gain (Loss) Reclassified from
	Recognized in OCI					Accumulated OCI into Income (Effective Portion)
	2011		2010				2011		2010
Foreign currency contracts	$	16	$	(321	)	Other income (expense), net	$	481	$	(98	)
Interest rate swaps	$	—	$	1,109		N/A	$	—	$	—

Derivatives Designated as Hedges for the Nine Months Ended June 30,

	Amount of Gain (Loss)					Location and Amount of Gain (Loss) Reclassified from
	Recognized in OCI					Accumulated OCI into Income (Effective Portion)
	2011		2010				2011			2010
Foreign currency contracts	$	529	$	(99	)	Other income (expense), net	$	978		$	(190	)
Interest rate swaps	$	—	$	2,517		Interest expense	$	(503	)	$	—

Derivatives Not Designated as Hedges

		Amount of Gain (Loss) Recognized in Income
		Three Months Ended						Nine Months Ended
	Location of Gain (Loss)	June 30,						June 30,
	Recognized in Income	2011			2010			2011			2010
Foreign currency contracts	Other income (expense), net	$	(217	)	$	—		$	(675	)	$	—
Security price guarantees	Other income (expense), net	$	395		$	(1,044	)	$	10,844		$	3,664

Other Financial Instruments

Financial instruments, including cash equivalents, restricted cash, marketable securities, accounts receivable, accounts payable and derivative instruments, are carried in the consolidated financial statements at amounts that approximate their fair value.

The fair value of our long-term debt was estimated to be $963.3 million and $902.2 million at June 30, 2011 and September 30, 2010, respectively. The increase in the fair value is primarily related to the convertible debt, reflecting the increase in the underlying stock price during the period. These fair value amounts represent the value at which our lenders could trade our debt within the financial markets, and do not represent the settlement value of these long-term debt liabilities to us at each reporting date. The fair value of the long-term debt issues will continue to vary each period based on fluctuations in market interest rates, changes to our credit ratings and, for the outstanding convertible debt, changes in our stock price. These fluctuations may have little to no correlation to our reported debt balances. The term loan portion of our Credit Facility is traded and the fair values are based upon traded prices as of the reporting dates. The fair values of the 2.75% Convertible Debentures at each respective reporting date were estimated using the averages of the June 30, 2011 and September 30, 2010 bid and ask trading quotes. We had no outstanding balance on the revolving credit line portion of our Credit Facility. Our capital lease obligations and other debt are not traded and the fair values of these instruments are assumed to approximate their carrying values as of June 30, 2011 and September 30, 2010.