Derivative Financial Instruments

12 Months Ended

Dec. 31, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

13. Derivative Financial Instruments

Interest Rate Swap Agreement

We entered into an interest rate swap agreement with an effective date of October 29, 2010 that has the economic effect of modifying the variable rate component of the interest obligations associated with a portion of our variable rate debt. The initial notional amount of the interest rate swap agreement is $300 million, with scheduled step downs in the future, and a final termination date of October 31, 2014. The interest rate swap agreement converts the one-month LIBOR rate on the corresponding notional amount of debt to an effective fixed rate of 0.896% (exclusive of the applicable margin currently charged under the Senior Secured Credit Facilities). The critical terms of the interest rate swap agreement and the related debt agreement match and allow us to designate the interest rate swap agreement as a highly effective cash flow hedge under GAAP. The interest rate swap agreement protects us against changes in interest payments due to benchmark interest rate movements. The change in fair value of this interest rate swap agreement is recognized in other comprehensive income with the corresponding amounts included in other assets or other liabilities in our consolidated balance sheet. Amounts accumulated in other comprehensive income are indirectly recognized in earnings as periodic settlements of the swap occur and the fair value of the swap declines to zero.

The interest rate swap agreement is currently our only derivative instrument and it is not used for trading purposes. Allscripts has not entered into any foreign currency hedging contracts. In the future we may enter into foreign currency exchange contracts to offset certain operational exposures from the impact of changes in foreign exchange rates.

The fair value of the derivative instrument was as follows:

(In thousands)	December 31, 2011			December 31, 2010
Fair value of interest rate swap agreement		($1,754	)		$2,003

We recognized the following activity related to our interest rate swap agreement:

	Year Ended December 31, 2011			Seven Months Ended December 31, 2010			Year Ended May 31,
(In thousands)							2010		2009
Effective Portion
(Loss) gain recognized in OCI		($3,757	)		$2,003			$0		$0
Tax effect		1,463			(776	)		0		0
Net		($2,294	)		$1,227			$0		$0
Loss reclassified from OCI to interest expense		$2,024			$342			$0		$0
Amount excluded from Effectiveness Assessment and Ineffective Portion
Gain (loss) recognized in other income (expense)		$0			$0			$0		$0

We estimate that $2 million of derivative losses included in other comprehensive income ("OCI") will be reclassified into earnings within the next 12 months. This amount has been calculated assuming the variable effective interest rate 2.05% as of December 31, 2011 remains the same through the next 12 months. No gains (losses) were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the year ended December 31, 2011 and the seven months ended December 31, 2010. We held no other derivative instruments during the year ended December 31, 2011 and the seven months ended December 31, 2010.

There were no realized gains (losses) on derivatives other than those related to the periodic settlement of the swap.