Derivative Instruments And Hedging Activities

9 Months Ended

Sep. 30, 2011

Derivative Instruments And Hedging Activities [Abstract]

Derivative Instruments And Hedging Activities

Note 6 — Derivative Instruments and Hedging Activities

We operate internationally and thus are exposed to potential adverse changes in currency exchange rates. We use derivative instruments (principally forward contracts to exchange foreign currency) as a means of reducing our exposure to foreign currency rate changes on receivables and other net monetary assets denominated in foreign currencies. The foreign currency forward contracts require us to exchange currencies at rates agreed upon at the contract's inception. In addition to these foreign exchange contracts, certain of our customer contracts contain provisions that require our customers to assume the foreign currency exchange risk related to the applicable transactions. The objective of these contracts is to reduce or eliminate, and efficiently manage, the economic impact of currency exchange rate movements on our operating results as effectively as possible. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses on the related contracts.

Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative instrument and the resulting designation. We do not designate our foreign currency exchange contracts as accounting hedges as defined by authoritative guidance for derivatives and hedging, and, accordingly, we adjust these contracts to fair value through operations (i.e., included in "Other income (expense), net"). We do not hold or issue financial instruments for speculative or trading purposes.

We continually monitor our exposure to fluctuations in foreign currency exchange rates. As we have expanded internationally, a significant portion of our revenues, costs and operating expenses are denominated in foreign currencies, resulting in an increase in our foreign currency exchange rate exposure. We enter into multiple forward contracts throughout a given month to mitigate our changing exposure to foreign currency exchange rate fluctuations principally related to receivables generated from sales denominated in non-functional currencies and our remeasurements of international subsidiaries. Our exposure fluctuates as we generate new sales in non-functional currencies and as existing receivables related to sales in non-functional currencies are collected. Additionally, our exposure related to remeasurements of our subsidiaries' financial statements fluctuates with the underlying activity in those entities. Our foreign currency forward contracts generally will have terms of one month or less and typically mature on the last day of any given period. We then immediately enter into new foreign currency forward contracts, if necessary.

Principal currencies of our foreign currency forward contracts include the Euro, Indian rupees, Brazilian reals, Malaysian ringgits, Taiwan dollars, and Canadian dollars. As of September 30, 2011, the total notional amounts of the outstanding foreign currency forward contracts were $13.2 million and $33.2 million, purchased and sold in U.S. dollar equivalents, respectively. As of December 31, 2010, the total notional amounts of the outstanding foreign currency forward contracts were $8.6 million and $56.8 million, purchased and sold in U.S. dollar equivalents, respectively.

Average total notional amounts of foreign exchange forward contracts outstanding during the three months ended September 30, 2011 were $12.7 million and $31.9 million, purchased and sold in U.S. dollar equivalents, respectively. Average total notional amounts of foreign exchange forward contracts outstanding during the nine months ended September 30, 2011 were $13.9 million and $38.0 million, purchased and sold in U.S. dollar equivalents, respectively.

As of September 30, 2011, all of our derivative instruments are maintained with Wells Fargo Bank, and potentially subject us to a concentration of credit risk, which may result in credit related losses in the event of the bank's nonperformance. We mitigate this risk by monitoring Wells Fargo's credit ratings published by major rating firms (Fitch, Standard & Poor's, and Moody's).

As discussed above, our foreign currency forward contracts are structured to expire on the last day of the accounting period, and we immediately enter into new contracts if necessary. Therefore, our derivative instruments outstanding at period end are outstanding less than one full day when the reporting period ends and, accordingly, their fair value was not significant as of September 30, 2011 or December 31, 2010.

The tables below provide a summary of the effect of derivative instruments on the unaudited condensed consolidated statements of operations (in thousands):

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Results of Operations	Amount of Gain (Loss) Recognized in Results of Operations
		Three months ended September 30,
		2011			2010
Foreign currency forward contracts	Other income (expense), net	$	(1,119	)	$	2,568
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Results of Operations	Amount of Gain (Loss) Recognized in Results of Operations
		Nine months ended September 30,
		2011			2010
Foreign currency forward contracts	Other income (expense), net	$	840		$	(2,498	)

The above gains or losses on the derivative instruments include the cost of entering into the contracts (i.e., forward points), and are generally offset by a corresponding foreign currency gain or loss on the underlying hedged transaction (e.g., customer accounts receivable). The gain or loss on both the derivative instrument and the corresponding hedged transaction are reflected in "Other income (expense), net" in the accompanying unaudited condensed consolidated statements of operations.