Derivative Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments

Derivative Instruments

Note 7.  Derivative Instruments

The Company has established a foreign currency hedging program to mitigate the foreign exchange risk arising from transactions or cash flows that have a direct or underlying exposure in non-U.S. Dollar denominated currencies and reduce volatility in the Company’s cash flow and earnings. The Company hedges a certain portion of anticipated cash flows with foreign currency exchange forward and option contracts, typically no more than one year into the future. The underlying exposures, both revenue and expenses, are denominated in currencies other than the U.S. Dollar, primarily euro, British Pound, Japanese Yen and Swiss Franc. The Company does not enter into derivative financial contracts for speculative purposes. As of June 30, 2013, foreign currency derivative contracts that were not settled were recorded at fair value on the Condensed Consolidated Balance Sheet.

The fair values of the Company’s derivative instruments are estimated taking into consideration current market rates and the current creditworthiness of the counterparties or the Company, as applicable. The Company’s foreign currency forwards and options used to hedge anticipated cash flows, where the underlying exposure of revenues and expenses are denominated in the euro, British Pound and Swiss Franc, have not been designated as hedging instruments under ASC 815. The changes in the fair value of these foreign currency options are included in the “Other income (expense)” line item in the accompanying Condensed Consolidated Statements of Operations.

At June 30, 2013 and December 31, 2012, the Company had the following outstanding derivative instruments:

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
		June 30, 2013		December 31, 2012			June 30, 2013		December 31, 2012
		(In thousands)					(In thousands)
Derivatives not designated as hedges:
Foreign currency option contracts	Prepaid expenses and other current assets	$	216	$	—	Accrued liabilities	$	62	$	—
Total derivatives not designated as hedges		216		—			62		—
Total derivatives		$	216	$	—		$	62	$	—

The effect of derivative instruments on the Condensed Consolidated Balance Sheet and Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2013 were as follows:

	Foreign Currency Contracts					Foreign Currency Contracts
	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
	(In thousands)
Derivatives not designated as hedges:
Net gain (loss) recognized in net income (loss)	$	56	$	(40	)	$	56	$	309

The Company is exposed to counterparty credit risk on all of its derivative financial instruments. The Company has established and maintained strict counterparty credit guidelines and enters into derivative instruments only with financial institutions that are investment grade to minimize the Company’s exposure to potential defaults. The Company does not generally require collateral to be pledged under these agreements.