FINANCIAL INSTRUMENTS

Investments in Debt and Equity Securities

The fair values of the Company’s available-for-sale securities are based on quoted market prices and are included in cash and cash equivalents and available-for-sale securities on the accompanying Condensed Consolidated Balance Sheets based on each respective security’s maturity.

During the first quarter of 2013, the Company liquidated its entire portfolio of available-for-sale securities. The available-for-sale securities were sold for total cash consideration of $9.4 million and the resulting net gain on sale of $0.1 million was recognized in Interest income and other, net in the accompanying Condensed Consolidated Statements of Operations.

The following is a summary of available-for-sale securities as of December 31, 2012 (in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government obligations and agency securities	$	6,775	$	54	$	—	$	6,829
U.S. corporate debt	651		13		—		664
Foreign corporate debt and equity securities	1,837		36		—		1,873
Total available-for-sale securities	$	9,263	$	103	$	—	$	9,366

Non-Marketable Securities

As of June 30, 2013 and December 31, 2012, the carrying amounts of the Company’s non-marketable securities, totaling $4.3 million and $4.4 million, respectively, equaled their estimated fair values. They consist primarily of an investment in a limited partnership investment fund who invests in companies in the life science industry and are located in the United States. The investments are initially valued at the purchase price and subsequently on the basis of inputs that market participants would use in pricing such investments. The portfolio of investments includes Level 1 publicly-traded equity securities and Level 3 equity securities and notes. There was no other-than-temporary impairment recognized during the six months ended June 30, 2013 and 2012. Net investment results are included in Interest income and other, net in the accompanying Condensed Consolidated Statements of Operations. Depending on market conditions, the Company may incur additional charges on this investment portfolio in the future.

Derivative Financial Instruments

The Company derives a portion of its revenues in foreign currencies, predominantly in Europe and Japan, as part of its ongoing business operations. In addition, a portion of its assets is held in the non US-Dollar functional currencies of its subsidiaries. The Company enters into foreign currency forward contracts to manage a portion of the volatility related to transactions that are denominated in foreign currencies. The Company’s foreign currency forward contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions that are independent of those exposures. The Company’s accounting policies for these instruments are based on whether the instruments are classified as designated or non-designated hedging instruments. The Company recognizes derivatives on its accompanying Condensed Consolidated Balance Sheets at fair value. The effective portions of designated cash flow hedges are recorded in Other Comprehensive Income (“OCI”) until the hedged item is recognized in earnings. As of June 30, 2013, the Company’s existing foreign currency forward exchange contracts mature within 12 months. The deferred amount related to the Company’s derivatives currently recorded in OCI and expected to be recognized into earnings over the next 12 months is a net gain of $0.8 million. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedges are adjusted to fair value through earnings.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in OCI associated with such derivative instruments are reclassified immediately into operations through Interest income and other, net. Any subsequent changes in fair value of such derivative instruments are reflected in Interest income and other, net unless they are re-designated as hedges of other transactions. During the six months ended June 30, 2013, the Company recognized $0.2 million in net gains in Interest income and other, net, related to the loss of hedge designation on a portion of cash flow hedges related to the Japanese yen that were deemed ineffective due to lower-than-forecasted revenue from Japan. No additional hedges are deemed ineffective as of June 30, 2013. No cash flow hedges were de-designated during the six months ended June 30, 2013.

Under the Credit Agreement as defined in Note 9. “Long-Term Debt Obligations”, the Company is required to maintain derivative contracts to protect against fluctuations in interest rates with respect to at least 35% of the aggregate principal amount of the Term Loan, as defined in Note 9. “Long-Term Debt Obligations,” then outstanding, with such derivative contracts being required to have at least a three-year term. Accordingly, the Company has entered into an interest rate swap (the “Interest Rate Swap”) for which the notional amount was originally set at $27.5 million, with quarterly reduction to the notional amount consistent with the mandatory amortization schedule of the Term Loan. The Interest Rate Swap calls for quarterly fixed rate payments of 1.70% of the notional amount in exchange for a variable rate quarterly receipts equal to a 3-month LIBOR rate with a floor of 1.50%. The Interest Rate Swap terminates on June 25, 2015.

The Company did not designate the Interest Rate Swap as a hedging instrument and will recognize adjustments to fair value through Interest and other income on the accompanying Condensed Consolidated Statements of Operations at each reporting date. As of June 30, 2013, the fair value of the Interest Rate Swap was $0.1 million.

As of June 30, 2013 and December 31, 2012, the total notional values of the Company’s derivative assets and liabilities were as follows (in thousands):



	June 30, 2013		December 31, 2012
Euro	$	18,363	$	16,933
Japanese Yen	3,677		10,542
British Pound	4,373		4,278
Interest rate swap	27,519		27,519
Total	$	53,932	$	59,272

Other than the Interest Rate Swap, the Company did not have any derivative assets or liabilities that were not designated or qualifying as hedges at either June 30, 2013 or December 31, 2012.

As a result of the use of derivative instruments, the Company is exposed to the risk that the counterparties may be unable to meet the terms of the underlying agreements. To mitigate this risk, only contracts with carefully selected highly-rated major financial institutions are entered into. In the event of non-performance by these counterparties, the asset position carrying values of the financial instruments represent the maximum amount of loss that can be incurred; however, no losses as a result of counterparty defaults are expected. The Company does not require and is not required to pledge collateral for these financial instruments. The Company does not enter into derivative contracts for trading or speculative purposes and is not party to any leveraged derivative instruments.

The following table shows the Company’s derivative assets and liabilities measured at fair value as reflected on the accompanying Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 (in thousands):



	June 30, 2013		December 31, 2012		Balance Sheet Classification
Derivative assets:
Foreign exchange contracts	$	804	$	842	Other current assets
Derivative liabilities:
Foreign exchange contracts	19		752		Accrued liabilities
Interest rate swap	74		77		Accrued liabilities

The following table shows the effect, net of tax, of the Company’s derivative instruments on the accompanying Condensed Consolidated Statements of Operations and Other Comprehensive Income (OCI) for the three and six months ended June 30, 2013 and 2012 (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013		2012
Derivatives in cash flow hedging relationships:
Net (loss) gain recognized in OCI, net of tax (1)	$	(361	)	$	248	$	725	$	(268	)
Net gain reclassified from accumulated OCI into Revenue, net of tax (2)	254			697		1,081		1,215
Net gain reclassified from accumulated OCI into Interest income and other, net, net of tax (3)	—			—		158		—
Net gain recognized in Interest income and other, net, net of tax (4)	30			3		45		28
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in Interest income and other, net, net of tax (5)	4			22		147		(126		)


(1)	Net change in the fair value of the effective portion classified in OCI


(2)	Effective portion classified as Revenue


(3)	Ineffective portion classified as Interest income and other, net


(4)	Amount excluded from effectiveness testing classified as Interest income and other, net


(5)	Classified in Interest and other, net