FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2011

NOTE 3—FINANCIAL INSTRUMENTS

Investments in Debt and Equity Securities

The following is a summary of available-for-sale securities as of June 30, 2011 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. government obligations and agency securities*	$	54,919	$	310	$	-		$	55,229
U.S. corporate debt*		122,302		589		(297	)		122,594
U.S. and non-U.S. money market funds		2,532		3		-			2,535
Non-U.S. government obligations and agency securities		5,599		5		(27	)		5,577
Non-U.S. corporate debt and equity securities		43,267		153		(418	)		43,002
Total securities	$	228,619	$	1,060	$	(742	)	$	228,937
Amounts included in:
Cash equivalents								$	1,000
Available-for-sale securities									227,937
Total securities								$	228,937
Amounts mature in:
Less than one year								$	46,020
One to two years									99,233
More than two years									83,684
Total securities								$	228,937

The following is a summary of available-for-sale securities as of December 31, 2010 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. government obligations and agency securities*	$	52,047	$	85	$	(76	)	$	52,056
U.S. corporate debt*		103,601		275		(684	)		103,192
U.S. and non-U.S. money market funds		3,642		-		(8	)		3,634
Non-U.S. government obligations and agency securities		8,155		24		(73	)		8,106
Non-U.S. corporate debt and equity securities		40,724		48		(243	)		40,529
Total securities	$	208,169	$	432	$	(1,084	)	$	207,517
Amounts included in:
Cash equivalents								$	6,103
Available-for-sale securities									201,414
Total securities								$	207,517
Amounts mature in:
Less than one year								$	73,326
One to two years									45,690
More than two years									88,501
Total securities								$	207,517

* Included in the Company’s available-for-sale securities were mortgage-backed investments totaling approximately 7% and 4% of the total portfolio as at June 30, 2011 and December 31, 2010, respectively.

Realized gains for the six months ended June 30, 2011 and 2010 were less than $0.1 million and $0.2 million, respectively. Realized losses for the six months ended June 30, 2011 and 2010 were less than $0.1 million and $0.2 million, respectively. Realized gains and losses are included in interest income and other, net in the Condensed Consolidated Statements of Operations. The gross unrealized losses as of June 30, 2011 and 2010 were primarily related to one mortgage-backed security with a carrying value of $0.6 million that was impacted by the weakening of the global economy and a lack of liquidity in the credit markets, which have not fully recovered. No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of the Company’s other securities. Based on its review of these securities, including the assessment of the severity of the related unrealized losses, the Company has not recorded any OTTI on these securities for the six months ended June 30, 2011 and 2010.

Non-Marketable Securities

As of June 30, 2011 and December 31, 2010, the carrying amounts of the Company’s non-marketable securities, totaling $5.7 million and $6.8 million, respectively, equaled their estimated fair values. Their estimated fair values were based on liquidation and net realizable values. During the six months ended June 30, 2011, the Company recognized an expense totaling $1.2 million in interest income and other, net related to its limited partnership investment fund. During the six months ended June 30, 2010, the Company recorded an impairment charge on its non-marketable securities totaling $4.9 million, primarily due to a decline in the estimated fair value of an investment in a private biotechnology company that was deemed other-than-temporary as a result of the respective price per share paid by investors in the most recent round of financing for the company which was significantly lower than the carrying value of the Company’s investment. Net investment losses are included in interest income and other, net in the Condensed Consolidated Statements of Operations. Depending on market conditions, the Company may incur additional charges on this investment portfolio in the future.

Foreign Currency Derivatives

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 are held in the nonfunctional 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 records all derivatives on the Condensed Consolidated Balance Sheets at fair value. The effective portions of designated cash flow hedges are recorded in OCI until the hedged item is recognized in earnings. As of June 30, 2011, the Company’s existing foreign currency forward exchange contracts mature within 12 months. The deferred amount currently recorded in OCI and expected to be recognized into earnings over the next 12 months is a net loss of $0.1 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 other comprehensive income associated with such derivative instruments are reclassified immediately into earnings through other income and expense. Any subsequent changes in fair value of such derivative instruments are reflected in other income and expense unless they are re-designated as hedges of other transactions. The Company did not recognize any net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during 2011.

As of June 30, 2011, the total notional values of the Company’s foreign currency forward contracts that mature within 12 months are as follows (in thousands):

			Contracts
	Contracts		Not Designated
	Qualifying		or Qualifying
	as Hedges		as Hedges
June 30, 2011:
Euro	$	3,421	$	9,553
Japanese yen		830		3,948
British pound		974		2,947
Total	$	5,225	$	16,448

As of December 31, 2010, the Company did not have any unsettled foreign currency contracts in place.

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 agreements. To mitigate the 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 are not required to pledge collateral for these financial instruments. The Company does not enter into foreign currency forward contracts for trading or speculative purposes and is not party to any leveraged derivative instrument.

The following table shows the Company’s foreign currency derivatives measured at fair value as reflected on the Condensed Consolidated Balance Sheets as of June 30, 2011 (in thousands):

Fair Value of

Derivatives Not

Derivatives

Qualifying or

Balance Sheet

Designated as

Total

Location

Hedge Instruments

Fair Value

June 30, 2011:

Derivative assets:

Foreign exchange contracts

Other current assets

Derivative liabilities:

Foreign exchange contracts

Accrued expenses

1,057

1,134

The following table shows the pre-tax effect of the Company’s derivative instruments on OCI for the three and six months ended June 30, 2011 (in thousands):

	Amount of Loss Recognized
	in OCI (Effective Portion)
	For the			For the
	Three Months			Six Months
Derivatives designated as cash flow hedges
Foreign exchange contracts	$	(50	)	$	(50	)

There were no amounts classified from OCI into Income during the three and six months ended June 30, 2011.

The following table shows the pre-tax effect of the Company’s derivative instruments on the Condensed Statements of Operations for the three and six months ended June 30, 2011 (in thousands):

	Amount of Loss Recognized
	in Statements of Operations
	(Amount Excluded from
	Effectiveness Testing)
	For the			For the			Location of Loss Recognized
	Three Months			Six Months			in Statements of Operations
Derivatives designated as cash flow hedges
Foreign exchange contracts	$	(13	)	$	(13	)	Interest Income and Other, Net

Derivatives not designated as hedging instruments
Foreign exchange contracts		(613	)		(2,517	)	Interest Income and Other, Net

The following table shows the pre-tax effect of the Company’s derivative instruments on the Condensed Statements of Operations for the three and six months ended June 30, 2010 (in thousands):

	Amount of Loss Recognized
	in Statements of Operations
	For the			For the			Location of Loss Recognized
	Three Months			Six Months			in Statements of Operations
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	(663	)	$	(1,500	)	Interest Income and Other, Net

The Company did not have any derivatives designated as cash flow hedges as of June 30, 2010.