NOTE 6—FINANCIAL INSTRUMENTS

Investments in Debt and Equity Securities

As described in further detail in Note 3. "Acquisition", the Company liquidated the majority of its available-for-sale securities as part of the Acquisition in 2012.

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		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

The following is a summary of available-for-sale securities as of December 31, 2011 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. government obligations and agency securities	$	19,421	$	177	$	-		$	19,598
U.S. corporate debt		24,942		259		(101	)		25,100
Foreign government obligations and agency securities		2,805		6		(1	)		2,810
Foreign corporate debt and equity securities		15,157		41		(268	)		14,930
Total available-for-sale securities	$	62,325	$	483	$	(370	)	$	62,438

Contractual maturities of available-for-sale securities as of December 31, 2012 and 2011 are as follows (in thousands):

	December 31,		December 31,
	2012		2011
Less than one year	$	7,083	$	7,937
One to two years		664		25,785
More than two years		1,619		28,716
Total available-for-sale securities	$	9,366	$	62,438

Realized gains for the years ended December 31, 2012 and 2011 were $0.5 million and $0.6 million, respectively. Realized losses for the years ended December 31, 2012 and 2011 were $0.1 million and $1.6 million, respectively. Realized gains and losses are included in Interest income and other, net in the accompanying Consolidated Statements of Operations. During the year ended December 31, 2011, an equity security that experienced a decline in fair value was deemed other-than-temporarily impaired and impairment charges totaling $0.8 million were recorded. 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 as of December 31, 2012.

Non-Marketable Securities

Non-marketable securities represents an investment in a limited partnership investment fund accounted for on the equity method. As of December 31, 2012 and 2011, the carrying amounts of the Company's non-marketable securities, totaling $4.4 million and $5.0 million, respectively, equaled their estimated fair values. The investments held by the limited partnership investment fund are in the life science industry and 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. During the year ended December 31, 2011, the Company recorded impairment charges on its non-marketable securities totaling $1.3 million. Net investment losses are included in Interest income and other, net in the accompanying Consolidated Statements of Operations. Depending on market conditions, the Company may incur additional charges on this investment 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 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 accompanying 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 operations. As of December 31, 2012, 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 less than $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 (loss) associated with such derivative instruments are reclassified immediately into operations through other income and expense. 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. The Company did not recognize any net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the years ended December 31, 2012 and 2011.

Under the Credit Agreement as defined in Note 13. "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 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 fixed rate quarterly payments of 1.70% of the notional amount in exchange for a variable rate quarterly receipt 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 income and other, net on the accompanying Consolidated Statements of Operations at each reporting date. As of December 31, 2012, the fair value of the Interest Rate Swap was $0.1 million.

As of December 31, 2012 and 2011, the total notional values of the Company's derivative assets and liabilities that mature within 12 months are as follows (in thousands):

	December 31,		December 31,
	2012		2011
Euro	$	16,933	$	11,851
Japanese yen		10,542		7,008
British pound		4,278		4,459
Interest rate swap		27,519		-
Total	$	59,272	$	23,318

Other than the Interest Rate Swap, the Company did not have any derivative assets or liabilities that were not designated or qualifying as hedges as of December 31, 2012. As of December 31, 2011, the Company did not have any derivative assets or liabilities that were not designated or qualifying as hedges.

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 is 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 instruments.

The following table shows the Company's foreign currency derivatives measured at fair value as reflected on the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 (in thousands):

	December 31,		December 31,		Balance Sheet
	2012		2011		Classification
Derivative assets:
Foreign exchange contracts	$	842	$	940	Other current assets
Derivative liabilities:
Foreign exchange contracts		752		217	Accrued liabilities
Interest rate swap		77		-	Accrued liabilities

The following table shows the effect, net of tax, of the Company's derivative instruments on the accompanying Consolidated Statements of Operations and OCI for the years ended December 31, 2012, 2011 and 2010 (in thousands):

	Year ended December 31,
	2012			2011			2010
Derivatives in cash flow hedging relationships:
Net (loss) gain recognized in OCI, net of tax (1)	$	(794	)	$	826		$	-
Net gain reclassified from accumulated OCI into income, net of tax (2)		1,226			-			-
Net gain (loss) recognized in other income and expense (3)		109			(103	)		-
Derivatives not designated as hedging relationships:
Net (loss) gain recognized in income (4)		(539	)		(1,720	)		957

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

(2)	Effective portion classified as revenue

(3)	Ineffective portion and amount excluded from effectiveness testing classified as Interest and other, net

(4)	Classified in Interest and other, net