Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2014

Derivatives and Hedging Activities [Abstract]

Derivatives and Hedging Activities

(6) Derivatives and Hedging Activities

The Company operates internationally and is exposed to fluctuations in foreign exchange rates and interest rates in the normal course of business.  The Company, from time to time, uses derivatives to reduce exposure to market risks resulting from fluctuations in interest rates and foreign exchange rates.

All financial instruments involve market and credit risks.  The Company is exposed to credit losses in the event of non-performance by the counterparties to the contracts.  While there can be no assurance, the Company does not anticipate non-performance by these counterparties.

Foreign Currency Forward Contracts

The Company periodically enters into foreign currency forward contracts to protect against currency fluctuations of forecasted cash flows and existing balance sheet exposures at its foreign operations, as deemed appropriate.  The Company may or may not elect to designate these forward contracts for hedge accounting treatment.

For those derivatives that are not designated for hedge accounting treatment, changes in the fair value are immediately recognized in earnings. This treatment has the potential to increase volatility of the Company’s earnings.

For derivatives that are designated for hedge accounting treatment, changes in the fair value are not included in earnings but are included in accumulated other comprehensive income (“AOCI”).  Changes in the fair value of the derivative instruments reported in AOCI are recorded into earnings as a component of product revenue or expense, as applicable, when the forecasted transaction occurs.  Any ineffective portion of hedges is recognized in earnings.

None of the foreign currency forward contracts entered into during the three months ended March 31, 2014 were designated for hedge accounting treatment.  There were no foreign currency forward contracts entered into or outstanding during the first quarter of 2013.

The fair value of the Company’s foreign exchange forward contracts was a loss of $292 at March 31, 2014 and is recorded in “Accrued expenses and other current liabilities” and “Other revenue.”

The notional amounts of the Company’s foreign exchange forward contracts were $22,939 at March 31, 2014.  There were no foreign currency forward contracts outstanding at December 31, 2013. The Company does not hold or purchase any foreign currency forward contracts for trading or speculative purposes and no contractual term is greater than twelve months.

Interest Rate Swap

The Company entered into an interest rate swap in March 2012 to reduce the impact of changes in interest rates on its floating rate debt through September 2015.  The swap is a contract to exchange floating rate for fixed interest payments periodically over the life of the agreement without the exchange of the underlying notional debt amount.

The swap contract outstanding at March 31, 2014 has been designated as a cash flow hedge and, accordingly, changes in the fair value of this derivative are not recorded in earnings but are recorded each period in AOCI and reclassified into earnings as interest expense in the same period during which the hedged transaction affects earnings.  The ineffective portion of all hedges is recognized in earnings and has been immaterial to the Company's financial results.

As of March 31, 2014, the interest rate swap had a notional value of $60,000, at a fixed rate of 0.92%.  The fair value of this swap is based on quoted market prices and was in a loss position of $575 and $616 at March 31, 2014 and December 31, 2013, respectively.  This loss is reflected in the Company’s balance sheet under the caption “Accrued expenses and other current liabilities.”

Assuming current market conditions continue, a loss of $442 is expected to be reclassed out of AOCI into earnings within the next twelve months.