Derivatives and Hedging

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

Note 12. Derivatives and Hedging

In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries. As part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses derivative financial instruments in the form of foreign currency forward contracts to mitigate the impact of foreign currency translation on transactions that are denominated primarily in Japanese Yen, British Pounds, Euros, Canadian Dollars, Australian Dollars and Korean Won.

The Company accounts for its foreign currency forward contracts in accordance with ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). ASC 815 requires the recognition of all derivatives instruments as either assets or liabilities on the balance sheet, the measurement of those instruments at fair value and the recognition of changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as a cash flow hedge that offsets certain exposures. Certain criteria must be satisfied in order for derivative financial instruments to be classified and accounted for as a cash flow hedge. Gains and losses on qualifying hedges are recorded either in earnings as a component of cost of goods sold or as a component of other comprehensive income. Gains and losses on derivatives that are not elected for hedge accounting treatment or that do not meet hedge accounting requirements are recorded in earnings in other income (expense).

In January 2015, the Company entered into foreign currency forward contracts designated as qualifying cash flow hedges to help mitigate the Company's foreign currency exposure on intercompany sales of inventory to its foreign subsidiaries. These contracts mature within 12 months from their inception. In addition, the Company uses foreign currency forward contracts that are not designated as qualified hedging instruments to mitigate certain balance sheet exposures (payables and receivables denominated in foreign currencies), as well as gains and losses resulting from the translation of the operating results of the Company’s international subsidiaries into U.S. dollars for financial reporting purposes. These contracts usually mature within 12 months from their inception.

Foreign currency forward contracts are used only to meet the Company’s objectives of minimizing variability in the Company’s operating results arising from foreign exchange rate movements. The Company does not enter into foreign currency forward contracts for speculative purposes. The Company utilizes counterparties for its derivative instruments that it believes are credit-worthy at the time the transactions are entered into and the Company closely monitors the credit ratings of these counterparties

The following table summarizes the fair value of the Company's foreign currency forward contracts as well as the location of the asset and/or liability on the consolidated condensed balance sheets at March 31, 2015 and December 31, 2014 (in thousands):

	Asset Derivatives
	March 31, 2015			December 31, 2014
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as cash flow hedging instruments:
Foreign currency forward contracts	Other current assets	$	2,059	Other current assets	$	—
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other current assets	$	1,852	Other current assets	$	40

	Liability Derivatives
	March 31, 2015			December 31, 2014
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Accounts payable and accrued expenses	$	81	Accounts payable and accrued expenses	$	246

Cash Flow Hedging Instruments

At March 31, 2015, the notional amount of the Company's foreign currency forward contracts designated as cash flow hedge instruments was approximately $93,781,000. The Company did not enter into cash flow hedging contracts in 2014. The reporting of gains and losses on these cash flow hedging instruments depends on whether the gains or losses are effective at offsetting changes in the cash flows of the underlying hedged items. The Company uses the hypothetical derivative method to measure the effectiveness of the foreign currency forward contracts and evaluates the effectiveness on a quarterly basis. The effective portion of the gains and losses on the hedging instruments are recorded in other comprehensive income until recognized in earnings during the period that the hedged transactions take place. The ineffective portion of the gains and losses from the hedging instruments is recognized in earnings immediately. The Company would discontinue hedge accounting prospectively if (i) it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) if it becomes probable that the forecasted transaction being hedged by the derivative will not occur, (iv) if a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if it is determined that designation of the derivative as a hedge instrument is no longer appropriate. The Company estimates the fair values of foreign currency forward contracts based on pricing models using current market rates. These contracts are classified under Level 2 of the fair value hierarchy (see Note 11).

As of March 31, 2015, the Company recorded a net gain of $1,856,000 in accumulated other comprehensive loss related to its hedging activities. This gain will be relieved and recognized in cost of goods sold as the physical transactions being hedged occur. For the three months ended March 31, 2015, the Company recognized gains of $203,000 in other income (expense) as a result of ineffectiveness. The Company expects to reclassify net gains of $1,856,000 from accumulated other comprehensive loss into net earnings during the next 12 months.

The following tables summarize the net effect of all cash flow hedges on the unaudited condensed consolidated financial statements for the three months ended March 31, 2015 (in thousands):

	Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)
	Three Months Ended   March 31,
Derivatives designated as cash flow hedging instruments	2015		2014
Foreign currency forward contracts	$	1,856	$	—

	Gain (Loss) Recognized in Other Income (Expense) (Ineffective Portion)
	Three Months Ended   March 31,
Derivatives designated as cash flow hedging instruments	2015		2014
Foreign currency forward contracts	$	203	$	—

The following table details the components and reclassifications from accumulated other comprehensive loss for the three months ended March 31, 2015 (in thousands):

Beginning balance, December 31, 2014	$	(796	)
Change in fair value of derivative instruments	2,059
Amounts reclassified from accumulated other comprehensive loss due to derivative instrument ineffectiveness	(203		)
Foreign currency translation adjustments	(6,978		)
Ending balance, March 31, 2015	$	(5,918	)

Foreign Currency Forward Contracts Not Designated as Hedging Instruments

At March 31, 2015 and December 31, 2014, the notional amounts of the Company’s foreign currency forward contracts not designated as hedging instruments used to help mitigate the exposures discussed above were approximately $97,170,000 and $62,866,000, respectively. The increase in foreign currency forward contracts reflects the general timing of when the Company enters into these contracts. The Company estimates the fair values of foreign currency forward contracts based on pricing models using current market rates, and the Company records these contracts on the balance sheet at fair value with changes in fair value recorded in earnings in other income (expense). The foreign currency forward contracts are classified under Level 2 of the fair value hierarchy (see Note 11).

The following table summarizes the location of net gains and losses in the consolidated condensed statements of operations that were recognized during the three months endedMarch 31, 2015 and 2014, respectively, in addition to the derivative contract type (in thousands):

	Location of Net Gain (Loss) Recognized in Income on  Derivative Instruments	Amount of Net Gain (Loss) Recognized in Income on  Derivative Instruments
Derivatives not designated as hedging instruments		Three Months Ended   March 31,
		2015		2014
Foreign currency forward contracts	Other income (expense), net	$	2,592	$	(2,932	)

Unrealized gains and losses represent the remeasurement of foreign currency forward contracts that will mature in future periods. The amounts shown in the table above represent the net realized and unrealized gains and losses that were recognized by the Company on its foreign currency forward contracts during the first quarter of 2015 and 2014. Unrealized gains and losses represent the remeasurement of foreign currency forward contracts that will mature in future periods. For the three months ended March 31, 2015, the net gains on foreign currency forward contracts were offset by net losses of $479,000 related to transactions with the Company's foreign subsidiaries. For the three months ended March 31, 2014, the net losses on foreign currency forward contracts were offset by net gains of $719,000 related to transactions with the Company's foreign subsidiaries.