DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

NOTE 11.        DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. To manage this risk, the Company enters into derivative financial instruments from time to time. Certain of the Company’s foreign operations expose the Company to fluctuations of foreign interest rates and exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments from time to time to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. dollar.

Hedges of Foreign Exchange Risk

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. dollar. The Company uses foreign currency derivatives, specifically vanilla foreign currency forwards, to manage its exposure to fluctuations in the USD-CAD and AUD-USD exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. dollars for their fair value at or close to their settlement date.

The Company does not currently designate any of these foreign exchange forwards under hedge accounting, but rather reflects the changes in fair value immediately in earnings. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign exchange rates. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and were equal to a net loss of $0.1 million for the quarter ended September 30, 2018 and a net loss of $0.2 million for the same quarter in the prior year. Changes in the fair value of derivatives for the nine months ended September 30, 2018 and during the same period in 2017 were equal to a gain of $0.2 million and a net loss of $0.3 million, respectively. As of September 30, 2018, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (in thousands except for number of instruments):

Non-Designated Derivative Summary
	Number of Instruments		Sell Notional		Buy Notional
FX Forward Contracts
Sell AUD/Buy USD Fwd Contract		8	$	1,050	$	780
Sell CAD/Buy USD Fwd Contract		10	$	6,200	$	4,786
Total		18			$	5,566

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of September 30, 2018 and December 31, 2017 (in thousands):

	Tabular Disclosure of Fair Values of Derivative Instruments
	Derivatives Asset				Derivative Liabilities
			Fair Value as of:
Derivatives Not Designated as Hedging Instruments	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
FX Forward Contracts
Balance Sheet Location	Other Assets		Other Assets		Other Current Liabilities		Other Current Liabilities
Sell AUD/Buy USD Fwd Contract	$	22	$	—	$	2	$	(9)
Sell CAD/Buy USD Fwd Contract		10		—		39		(61)
Total	$	32	$	—	$	41	$	(70)

The table below presents the effect of the Company’s derivative financial instruments on the income statement as of September 30, 2018 and September 30, 2017 (in thousands):

Effect of Derivative Instruments on the Income Statement for Derivatives Not Designated

as Hedging Instruments for the Three and Nine Months Ended September 30, 2018 and 2017 

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income	Amount of Gain or (Loss) Recognized in Income Three Months Ended September 30,						Amount of Gain or (Loss) Recognized in Income Nine Months Ended September 30,
		2018			2017			2018		2017
Sell AUD/Buy USD Fwd Contract	Other inc/(exp)	$	9		$	(11	)	$	47	$	(29	)
Sell CAD/Buy USD Fwd Contract	Other inc/(exp)		(81	)		(224	)		178		(319	)
Total		$	(72	)	$	(235	)	$	225	$	(348	)

The table below presents the total fair value classification within the fair value hierarchy for the complete portfolio of derivative transactions at September 30, 2018 (in thousands):

Recurring Fair Value Measurements
	Quoted Prices in Active
	Markets for Identical				Significant Other						Significant Unobservable
	Assets and Liabilities				Observable Inputs						Inputs
	at September 30,				at September 30,						at September 30,				Total Fair Value
	(Level 1)				(Level 2)						(Level 3)				at September 30,
	2018		2017		2018			2017			2018		2017		2018			2017
Assets
Derivative Financial Instruments	$	—	$	—	$	32		$	—		$	—	$	—	$	32		$	—
Liabilities
Derivative Financial Instruments	$	—	$	—	$	(41	)	$	(153	)	$	—	$	—	$	(41	)	$	(153	)

As of September 30, 2018, the fair value of derivatives in a net liability position was nine thousand dollars inclusive of counterparty credit risk. As of the balance sheet date, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2018, it could have been required to settle its obligations under the agreements at their termination value of nine thousand dollars.