Hedging

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Hedging

The Company’s activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates. The Company manages these risks through the use of forward exchange contracts, designated as foreign-currency cash flow hedges, in an attempt to reduce the potentially adverse effects of foreign currency exchange rate fluctuations that occur in the normal course of business. As such, the Company’s hedging activities are employed solely for risk management purposes. All hedging transactions are conducted with, in the opinion of management, financially stable and reputable financial institutions. As of June 30, 2014 and December 31, 2013, the only hedge instruments executed by the Company are associated with its exposure to fluctuations in the Indian Rupee, which result from obligations such as payroll and rent paid in this currency.

These derivatives are recognized on the balance sheet at their fair value. Unrealized gain positions are recorded as other current assets and unrealized loss positions are recorded as other current liabilities. Changes in the fair values of the outstanding derivatives that are highly effective are recorded in other comprehensive income until net income is affected by the variability of the cash flows of the hedged transaction. Typically, hedge ineffectiveness could result when the amount of the Company’s hedge contracts exceed the Company’s forecasted or actual transactions for which the hedge contracts were designed to hedge. Once a hedge contract matures, the associated gain (loss) on the contract will remain in other comprehensive income (loss) until the underlying hedged transaction affects net income (loss), at which time the gain (loss) will be reclassified out of accumulated other comprehensive income (loss) and recorded to the expense line item being hedged. The Company only enters into derivative contracts in order to hedge foreign currency exposure, and these contracts do not exceed two years from inception. If the Company entered into a contract for speculative reasons or if the Company’s current hedge position becomes ineffective, changes in the fair values of the derivatives would be recognized in earnings in the current period.

The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives are expected to remain highly effective in future periods. For the three and six months ended June 30, 2014 and 2013 and for the year ended December 31, 2013, the Company had no hedge ineffectiveness.

During the three months ended June 30, 2014 and 2013 and for the six months ended June 30, 2014, the Company did not enter into any new hedging contracts. During the six months ended 2013, the Company entered into 12 new foreign currency forward contracts with total notional contractual values of $2.5 million.

 A summary of the aggregate contractual or notional amounts, balance sheet location and estimated fair values of derivative financial instruments designated as cash flow hedges at June 30, 2014 is as follows (in thousands):

	Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value
Type of Cash Flow Hedge				Asset		(Liability)
Foreign currency forward exchange contracts	$	8,966	Other current assets	$	662	$	—

A summary of the aggregate contractual or notional amounts, balance sheet location and estimated fair values of derivative financial instruments designated as cash flow hedges at December 31, 2013 is as follows (in thousands):

	Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value
Type of Cash Flow Hedge				Asset		(Liability)
Foreign currency forward exchange contracts	$	15,328	Other accrued liabilities	$	—	$	(169	)

There were no ineffective hedges for the three and six months ended June 30, 2014 and 2013. The following table summarizes the effect of derivative instruments on the consolidated financial statements as a (gain) loss as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Cost of sales	$	27	$	89	$	113	$	178
Research and development	45		51		187		102
Selling, general and administrative	26		38		97		76
Total	$	98	$	178	$	397	$	356

The following is a summary of changes to comprehensive income (loss) associated with the Company's hedging activities (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Beginning balance of unrealized loss on forward exchange contracts	$	(360	)	$	(657	)	$	(875	)	$	(765	)
Other comprehensive income (loss) before reclassifications	(6		)	(934		)	210			(1,004		)
Amounts reclassified from other comprehensive income (loss)	98			178			397			356
Other comprehensive income (loss)	92			(756		)	607			(648		)
Ending balance of unrealized loss on forward exchange contracts	$	(268	)	$	(1,413	)	$	(268	)	$	(1,413	)

Over the next twelve months, the Company expects to reclassify into earnings a gain of approximately $0.1 million currently recorded as other comprehensive income, as a result of the maturity of currently held forward exchange contracts.

The bank counterparties in these contracts expose the Company to credit-related losses in the event of their nonperformance. However, to mitigate that risk, the Company only contracts with counterparties who meet its minimum requirements regarding counterparty credit worthiness. In addition, the Company monitors credit ratings, credit spreads and potential downgrades prior to entering into any new hedging contracts.