DERIVATIVES AND HEDGING ACTIVITIES

Hedge Accounting and Hedging Program

During the second quarter of 2017, we implemented a cash flow hedging program. The purpose of our hedging program is to manage the foreign currency exchange rate risk on forecasted expenses denominated in currencies other than the functional currency of the operating unit. We do not issue derivatives for trading or speculative purposes.

In May 2017, we entered into a two-year cross-currency par forward contract to hedge a portion of our Mexico forecasted expenses denominated in Pesos ("MXN"). To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The par forward contract is designated and qualifies as a cash flow hedge. Our derivative instrument is recorded at fair value on the Consolidated Balance Sheets and is classified based on the instrument's maturity date. We record changes in the intrinsic value of the effective portion of the gain or loss on the derivative instrument as a component of Other Comprehensive (Loss) Income and we reclassify that gain or loss into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. Any gain or loss on the derivative instrument due to ineffectiveness of the hedge will be recognized in the Consolidated Statements of Operations during the current period. The total notional amount of our outstanding derivative as of December 31, 2017 was approximately 510.3 million MXN. The term of our currency forward contract is May 1, 2017 to May 1, 2019. The derivative instrument matures in equal monthly amounts at a fixed forward rate of 20.01MXN/USD over the term of the two-year contract.

The following table presents the fair values of our derivative instrument included within the Consolidated Balance Sheet as of December 31, 2017 (in thousands):



	Derivatives
	Consolidated Balance Sheet Location	December 31, 2017
Derivatives designated as cash flow hedging instruments
Foreign exchange forward contract:	Accrued liabilities	$	187
	Other long-term liabilities	402
Total derivatives designated as cash flow hedging instruments		$	589

The following table presents the amounts affecting the Consolidated Statements of Operations for the year ended December 31, 2017 (in thousands):



	Line Item in the Consolidated Statements of Operations	Year Ended December 31, 2017
Derivatives designated as cash flow hedging instruments
Foreign exchange forward contracts	Cost of goods sold	$	885

We recognized the following gains on our foreign exchange contract designated as a cash flow hedge (in thousands):



	Amount of Gain Recognized in Other Comprehensive Income on Derivatives		Amount of Gain Reclassified From Accumulated Other Comprehensive Income into Income
	Year Ended December 31, 2017		Location of Gain Reclassified From Accumulated Other Comprehensive Income into Income	Year Ended December 31, 2017
Derivatives designated as cash flow hedges:
Foreign exchange forward contract	$	296	Cost of goods sold	$	885
Total derivatives designated as cash flow hedging instruments	$	296		$	885

As of December 31, 2017, we expect approximately $0.2 million of the deferred losses on the outstanding derivatives in accumulated other comprehensive income to be reclassified to net income during the next 12 months concurrent with the underlying hedged transactions also being reported in net income.