NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s primary exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in foreign currency exchange rates. The Company primarily focuses on mitigating changes in cash flows resulting from sales denominated in currencies other than the U.S. dollar. The Company manages this risk primarily by using currency forward and option contracts. If the anticipated transactions are deemed probable, the resulting relationships are formally designated as cash flow hedges. The Company accounts for these contracts as cash flow hedges and tests effectiveness by determining whether changes in the expected cash flow of the derivative offset, within a range, changes in the expected cash flow of the hedged item.

At June 30, 2019, the Company’s derivative contracts had remaining maturities of less than one and one-half years. The counterparty to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure of the Company’s credit risk to the counterparty is generally limited to the aggregate unrealized loss of all contracts with that counterparty, which is $68 as of June 30, 2019. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain on all contracts. At June 30, 2019, there was no such exposure to the counterparty. The Company’s derivative counterparty has strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.

The Company held the following contracts designated as hedged instruments as of June 30, 2019 and December 31, 2018:


	June 30, 2019
	Notional	Latest
	Amount	Maturity

Foreign exchange contracts - Canadian Dollars	$14,954	August 2020
Foreign exchange contracts - Euros	€ 20,051	August 2020


	December 31, 2018
	Notional	Latest
	Amount	Maturity

Foreign exchange contracts - Canadian Dollars	$6,166	August 2019
Foreign exchange contracts - Euros	€ 10,710	February 2020

For contracts that qualify as effective hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive (loss) income and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Gains (losses) of $302 and $(5) were reclassified to sales during the three months ended June 30, 2019 and 2018, respectively, and $583 and $(330) were reclassified to sales during the six months ended June 30, 2019 and 2018, respectively.

The following table presents the balance sheet classification and fair value of derivative instruments as of June 30, 2019 and December 31, 2018:


	Classification	June 30, 2019		December 31, 2018

Derivative instruments in asset positions:
Forward exchange contracts	Prepaid and other current assets	$	61	$	729

Derivative instruments in liability positions:
Forward exchange contracts	Accounts payable and accrued liabilities	$	93	$	-
Forward exchange contracts	Other long-term liabilities	$	36	$	5