Derivative Instruments

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

4. DERIVATIVE INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by the use of derivative instruments is foreign currency exchange risk. The Company holds forward foreign currency exchange contracts that are not designated as any type of accounting hedge as defined by U.S. generally accepted accounting principles (although they are effectively economic hedges). The contracts are used to manage the Company’s exposure to exchange rate fluctuations on certain Company subsidiary accounts receivable, accounts payable and other obligation balances that are denominated in currencies other than the entities’ functional currencies. The forward foreign exchange contracts are recognized on the balance sheet as either an asset or a liability measured at fair value. Gains and losses arising from recording the foreign exchange contracts at fair value are reported in earnings as offsets to the losses and gains reported in earnings arising from the re-measurement of the receivable and payable balances into the applicable functional currencies. At September 30, 2014, and December 31, 2013, the Company had open forward foreign currency exchange contracts, with settlement dates of about one month, to buy or sell foreign currencies with a U.S. dollar equivalent of $21,465,000 and $20,289,000, respectively.

The Company is exposed to volatility in short-term interest rates and, at times, mitigates certain portions of that risk by using interest rate swaps, which are designated as cash flow hedges. The interest rate swaps are recognized on the balance sheet as either an asset or a liability measured at fair value. The Company held no interest rate swap contracts at September 30, 2014. At December 31, 2013, the Company held interest rate contracts with notional values of $2,268,000. Period-to-period changes in the fair values of interest rate swap contracts are recognized as gains or losses in other comprehensive income, to the extent effective. As each interest rate swap hedge contract settles, the corresponding gain or loss is reclassified out of AOCI into earnings in that settlement period.

The fair values of the derivative instruments held by the Company on September 30, 2014, and December 31, 2013, and derivative instrument gains and losses for the three and nine month periods ended September 30, 2014 and 2013, were immaterial. For amounts reclassified out of AOCI into earnings for the three and nine months periods ended September 30, 2014 and 2013, see Note 10.