Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments

v2.4.0.8
Derivative Financial Instruments
9 Months Ended
Sep. 30, 2014
Derivative Financial Instruments [Abstract]  
Derivative Financial Instruments

NOTE 8.  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 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.

 

At September 30, 2014, the Company’s derivative contracts had a remaining maturity of one and a half years or less.  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.  At September 30, 2014 there was no such exposure to the counterparty.  The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of $2,258 on all contracts at September 30, 2014.  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 September 30, 2014 and December 31, 2013:

 

 

 

 

 

 

 

 

 

September 30, 2014

 

 

Notional

 

Latest

 

 

Amount

 

Maturity

 

 

 

 

 

Foreign exchange contracts - Japanese Yen

 

300,109

 

February-15

Foreign exchange contracts - Canadian Dollars

 

15,938

 

February-16

Foreign exchange contracts - British Pounds

 

3,618

 

February-16

Foreign exchange contracts - Euros

 

32,031

 

February-16

Foreign exchange contracts - Swiss Francs

 

40,183

 

February-16

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

Notional

 

Latest

 

 

Amount

 

Maturity

 

 

 

 

 

Foreign exchange contracts - Canadian Dollars

 

1,062

 

February-14

Foreign exchange contracts - Norwegian Kroner

 

9,253

 

August-14

Foreign exchange contracts - British Pounds

 

2,626

 

February-15

Foreign exchange contracts - Euros

 

26,806

 

February-15

Foreign exchange contracts - Swiss Francs

 

30,698

 

February-15

Foreign exchange contracts - Japanese Yen

 

792,696

 

February-15

 

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.  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 income and reclassified to sales in the period the underlying hedge item is recognized in earnings.  Gains (losses) of $284 and $337 were reclassified to sales during the three months ended September 30, 2014 and 2013, respectively, and $(337) and $832 were reclassified to sales during the nine months ended September 30, 2014 and 2013, respectively.

 

As of December 31, 2013, the Company reported an accumulated derivative instrument loss of $611.  During the nine months ended September 30, 2014, the Company reported an adjustment to accumulated other comprehensive income of $1,783, as a result of the change in fair value of these contracts and reclassifications to sales, resulting in an accumulated derivative instrument gain of $1,172 reported as of September 30, 2014.

 

The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 2014 and December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

Classification

 

September 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Derivative instruments in asset positions:

 

 

 

 

 

 

 

 

Forward exchange contracts

 

Prepaid and other current assets

 

$

1,849 

 

$

682 

Forward exchange contracts

 

Other long-term assets

 

$

697 

 

$

76 

 

 

 

 

 

 

 

 

 

Derivative instruments in liability positions:

 

 

 

 

 

 

 

 

Forward exchange contracts

 

Accounts payable and accrued liabilities

 

$

240 

 

$

1,492 

Forward exchange contracts

 

Other long-term liabilities

 

$

48 

 

$

230