Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

v3.10.0.1
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 6 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
 
The Company is exposed to certain risks arising from both its business operations and economic conditions. To manage this risk, the Company enters into derivative financial instruments from time to time. Certain of the Company’s foreign operations expose the Company to fluctuations of foreign interest rates and exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments from time to time to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. dollar.
Hedges of Foreign Exchange Risk
 
The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. dollar. The Company uses foreign currency derivatives, specifically vanilla foreign currency forwards, to manage its exposure to fluctuations in the USD-CAD and AUD-USD exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. dollars for their fair value at or close to their settlement date.
 
The Company does not currently designate any of these foreign exchange forwards under hedge accounting, but rather reflects the changes in fair value immediately in earnings. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign exchange rates. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and were equal to a gain of $0.2 million for the quarter ended June 30, 2018 and a net loss of $0.3 million for the same quarter in the prior year. Changes in the fair value of derivatives for the six months ended June 30, 2018 and during the same period in 2017 were equal to a gain of $0.3 million and a net loss of $0.2 million, respectively. As of June 30, 2018, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (in thousands except for number of instruments):
Non-Designated Derivative Summary
 
Number of
Instruments
 
 Sell Notional
 
 Buy Notional
FX Forward Contracts
 

 
 

 
 

Sell AUD/Buy USD Fwd Contract
6

 
$
750

 
$
564

Sell CAD/Buy USD Fwd Contract
10

 
$
7,250

 
$
5,637

Total
16

 
$
—

 
$
6,201


 
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of June 30, 2018 and December 31, 2017 (in thousands):
 
Tabular Disclosure of Fair Values of Derivative Instruments
 
Derivatives Asset
 
Derivative Liabilities
 
 
 
Fair Value as of:
 
 
 
June 30, 2018
 
December 31, 2017
 
June 30, 2018
 
December 31, 2017
Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
FX Forward Contracts
 
 
 
 
 
 
 
Balance Sheet Location
 
 
 
 
 
 
 
 
Other Assets
 
Other Assets
 
Other Current
Liabilities
 
Other Current
Liabilities
Sell AUD/Buy USD Fwd Contract
$
10

 
$
—

 
$
(2
)
 
$
(9
)
Sell CAD/Buy USD Fwd Contract
$
112

 
$
—

 
$
(8
)
 
$
(61
)
Total
$
122

 
$
—

 
$
(10
)
 
$
(70
)


The table below presents the effect of the Company’s derivative financial instruments on the income statement as of June 30, 2018 and June 30, 2017 (in thousands):
 
Effect of Derivative Instruments on the Income Statement for Derivatives Not Designated
as Hedging Instruments for the Three and Six Months Ended June 30, 2018 and 2017
Derivatives Not Designated as
Hedging Instruments
Location of Gain or
(Loss) Recognized in Income
 
Amount of Gain or
(Loss) Recognized
in Income
Three Months Ended
June 30,
Amount of Gain or
(Loss) Recognized
in Income
Six Months Ended
June 30,
 
 
 
2018
 
2017
2018
 
2017
Sell AUD/Buy USD Fwd Contract
Other inc/(exp)
 
$
27

 
$
(15
)
$
38

 
$
(23
)
Sell CAD/Buy USD Fwd Contract
Other inc/(exp)
 
123

 
(251
)
259

 
(213
)
Total
 
 
$
150

 
$
(266
)
$
297

 
$
(236
)


The table below presents the total fair value classification within the fair value hierarchy for the complete portfolio of derivative transactions at June 30, 2018 (in thousands):
 
Recurring Fair Value Measurements
 
Quoted Prices in Active
 
 
 
 
 
 
 
 
 
 
 
 
 
Markets for Identical
Assets and Liabilities
 
Significant Other
Observable Inputs
 
Significant
Unobservable Inputs
 
 
 
 
 
(Level 1)
June 30,
 
(Level 2)
June 30,
 
(Level 3)
June 30,
 
Total Fair Value at
As of
June 30,
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivative Financial Instruments
$
—

 
$
—

 
$
122

 
$
—

 
$
—

 
$
—

 
$
122

 
$
—

Liabilities
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivative Financial Instruments
$
—

 
$
—

 
$
(10
)
 
$
(77
)
 
$
—

 
$
—

 
$
(10
)
 
$
(77
)

 
As of June 30, 2018, the fair value of derivatives in a net asset position was $122,000 inclusive of counterparty credit risk. As of the balance sheet date, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at June 30, 2018, it could have been required to settle its obligations under the agreements at their termination value of $122,000.