Derivative Instruments

9 Months Ended

Sep. 30, 2014

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments

5. Derivative Instruments

We are exposed to foreign currency exchange rates related to our business operations. To reduce our risks related to these exposures, we utilize certain derivative instruments, namely foreign currency forward contracts. We do not use derivatives for speculative trading purposes.

We enter into foreign currency forward contracts, none of which are designated as hedging transactions for accounting purposes, to reduce our exposure to foreign currency fluctuations of certain liabilities denominated in foreign currencies. These exposures are hedged on a quarterly basis. As of September 30, 2014 and December 31, 2013, we had foreign currency forward contracts with notional amounts of €1.1 million ($1.4 million based on the exchange rate as of September 30, 2014) and €7.7 million ($10.6 million based on the exchange rate as of December 31, 2013), respectively, that were not designated as hedges. As of September 30, 2014 and December 31, 2013, we recorded a derivative liability within accrued and other liabilities of $68,000 and a derivative asset within prepaid and other current assets of $372,000, respectively, related to these foreign currency forward contracts.

We recorded unrealized losses of $113,000 and $114,000 in interest and other income (expense), net in our condensed consolidated statements of operations related to foreign currency forward contracts for the three and nine months ended September 30, 2014, respectively. During the three and nine months ended September 30, 2014, we settled foreign currency forward contracts and recognized realized losses of $75,000 and $326,000, respectively, in interest and other income (expense), net. During the three and nine months ended September 30, 2013 werecorded unrealized gains of $450,000 and $97,000, respectively, and realized gains of $45,000 and $118,000, respectively.

Our derivative financial instruments present certain market and counterparty risks. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The credit risk associated with these contracts is driven by changes in interest and currency exchange rates and, as a result, varies over time.