Derivative Instruments and Hedging

We operate manufacturing and service facilities in Mexico, Germany, and Italy and we purchase materials and pay our employees at those facilities in pesos and euros, and as such, we are potentially exposed to adverse as well as beneficial movements in currency exchange rates. We enter into foreign exchange forward contracts to minimize the impact of currency exchange rate fluctuations on these peso and euro denominated expenses. These contracts have durations of up to twelve months and are designated as cash flow hedges. The counterparties to these foreign exchange forward contracts are creditworthy financial institutions; therefore, we do not consider the risk of counterparty nonperformance to be material. The notional amount of our outstanding contracts that are designated as cash flow hedges was $24.1 million and $18.6 million at December 31, 2017 and December 31, 2016, respectively. The fair value of these contracts is recorded on the balance sheet within prepaid expenses and other current assets or accrued expenses depending on the gain (loss) position. The fair value of these contracts was an asset of less than $0.1 million at December 31, 2017 and a liability of $1.8 million at December 31, 2016, respectively. The cash flows related to our currency exchange contracts are classified as operating cash flows, which is consistent with the cash flow treatment of the underlying items being hedged.

Gains or losses related to hedge ineffectiveness recognized in earnings were not material during 2017, 2016 or 2015. Given the short-term nature of our contracts, any gains or losses recorded within accumulated other comprehensive income (loss) will be recognized in earnings within the next twelve months.

The following table presents the effect of these contracts designated as cash flow hedges on our consolidated financial statements (in thousands):



	Gain (Loss) Recognized in OCI (Effective Portion)			Gain (Loss) Reclassified from OCI into Income (Effective Portion)			Classification within the Condensed Consolidated Statement of Comprehensive Loss
Year Ended December 31, 2017
Foreign exchange forward contracts	$	3,433		$	1,163		Cost of revenues
Year Ended December 31, 2016
Foreign exchange forward contracts	$	(2,712	)	$	(1,910	)	Cost of revenues
Year Ended December 31, 2015
Foreign exchange forward contracts	$	(2,140	)	$	(1,745	)	Cost of revenues