Derivative Financial Instruments

6 Months Ended

Jun. 30, 2014

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS

Our global operations give rise to exposure to market risks from changes in foreign currency exchange (“FX”) rates. We use derivative financial instruments, primarily FX forward contracts, to reduce the impact of changes in FX rates on our operating results. We use these instruments primarily to hedge our exposure associated with revenues or costs on our long-term contracts that are denominated in currencies other than our operating entities’ functional currencies. We do not hold or issue derivative financial instruments for trading or other speculative purposes.

We enter into derivative financial instruments primarily as hedges of certain firm purchase and sale commitments denominated in foreign currencies. We record these contracts at fair value on our condensed consolidated balance sheets. Depending on the hedge designation at the inception of the contract, the related gains and losses on these contracts are either deferred in stockholders’ equity as a component of accumulated other comprehensive income until the hedged item is recognized in earnings, or offset against the change in fair value of the hedged firm commitment through earnings. Any ineffective portion of a derivative’s change in fair value and any portion excluded from the assessment of effectiveness are immediately recognized in other – net on our condensed consolidated statements of income. The gain or loss on a derivative instrument not designated as a hedging instrument is also immediately recognized in earnings. Gains and losses on derivative financial instruments that require immediate recognition are included as a component of other– net in our condensed consolidated statements of income.

We have designated all of our FX forward contracts that qualify for hedge accounting as cash flow hedges. The hedged risk is the risk of changes in functional-currency-equivalent cash flows attributable to changes in FX spot rates of forecasted transactions related to long-term contracts. We exclude from our assessment of effectiveness the portion of the fair value of the forward contracts attributable to the difference between FX spot rates and FX forward rates. At June 30, 2014, we had deferred approximately $0.4 million of net gains on these derivative financial instruments in accumulated other comprehensive income. Assuming market conditions continue, we expect to recognize substantially all of this amount in the next twelve months.

At June 30, 2014, our derivative financial instruments consisted of FX forward contracts. The notional value of our FX forward contracts totaled $71.6 million at June 30, 2014, with maturities extending to December 2016. These instruments consist primarily of contracts to purchase or sell Canadian Dollars. We are exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We attempt to mitigate this risk by using major financial institutions with high credit ratings. The counterparties to all of our FX forward contracts are financial institutions included in our credit facility. Our hedge counterparties have the benefit of the same collateral arrangements and covenants as described under our credit facility.

The following tables summarize our derivative financial instruments at June 30, 2014 and December 31, 2013:

	Asset and Liability Derivatives
	June 30,		December 31,
	2014		2013
	(In thousands)
Derivatives Designated as Hedges:
FX Forward Contracts:
Location
Accounts receivable-other	$	73	$	1,139
Other assets	$	57	$	94
Accounts payable	$	398	$	581
Other liabilities	$	203	$	603
Derivatives Not Designated as Hedges:
FX Forward Contracts:
Location
Accounts receivable-other	$	614	$	464
Other assets	$	9	$	50
Accounts payable	$	26	$	10
Other liabilities	$	5	$	—

The effects of derivatives on our financial statements are outlined below:

	The Effects of Derivative Instruments on our Financial Statements
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	(In thousands)
Derivatives Designated as Hedges:
Cash Flow Hedges:
FX Forward Contracts:
Amount of gain (loss) recognized in other comprehensive income	$	1,122		$	(2,212	)	$	(192	)	$	(5,210	)
Gain (loss) reclassified from accumulated other comprehensive income into earnings: effective portion
Location
Revenues	$	(240	)	$	(621	)	$	(77	)	$	(1,152	)
Cost of operations	$	1,153		$	(1,117	)	$	127		$	(2,006	)
Other-net	$	—		$	101		$	10		$	116
Gain recognized in income: portion excluded from effectiveness testing
Location
Other-net	$	211		$	161		$	278		$	353
Derivatives Not Designated as Hedges:
FX Forward Contracts:
Gain (loss) recognized in income
Location
Other-net	$	(280	)	$	93		$	155		$	(583	)