Derivative Financial Instruments

12 Months Ended

Dec. 31, 2013

Derivative Financial Instruments

Derivative Financial Instruments

12. Derivative Financial Instruments

        We utilize foreign currency forward contracts to mitigate the impact of currency fluctuations on monetary assets and liabilities denominated in currencies other than the functional currency as well as on forecasted transactions denominated in currencies other than the functional currency of our subsidiary with the exposure. Generally these contracts have a term of less than one year and are considered derivative instruments. The valuations of these derivatives are measured at fair value using internal models based on observable market inputs such as spot and forward rates, and are recorded as either assets or liabilities. We use a group of highly rated domestic and international banks in order to mitigate counterparty risk on our forward contracts.

        For contracts that are designated and qualify as cash flow hedges, the unrealized gains or losses on the contracts are reported as a component of other comprehensive income ("OCI") and are reclassified from accumulated other comprehensive income ("AOCI") into earnings on the Consolidated Statements of Operations when the hedged transaction affects earnings. We affect the sales line where the underlying exposure is a sales order and cost of sales line where the underlying exposure is a purchase order. As of December 31, 2013, we expect an immaterial amount of the unrealized gain or loss on these contracts to be reclassified from AOCI into earnings over the next 12 months. During 2013, we reclassified an immaterial amount from AOCI to the Consolidated Statements of Operations to sales and cost of goods sold, respectively. During 2012, we reclassified $0.2 million and $0.7 million from AOCI to the Consolidated Statement of Operations as an increase in sales and cost of goods sold, respectively. The amount reclassified from AOCI to sales and cost of goods sold for the year ended December 31, 2011, was not material. For contracts that are not designated as hedges, the gains and losses on the contracts are recognized in current earnings as other (income) expense.

        Notional amounts of the derivative financial instruments not qualifying or designated as hedges were $45.5 million at December 31, 2013 and $60.5 million at December 31, 2012. The net loss realized related to this type of derivative financial instruments was $1.8 million for the year ended December 31, 2013 and immaterial for the year ended December 31, 2012. We realized losses of $1.9 million related to this type of derivative financial instruments in 2011. The gains and losses were recorded in other expense (income) on the Consolidated Statement of Operations.

        Derivative financial instruments qualifying and designated as hedges are as follows:

	December 31, 2013				December 31, 2012
	Notional Amount		Unrealized Loss		Notional Amount		Unrealized Loss
	(in thousands)				(in thousands)
Foreign currency forward contracts	$	37,040	$	234	$	49,750	$	22