Derivative Financial Instruments

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

DERIVATIVE FINANCIAL INSTRUMENTS

As a matter of policy, the Company uses derivatives for risk management purposes, and does not use derivatives for speculative purposes. From time to time, the Company may enter into foreign currency forward contracts to hedge foreign currency cash flow transactions. For cash flow hedges, a gain or loss is recorded in the consolidated statements of operations upon settlement of the hedge. All of the Company’s hedges that are designated as hedges for accounting purposes were highly effective; therefore, no notable amounts of hedge ineffectiveness were recorded in the Company’s consolidated statements of operations for the outstanding hedged balance. During each of the quarters ended September 30, 2015 and 2014, the Company recorded less than $0.1 million as a gain on the consolidated statements of operations in the other income (expense) line item upon settlement of the cash flow hedges. At September 30, 2015, the Company recorded a net deferred gain of $0.1 million related to the cash flow hedges in other current assets and other comprehensive income on the consolidated balance sheets and on the foreign currency translation adjustment and derivative transactions line of the consolidated statements of equity. The Company presents derivative instruments in the consolidated financial statements on a gross basis. The gross and net difference of derivative instruments are considered to be immaterial to the financial position presented in the financial statements.

The Company engages in regular inter-company trade activities and receives royalty payments from its wholly-owned Canadian entities, paid in Canadian dollars, rather than the Company’s functional currency, U.S. dollars. The Company utilizes foreign currency forward exchange contracts to mitigate the currency risk associated with the anticipated future payments from its Canadian entities.

In July 2013, the Company entered into an interest rate swap agreement for a notional amount of $175.0 million that was set to expire in July 2016. The notional amount of this swap mirrored the amortization of a $175.0 million portion of the Company’s $350.0 million term loan drawn from the Credit Facility. The swap required the Company to make a monthly fixed rate payment of 0.87% calculated on the amortizing $175.0 million notional amount, and provided for the Company to receive a payment based upon a variable monthly LIBOR interest rate calculated on the same notional amount. The annualized borrowing rate of the swap at September 30, 2015 was 2.87%. The receipt of the monthly LIBOR-based payment offset a variable monthly LIBOR-based interest cost on a corresponding $175.0 million portion of the Company’s term loan from the Credit Facility. This interest rate swap was used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement, and was accounted for as a cash flow hedge.

For information regarding the Company’s amended and restated credit facility and new swap agreement, both effective October 30, 2015, refer to Note 13 Subsequent Event of this report.

The following table provides a summary of the fair value amounts of our derivative instruments, all of which are Level 2 inputs as defined below (in thousands):

Designation of Derivatives	Balance Sheet Location	September 30,   2015			December 31,   2014
Derivatives Designated as Hedging Instruments:
Forward Currency Contracts	Prepaid expenses and other current assets	$	114		$	26
	Total Assets	$	114		$	26
Interest Rate Swaps	Other non-current liabilities	$	635		$	729
	Total Liabilities	$	635		$	729
Derivatives Not Designated as Hedging Instruments:
Forward Currency Contracts	Prepaid expenses and other current assets	$	188		$	62
	Total Assets	$	188		$	62
	Total Derivative Assets	$	302		$	88
	Total Derivative Liabilities	635			729
	Total Net Derivative Liability	$	(333	)	$	(641	)

FASB ASC 820, Fair Value Measurements (“FASB ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements for interim and annual reporting periods. The guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1 – defined as quoted prices in active markets for identical instruments; Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. In accordance with FASB ASC 820, the Company determined that the instruments summarized below are derived from significant observable inputs, referred to as Level 2 inputs.

The following table represents assets and liabilities measured at fair value on a recurring basis and the basis for that measurement at September 30, 2015 and December 31, 2014 (in thousands):

	Total Fair Value at September 30, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Forward Currency Contracts	$	302	$	—	$	302	$	—
Total	$	302	$	—	$	302	$	—
Liabilities:
Interest Rate Swap	$	635	$	—	$	635	$	—
Total	$	635	$	—	$	635	$	—

	Total Fair Value at December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Forward Currency Contracts	$	88	$	—	$	88	$	—
Total	$	88	$	—	$	88	$	—
Liabilities:
Interest Rate Swap	$	729	$	—	$	729	$	—
Total	$	729	$	—	$	729	$	—

The following table summarizes the Company’s derivative positions at September 30, 2015:

	Position	Notional Amount		Weighted Average Remaining Maturity In Years	Average Exchange Rate
Canadian Dollar/USD	Sell	$	1,039,501	0.1	1.33
USD/ERUO	Sell	$	720,162	0.3	1.12
Australian Dollar/USD	Sell	$	2,519,435	0.1	0.70
USD/British Pound	Sell	£	1,900,000	0.1	1.51
EURO/British Pound	Sell	£	8,000,000	0.2	0.74
Interest Rate Swap		$	149,843,750	0.8

The Company had no transfers between Level 1, 2 or 3 inputs during the nine months endedSeptember 30, 2015. Certain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments including cash and cash equivalents and short-term borrowings, including notes payable, are recorded at cost, which approximates fair value, which are based on Level 2 inputs as previously defined.