Derivatives

The Company enters into forward foreign exchange contracts principally to hedge intercompany receivables denominated in Euros and Japanese Yen arising from sales to its subsidiaries in Germany and Japan, respectively. The Company’s foreign exchange contracts do not qualify for hedge accounting. As a result, gains or losses related to mark-to-market adjustments on forward foreign exchange contracts are recognized as other income or expense in the Consolidated Statements of Operations during the period in which the instruments are outstanding. The fair value of forward foreign exchange contracts represents the amount the Company would receive or pay to terminate the forward exchange contracts at the reporting date and is recorded in other current assets or other current liabilities depending on whether the net amount is a gain or a loss. The Company does not utilize financial instruments for trading or other speculative purposes.

As the Company’s foreign exchange agreement is subject to a master netting arrangement, the Company’s policy is to record the fair value of outstanding foreign exchange contracts as other current assets or other current liabilities, based on whether outstanding contracts are in a net gain or loss position, respectively. See Note 8, “Fair Value Measurements,” for additional information regarding the fair value measurements of derivative instruments related to foreign currency exchange contracts.

As of September 30, 2013, the Company had one outstanding foreign exchange contract with a notional amount totaling approximately $333,000. This contract matures during 2013 and bears an exchange rate of 1.3267 U.S. Dollars per Euro. As of September 30, 2013, the fair value of foreign exchange contracts resulted in a gross and net gain position of approximately $6,500, which is recorded in other current assets.

As of December 31, 2012, the Company had one outstanding foreign exchange contract with a notional amount totaling approximately $144,000. This contract matured during 2013 and bears an exchange rate of 1.2617 U.S. Dollars per Euro. As of December 31, 2012, the fair value of foreign exchange contracts resulted in a gross and net loss position of $8,300, which is recorded in other current liabilities.

Realized and unrealized gains or losses on derivative instruments related to foreign currency exchange contracts and their location on the Company’s Condensed Consolidated Statements of Operations are as follows (in thousands):



		Three Months Ended September 30,					Nine Months Ended September 30,
Derivative Instrument	Location	2013		2012			2013			2012
Foreign exchange contracts	Gain (loss) on currency exchange	$	4	$	(23	)	$	(70	)	$	(113	)

The net gains or losses from foreign exchange contracts reflected above were largely offset by the underlying transaction net gains and losses arising from the foreign currency exposures to which these contracts relate.

The gross fair market value of derivative instruments related to foreign currency exchange contracts and their location on the Company’s Condensed Consolidated Balance Sheets are as follows as of September 30, 2013 and December 31, 2012, respectively (in thousands):



	Asset Derivatives			Liability Derivatives
Derivative Instrument	Location	September 30, 2013		Location	September 30, 2013
Foreign exchange contracts	Other current assets	$	6	Other current liabilities	$	—



	Asset Derivatives			Liability Derivatives
Derivative Instrument	Location	December 31, 2012		Location	December 31, 2012
Foreign exchange contracts	Other current assets	$	—	Other current liabilities	$	8

The Company enters into its foreign exchange contracts with a single counterparty, a financial institution. The Company manages its concentration of counterparty risk associated with foreign exchange contracts by periodically assessing relevant information such as the counterparty’s current financial statements, credit agency reports and/or credit references. To further mitigate credit risk, the Company’s Foreign Exchange Agreement with its counterparty includes a master netting arrangement, which allows netting of asset and liability positions of outstanding foreign exchange contracts if settlement were required.