DERIVATIVE FINANCIAL INSTRUMENTS

The Company derives a portion of its revenues in foreign currencies, predominantly in Europe and Japan, as part of its ongoing business operations. In addition, a portion of its assets are held in the foreign currencies of its subsidiaries. The Company enters into foreign currency forward contracts to manage a portion of the volatility related to transactions that are denominated in foreign currencies. The Company’s foreign currency forward contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions that are independent of those exposures.

In accordance with the terms of the Credit Agreement as defined in Note 7, "Long-Term Debt Obligations", the Company had previously maintained an interest rate swap (the "Interest Rate Swap"). In July 2014, the Company amended the terms of the Credit Agreement such that the interest rate swap is no longer required. Accordingly, the Company settled the Interest Rate Swap on September 30, 2014.

The Company is exposed to the risk that the counterparties to its hedges may be unable to meet the terms of these agreements. To mitigate the risk, only contracts with carefully selected highly-rated major financial institutions are entered into. In the event of non-performance by these counterparties, the asset position carrying values of the financial instruments represent the maximum amount of loss that can be incurred; however, no losses as a result of counterparty defaults are expected. The Company does not require and is not required to pledge collateral for these financial instruments. The Company does not enter into foreign currency forward contracts for trading or speculative purposes and is not party to any leveraged derivative instruments.

As of September 30, 2014 and December 31, 2013, the total notional values of the Company’s derivative assets and liabilities were as follows (in thousands):



	September 30, 2014		December 31, 2013
Euro	$	12,374	$	21,990
Japanese Yen	3,907		4,588
British Pound	2,650		5,653
Interest rate swap	—		10,307
Total	$	18,931	$	42,538

The Company records all derivative on the accompanying Condensed Consolidated Balance sheets at fair value. The following table shows the Company’s derivatives as of September 30, 2014 and December 31, 2013 (in thousands):



	September 30, 2014		December 31, 2013		Balance Sheet Classification
Derivative assets:
Foreign exchange contracts	$	1,037	$	185	Prepaid expenses and other current assets
Derivative liabilities:
Foreign exchange contracts	—		927		Accounts payable and accrued liabilities
Interest rate swap	—		11		Other long-term liabilities

The effective portions of designated cash flow hedges are recorded in OCI until the hedged item is recognized in operations. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedges are adjusted to fair value through operations.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses associated with such derivative instruments are reclassified immediately into operations through Other (expense) income, net on the Condensed Consolidated Statements of Operations. Any subsequent changes in fair value of such derivative instruments are reflected in Other (expense) income, net unless they are re-designated as hedges of other transactions.

As of December 31, 2013, the Interest Rate Swap was not designated as a hedging relationship. All other derivative assets and liabilities were designated as hedging relationships as of September 30, 2014 and December 31, 2013.

The following table shows the effect, net of tax, of the Company’s derivative instruments on the accompanying Condensed Consolidated Statements of Operations and OCI for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Derivatives in cash flow hedging relationships:
Net loss recognized in OCI	$	(1,327	)	$	(1,363	)	$	(1,806	)	$	(638	)
Net gain (loss) reclassified from accumulated OCI into Revenue	732			(13		)	(26		)	1,068
Net (loss) gain reclassified from accumulated OCI into Other (expense) income, net	—			—			(17		)	158
Net (loss) gain recognized in Other (expense) income, net	(1		)	18			—			63
Derivatives not designated as hedging relationships:
Net gain (loss) recognized in Other (expense) income, net	2			(185		)	14			(37		)

As of September 30, 2014, the deferred amount recorded in OCI related to the Company's derivatives recorded is a net gain of $1.0 million and is expected to be recognized into earnings over the next12 months.