
5.	HEDGING ACTIVITIES AND FOREIGN CURRENCY TRANSLATION

Foreign Currency Transactions

The following table provides information on the components of our foreign currency activities recognized in the unaudited condensed consolidated statements of income:




(in thousands)	Three Months Ended March 31,
	2014		2013
Foreign currency transactions gain (loss)	$	313	$	(462	)

Foreign Currency Transactions – Gains and losses resulting from our transactions and our subsidiaries’ transactions, which are made in currencies different from their own, are included in income as they occur and as other income (expense) in the condensed consolidated statements of income.

Foreign Currency Translation

We are exposed to market risk related to changes in foreign currency exchange rates. The functional currency of substantially all of our international subsidiaries is their local currency. Transactions are translated into U.S. Dollars (USD), and exchange gains and losses arising from translation are recognized in “Other comprehensive income (loss)”. Fluctuations in exchange rates affect our financial position and results of operations. The majority of our foreign currency exposure is to the Euro (EUR), British Pound (GBP), and Japanese Yen (JPY). During the three months ended March 31, 2014, translation losses were $0.3 million, which were primarily due to the weakening of the JPY, offset partially by the strengthening of the EUR against the USD. During the three months ended March 31, 2013, translation losses were $1.7 million, which were primarily due to the weakening of the EUR. We may continue to experience translation gains and losses during the year ending December 31, 2014; however, these gains and losses are not expected to have a material effect on our financial position, results of operations, or cash flows.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) is composed of unrealized gains or losses from the change in fair value of certain derivative instruments that qualify for hedge accounting, and for foreign currency translation effects. The following table provides information on the components of our other comprehensive loss:




(in thousands)	Cash Flow Hedge			Foreign Currency Translation			Total
Balance December 31, 2013	$	(284	)	$	(3,618	)	$	(3,902	)
2014 adjustments, net of tax	60			(292		)	(232		)
Balance March 31, 2014	$	(224	)	$	(3,910	)	$	(4,134	)

We do not enter into or hold derivative instruments for trading or speculative purposes. We entered into our interest rate swaps to eliminate variability in future cash flows by converting LIBOR-based variable-rate interest payments into fixed-rate interest payments. The fair value of our interest rate swap agreements is based on dealer quotes, and the change in fair value is recorded as accumulated other comprehensive loss in the consolidated balance sheets. We do not expect the change in fair value of our interest rate swap to have a material impact on our results of operations, financial position or cash flows.