
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 June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Foreign currency transactions gain (loss)	$	110		$	(113	)	$	(498	)	$	200
Foreign currency option loss	(667		)	—			(261		)	—
Foreign currency (loss) gain, net	$	(557	)	$	(113	)	$	(759	)	$	200

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

Foreign Currency Options – During 2015, we have entered into foreign currency forward contracts as economic hedges against the continued strengthening of the U.S. Dollar (USD) against the Euro (EUR) and the Japanese Yen (JPY). As of June 30, 2015, we had two foreign currency forward contracts with six month terms. The initial amount of the outstanding contracts is $11.6 million, with a December 31, 2015 expiration date. During the three and six months ended June 30, 2015, we recognized losses of $0.7 million and $0.3 million, respectively, related to these instruments. The recognized losses are recorded in other income (expense) in the unaudited condensed consolidated statements of income related to the fair value of these currency options based upon a dealer's quotes.

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 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 EUR, British Pound (GBP), and JPY. During the six months ended June 30, 2015, translation losses were $2.8 million, which were primarily due to the weakening of the JPY and the EUR against the USD. During the six months ended June 30, 2014, translation losses were $0.5 million, which were primarily due to the weakening of the JPY against the USD, offset partially by the strengthening of the EUR and GBP against the USD. While we may experience translation gains and losses during the balance of the year ending December 31, 2015, 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, 2014	$	(150	)	$	(8,247	)	$	(8,397	)
2015 adjustments, net of tax	4			(2,786		)	(2,782		)
Balance June 30, 2015	$	(146	)	$	(11,033	)	$	(11,179	)

We do not enter into or hold derivative instruments for trading or speculative purposes. We entered into our interest rate swap 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 agreement 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.