5)	Derivatives

The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. The Company operates internationally and, in the normal course of business, is exposed to fluctuations in interest rates and foreign exchange rates. These fluctuations can increase the costs of financing, investing and operating the business. The Company has used derivative instruments, such as forward contracts, to manage certain foreign currency exposure.

By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions and no collateral is required. The Company has policies to monitor the credit risk of these counterparties. While there can be no assurance, the Company does not anticipate any material non-performance by any of these counterparties.

The Company hedges a portion of its forecasted foreign currency denominated intercompany sales of inventory, over a maximum period of eighteen months, using forward foreign exchange contracts accounted for as cash-flow hedges related to Japanese, South Korean, British and Euro currencies. To the extent these derivatives are effective in off-setting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria, changes in the derivatives’ fair value are not included in current earnings but are included in other comprehensive income (“OCI”) in stockholders’ equity. These changes in fair value will subsequently be reclassified into earnings, as applicable, when the forecasted transaction occurs. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period it occurs. The cash flows resulting from forward exchange contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. The Company does not enter into derivative instruments for trading or speculative purposes.

To the extent the hedge accounting criteria is not met, the related foreign currency forward contracts are considered as economic hedges and changes in the fair value of these contracts are recorded immediately in earnings in the period in which they occur. These include hedges that are used to reduce exchange rate risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (i.e., payables, receivables) and other economic hedges where the hedge accounting criteria were not met.

As of September 30, 2013 and December 31, 2012, the Company had outstanding forward foreign exchange contracts with gross notional values of $36,529 and $41,448, respectively. The following tables provide a summary of the primary net hedging positions and corresponding fair values held as of September 30, 2013 and December 31, 2012:


	September 30, 2013
Currency Hedged (Buy/Sell)	Gross Notional Value		F air Value⁽¹⁾ Asset/(Liability)
U.S. Dollar/Japanese Yen	$	11,763	$	746
U.S. Dollar/South Korean Won		18,081		(636	)
U.S. Dollar/Euro		4,241		(76	)
U.S. Dollar/U.K. Pound Sterling		2,444		(37	)

Total	$	36,529	$	(3	)

(1)	Represents the fair value of the net asset / (liability) amount included in the consolidated balance sheets.


	December 31, 2012
Currency Hedged (Buy/Sell)	Gross Notional Value		Fair Value⁽¹⁾ Asset/(Liability)
U.S. Dollar/Japanese Yen	$	13,992	$	961
U.S. Dollar/South Korean Won		19,374		(1,180	)
U.S. Dollar/Euro		4,217		(57	)
U.S. Dollar/U.K. Pound Sterling		3,865		(73	)

Total	$	41,448	$	(349	)

(1)	Represents the fair value of the net asset / (liability) amount included in the consolidated balance sheets.

The following table provides a summary of the fair value amounts of the Company’s derivative instruments:


Derivatives Designated as Hedging Instruments	September 30, 2013			December 31, 2012
Derivative assets:
Forward exchange contracts	$	746		$	961
Derivative liabilities:
Forward exchange contracts		(749	)		(1,310	)

Total net derivative (liability) designated as hedging instruments⁽¹⁾	$	(3	)	$	(349	)

(1)

The derivative assets of $746 and derivative liabilities of $749 are classified in other current assets and other current liabilities, respectively, in the consolidated balance sheet as of September 30, 2013. The derivative assets of $961 and derivative liabilities of $1,310 are classified in other current assets and other current liabilities, respectively, in the consolidated balance sheet as of December 31, 2012. These foreign exchange contracts are subject to a master netting agreement with one financial institution. However, the Company has elected to record these contracts on a gross basis in the balance sheet.

The net amount of existing losses as of September 30, 2013 that are expected to be reclassified from accumulated OCI into earnings within the next twelve months is $3.

The following table provides a summary of the gains (losses) on derivatives designated as hedging instruments:


	Three Months Ended September 30,						Nine Months Ended September 30,
Derivatives Designated as Cash Flow Hedging Relationships	2013			2012			2013			2012
Forward exchange contracts:
Net (loss) recognized in OCI⁽¹⁾	$	(1,837	)	$	(581	)	$	(315	)	$	(312	)
Net gain (loss) reclassified from OCI into income⁽²⁾	$	297		$	(739	)	$	1,102		$	(1,178	)
Net (loss) recognized in expense⁽³⁾	$	—		$	(66	)	$	—		$	(66	)

(1)	Net change in the fair value of the effective portion classified in OCI.

(2)	Effective portion classified in cost of products for the three and nine months ended September 30, 2013 and selling, general and administrative expenses for the three and nine months ended September 30, 2012.

(3)	Ineffective portion amount excluded from effectiveness testing which is recorded in selling, general and administrative expenses for the three and nine months ended September 30, 2012.

The following table provides a summary of gains on derivatives not designated as hedging instruments:


	Three Months Ended September 30,						Nine Months Ended September 30,
Derivatives Not Designated as Hedging Instruments	2013			2012			2013		2012
Forward exchange contracts:
Net (loss) gain recognized in income⁽¹⁾	$	(514	)	$	(552	)	$	141	$	(552	)

(1)	The Company has a forward foreign exchange contract that hedges an intercompany loan with its Korean subsidiary. This hedge does not qualify for hedge accounting and any gains (losses) are recorded immediately in selling, general and administrative expenses.