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Derivatives and Hedging | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging | Note 15. Derivatives and Hedging In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries. As part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses designated cash flow hedges and non-designated hedges in the form of foreign currency forward contracts to mitigate the impact of foreign currency translation on transactions that are denominated primarily in Japanese Yen, British Pounds, Euros, Canadian Dollars, Australian Dollars and Korean Won. The Company accounts for its foreign currency forward contracts in accordance with ASC Topic 815, "Derivatives and Hedging ("ASC Topic 815"). ASC Topic 815 requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet, the measurement of those instruments at fair value and the recognition of changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as a designated cash flow hedge that offsets certain exposures. Certain criteria must be satisfied in order for derivative financial instruments to be classified and accounted for as a cash flow hedge. Gains and losses from the remeasurement of qualifying cash flow hedges are recorded as a component of other comprehensive income and released into earnings as a component of cost of goods sold or net sales during the period in which the hedged transaction takes place. Gains and losses on the ineffective portion of hedges (hedges that do not meet accounting requirements due to ineffectiveness) and derivatives that are not elected for hedge accounting treatment are immediately recorded in earnings as a component of other income (expense). Foreign currency forward contracts are used only to meet the Company’s objectives of minimizing variability in the Company’s operating results arising from foreign exchange rate movements. The Company does not enter into foreign currency forward contracts for speculative purposes. The Company utilizes counterparties for its derivative instruments that it believes are credit-worthy at the time the transactions are entered into and the Company closely monitors the credit ratings of these counterparties. The following table summarizes the fair value of the Company's foreign currency forward contracts as well as the location of the asset and/or liability on the consolidated condensed balance sheets at September 30, 2018 and December 31, 2017 (in thousands):
| Asset Derivatives
September 30, 2018 |  | December 31, 2017
Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as cash flow hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts | Other current assets |  | $ | 395 |  |  | Other current assets |  | $ | 168 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts | Other current assets |  | $ | 1,269 |  |  | Other current assets |  | $ | 11 |
| Liability Derivatives
September 30, 2018 |  | December 31, 2017
Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as cash flow hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts | Accounts payable and accrued expenses |  | $ | 40 |  |  | Accounts payable and accrued expenses |  | $ | 194 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts | Accounts payable and accrued expenses |  | $ | 145 |  |  | Accounts payable and accrued expenses |  | $ | 45 |
The Company's foreign currency forward contracts are subject to a master netting agreement with each respective counterparty bank and are therefore net settled at their maturity date. Although the Company has the legal right of offset under the master netting agreements, the Company has elected not to present these contracts on a net settlement amount basis, and therefore present these contracts on a gross basis on the accompanying consolidated condensed balance sheets at September 30, 2018 and December 31, 2017. Cash Flow Hedging Instruments The Company uses foreign currency forward contracts designated as qualifying cash flow hedging instruments to help mitigate the Company's foreign currency exposure on intercompany sales of inventory to its foreign subsidiaries. These contracts generally mature within 12 to 15 months from their inception. At September 30, 2018 and December 31, 2017, the notional amounts of the Company's foreign currency forward contracts designated as cash flow hedge instruments were approximately $9,462,000 and $14,210,000, respectively. The contracts outstanding as of September 30, 2018 have maturity dates through December 28, 2018. The contracts as of December 31, 2017 matured as of June 30, 2018. The reporting of gains and losses on these cash flow hedging instruments depends on whether the gains or losses are effective at offsetting changes in the cash flows of the underlying hedged items. The Company uses the critical terms method to measure the effectiveness of the foreign currency forward contracts and evaluates the effectiveness on a quarterly basis. The effective portion of the gains and losses on the hedging instruments are recorded in other comprehensive income until recognized in earnings during the period that the hedged transactions take place. Any ineffective portion of the gains and losses from the hedging instruments is recognized in earnings immediately. The Company would discontinue hedge accounting prospectively (i) if it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) if it becomes probable that the forecasted transaction being hedged by the derivative will not occur, (iv) if a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if it is determined that designation of the derivative as a hedge instrument is no longer appropriate. The Company estimates the fair value of its foreign currency forward contracts based on pricing models using current market rates. These contracts are classified under Level 2 of the fair value hierarchy (see Note 14). As of September 30, 2018, the Company recorded a net gain of $394,000 in other comprehensive income (loss) related to its hedging activities. Of this amount, net gains of $168,000 and net losses of $32,000 for the three and nine months ended September 30, 2018, respectively, were relieved from other comprehensive income and recognized in cost of goods sold for the underlying intercompany sales that were recognized. There were no ineffective hedge gains or losses recognized during the three and nine months ended September 30, 2018. Gains on forward points of $116,000 and $335,000 were recognized as incurred for the three and nine months ended September 30, 2018, respectively. Based on the current valuation, the Company expects to reclassify net gains of $407,000 from accumulated other comprehensive income into net earnings during the next 12 months. The Company recognized net losses of $1,067,000 and net gains of $249,000 in cost of goods sold for the three and nine months ended September 30, 2017, respectively. The following tables summarize the net effect of all cash flow hedges on the consolidated condensed financial statements for the nine months ended September 30, 2018 (in thousands):
|  | Gain/(Loss) Recognized in Other Comprehensive Income (Effective Portion)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives designated as cash flow hedging instruments |  | 2018 |  | 2017 |  | 2018 |  | 2017
Foreign currency forward contracts |  | $ | 256 |  |  | $ | (371 | ) |  | $ | 394 |  |  | $ | (2,673 | )
|  | Gain/(Loss) Reclassified from Other Comprehensive Income into Earnings (Effective Portion)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives designated as cash flow hedging instruments |  | 2018 |  | 2017 |  | 2018 |  | 2017
Foreign currency forward contracts |  | $ | 168 |  |  | $ | (1,067 | ) |  | $ | (32 | ) |  | $ | 249 |
Foreign Currency Forward Contracts Not Designated as Hedging Instruments The Company uses foreign currency forward contracts that are not designated as qualifying cash flow hedging instruments to mitigate certain balance sheet exposures (payables and receivables denominated in foreign currencies), as well as gains and losses resulting from the translation of the operating results of the Company’s international subsidiaries into U.S. dollars for financial reporting purposes. These contracts generally mature within 12 months from their inception. At September 30, 2018 and December 31, 2017, the notional amounts of the Company’s foreign currency forward contracts used to mitigate the exposures discussed above were approximately $32,538,000 and $4,821,000, respectively. The increase in foreign currency forward contracts reflects the general timing of when the Company enters into these contracts. The Company estimates the fair values of foreign currency forward contracts based on pricing models using current market rates, and records all derivatives on the balance sheet at fair value with changes in fair value recorded in the consolidated condensed statements of operations. The foreign currency contracts are classified under Level 2 of the fair value hierarchy (see Note 14). The following table summarizes the location of net gains and losses in the consolidated condensed statements of operations that were recognized during the three and nine months ended September 30, 2018 and 2017, respectively (in thousands):
|  | Location of Net Gain/(Loss) Recognized in Income on Derivative Instruments |  | Amount of Net Gain/(Loss) Recognized in Income on Derivative Instruments
Derivatives not designated as hedging instruments |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Foreign currency forward contracts |  | Other expense, net |  | $ | 1,802 |  |  | $ | (1,233 | ) |  | $ | 5,161 |  |  | $ | (6,469 | )
In addition, for the three and nine months ended September 30, 2018 the Company recognized net foreign currency losses related to transactions with its foreign subsidiaries of $560,000 and $3,068,000, respectively, and net foreign currency gains related to transactions with its foreign subsidiaries of $423,000 and $1,122,000, respectively, for the three and nine months ended September 30, 2017.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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