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Derivative Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2013
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities
5. Derivative Instruments and Hedging Activities

The Company conducts business in various foreign countries, and, from time to time, settles transactions in foreign currencies. The Company has established a program that utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures, typically arising from sales contracts denominated in Canadian currency. These derivative contracts are consistent with the Company’s strategy for financial risk management. The Company uses cash flow hedge accounting treatment for qualifying foreign currency forward contracts. The Company initially reports any gain or loss on the effective portion of a cash flow hedge as a component of other comprehensive income and subsequently reclassifies any gain or loss to net sales when the hedged revenues are recorded. Instruments that do not qualify for cash flow hedge accounting treatment are re-measured at fair value on each balance sheet date and resulting gains and losses are recognized in net income. As of September 30, 2013 and December 31, 2012, the total notional amount of the derivative contracts not designated as hedges was $0.6 million (CAD$0.6 million) and $2.7 million (CAD$2.6 million), respectively. As of September 30, 2013 and December 31, 2012, the total notional amount of the derivative contracts designated as hedges was $5.6 million (CAD$5.8 million) and $12.4 million (CAD$12.3 million), respectively.

For each derivative contract for which the Company seeks to obtain cash flow hedge accounting treatment, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific firm commitments or forecasted transactions and designating the derivatives as cash flow hedges. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative contracts that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of these hedged items is reflected in other comprehensive income. If it is determined that a derivative contract is not highly effective, or that it has ceased to be a highly effective hedge, the Company will be required to discontinue hedge accounting with respect to that derivative contract prospectively.

 

The balance sheet location and the fair values of derivative instruments are (in thousands):

 

     September 30,      December 31,  
Foreign Currency Forward Contracts    2013      2012  

Assets

      

Derivatives designated as hedging instruments

      

Prepaid expenses and other

    $ 7       $ —     

Derivatives not designated as hedging instruments

      

Prepaid expenses and other

      25         —     
  

 

 

     

 

 

  

Total assets

    $ 32       $ —     
  

 

 

     

 

 

  

Liabilities

      

Derivatives designated as hedging instruments

      

Accrued liabilities

    $ —         $ 197   

Derivatives not designated as hedging instruments

      

Accrued liabilities

      44         156   
  

 

 

     

 

 

  

Total liabilities

    $ 44       $ 353   
  

 

 

     

 

 

  

All of the Company’s foreign currency forward contracts are subject to an enforceable master netting arrangement. The Company presents its foreign currency forward contract assets and liabilities within the Statement of Financial Position at their gross fair values.

 

     (i)      (ii)      (iii) = (i) - (ii)      (iv)      (v) = (iii) - (iv)  
    

 

     

 

     

 

      Gross Amounts Not Offset in
the Statement of Financial Position		     

 

  
     Gross Amount of
Recognized Assets		      Gross Amount
Offset in the
Statement of
Financial Position		      Net Amount of
Assets Presented
in the Statement of
Financial Position		      Financial
Instruments		      Cash Collateral
Received		      Net Amount  

Derivative Assets

                  

September 30, 2013

    $ 32       $ —         $ 32       $ 32       $ —         $ —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

December 31, 2012

    $ —         $ —         $ —         $ —         $ —         $ —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

    (i)     (ii)     (iii) = (i) - (ii)     (iv)     (v) = (iii) - (iv)  
   

 

    

 

    

 

     Gross Amounts Not Offset in
the Statement of Financial Position		    

 

  
    Gross Amount of
Recognized Liabilities		     Gross Amount
Offset in the
Statement of
Financial Position		     Net Amount of
Liabilities Presented
in the Statement of
Financial Position		     Financial
Instruments		     Cash Collateral
Received		     Net Amount  

Derivative Liabilities

            

September 30, 2013

   $ 44      $ —        $ 44      $ 44      $ —        $ —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

December 31, 2012

   $ 353      $ —        $ 353      $ 353      $ —        $ —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

The amounts of the gains and losses related to the Company’s derivative contracts designated as hedging instruments for the three and nine months ended September 30, 2013 and September 30, 2012 are (in thousands):

 

     Pretax Gain (Loss) Recognized in Comprehensive
Income on Effective Portion of Derivative		  
     Three months ended
September 30,		     Nine months ended
September 30,		  
     2013     2012     2013      2012  

Derivatives in Cash Flow Hedging Relationships

          

Foreign currency forward contracts

    $ (32 )    $ (300 )   $ 279       $ (352 ) 
  

 

 

    

 

 

    

 

 

     

 

 

  

 

          Pretax Gain (Loss) Recognized in Income on Effective
Portion of Derivative as a Result of Reclassification from
Accumulated Other Comprehensive Loss		  
          Three months ended
September 30,		     Nine months ended
September 30,		  
    

Location

    2013      2012     2013      2012  

Derivatives in Cash Flow Hedging Relationships

              

Foreign currency forward contracts

    Net sales    $ 66       $ (27 )   $ 131       $ (19 ) 
     

 

 

     

 

 

    

 

 

     

 

 

  

 

          Gain (Loss) on Ineffective Portion of Derivative and Amount
Excluded from Effectiveness Testing Recognized in Income		  
          Three months ended
September 30,		     Nine months ended
September 30,		  
    

Location

    2013      2012     2013     2012  

Derivatives in Cash Flow Hedging Relationships

             

Foreign currency forward contracts

    Net sales    $ 3       $ (44 )   $ (50 )    $ (138 ) 
     

 

 

     

 

 

    

 

 

    

 

 

  

At September 30, 2013, there is $14,000 of unrealized pretax gain on outstanding derivatives accumulated in other comprehensive loss, all of which is expected to be reclassified to net sales within the next 12 months as a result of underlying hedged transactions also being recorded in net sales.

For both the three and nine months ended September 30, 2013, the gains and losses from our derivative contracts not designated as hedging instruments recognized in net sales were a loss of $0.1 million. For the three and nine months ended September 30, 2012, the losses from our derivative contracts not designated as hedging instruments recognized in net sales were a loss of $0.3 million and a loss of $0.4 million, respectively.