Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
3 Months Ended
Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 12.          DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

Risk Management Objective of Using Derivatives

 

The Company is exposed to certain risks arising from both its business operations and economic conditions. To manage this risk, the Company enters into derivative financial instruments from time to time. Certain of the Company’s foreign operations expose the Company to fluctuations of foreign interest rates and exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments from time to time to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. dollar.

Hedges of Foreign Exchange Risk

 

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. dollar. The Company uses foreign currency derivatives, specifically vanilla foreign currency forwards, to manage its exposure to fluctuations in the USD-CAD and AUD-USD exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. dollars for their fair value at or close to their settlement date.

 

The Company does not currently designate any of these foreign exchange forwards under hedge accounting, but rather reflects the changes in fair value immediately in earnings. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign exchange rates. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and were equal to a net loss of $0.1 million for the quarter ended March 31, 2019 and a net gain of $0.1 million for the same quarter in the prior year. As of March 31, 2019, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (in thousands except for number of instruments):

 

Non-Designated Derivative Summary  
FX Forward Contracts   Number of
Instruments
    Sell Notional     Buy Notional  
Sell AUD/Buy USD Fwd Contract     4     $ 550     $ 395  
Sell CAD/Buy USD Fwd Contract     6     $ 5,000     $ 3,760  
Total     10             $ 4,155  

 

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of March 31, 2019 and December 31, 2018 (in thousands):

 

    Tabular Disclosure of Fair Values of Derivative Instruments  
    Derivatives Asset     Derivative Liabilities  
          Fair Value as of:        
Derivatives Not Designated as
Hedging Instruments
      March 31,
2019
    December 31,
2018
    March 31,
2019
    December 31,
2018
 
FX Forward Contracts                        
Balance Sheet Location   Other Assets     Other Assets     Other Current
Liabilities
    Other Current
Liabilities
 
Sell AUD/Buy USD Fwd Contract   $ 6     $ 18     $ (2 )   $ (1 )
Sell CAD/Buy USD Fwd Contract     47       121       (41 )     (4 )
Total   $ 53     $ 139     $ (43 )   $ (5 )

 

The table below presents the effect of the Company’s derivative financial instruments on the income statement as of March 31, 2019 and March 31, 2018 (in thousands):          

 

Effect of Derivative Instruments on the Income Statement for Derivatives Not Designated

as Hedging Instruments for the Three Months Ended March 31, 2019 and 2018

 

        Amount of Gain or (Loss)  
Derivatives Not Designated   Location of Gain or (Loss)   Recognized in Income  
as Hedging Instruments      Recognized in Income   Three Months Ended March  31  
        2019     2018  
Sell AUD/Buy USD Fwd Contract   Other inc/(exp)   $ (4 )   $ 11  
Sell CAD/Buy USD Fwd Contract   Other inc/(exp)     (87 )     136  
Total       $ (91 )   $ 147  

 

The table below presents the total fair value classification within the fair value hierarchy for the complete portfolio of derivative transactions at March 31, 2019 (in thousands):

 

    Recurring Fair Value Measurements  
    Quoted Prices in Active                                      
    Markets for Identical     Significant Other     Significant Unobservable              
    Assets and Liabilities     Observable Inputs     Inputs        
    at March 31,     at March 31,     at March 31,     Total Fair Value  
    (Level 1)     (Level 2)     (Level 3)     at March 31,  
    2019     2018     2019     2018     2019     2018     2019     2018  
Assets                                                                
Derivative Financial Instruments   $     $     $ 53     $ 75     $     $     $ 53     $ 75  
Liabilities                                                                
Derivative Financial Instruments   $     $     $ (43 )   $     $     $     $ (43 )   $  

 

As of March 31, 2019, the fair value of derivatives in a net liability position was nine thousand dollars inclusive of counterparty credit risk. As of the balance sheet date, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at March 31, 2019, it could have been required to settle its obligations under the agreements at their termination value of nine thousand dollars.