Derivative Financial Instruments

6 Months Ended

Jun. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

7. Derivative Financial Instruments

The Company’s Korean subsidiary from time to time has entered into zero cost collar and forward contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on U.S. dollar denominated revenues.

Details of derivative contracts as of June 30, 2017 are as follows (in thousands):

Date of transaction	Type of derivative	Total notional amount		Month of settlement
November 11, 2016	Zero cost collar	$	6,000	July to August 2017
June 22, 2017	Zero cost collar	$	105,000	September 2017 to February 2018
June 22, 2017	Forward	$	20,000	September to December 2017

Details of derivative contracts as of December 31, 2016 are as follows (in thousands):

Date of transaction	Type of derivative		Total notional amount		Month of settlement
November 11, 2016		Zero cost collar	$	18,000		March to August 2017

The zero cost collar and forward contracts qualify as cash flow hedges under Accounting Standards Codification 815, “Derivatives and Hedging,” since at both the inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the contracts. The Company is utilizing the “hypothetical derivative” method to measure the effectiveness by comparing the changes in value of the actual derivative versus the change in fair value of the “hypothetical derivative.”

The fair values of the Company’s outstanding zero cost collar and forward contracts recorded as assets and liabilities as of June 30, 2017 and December 31, 2016 are as follows (in thousands):

Derivatives designated as hedging instruments:		June 30, 2017		December 31, 2016
Asset Derivatives:
Zero cost collars	Other current assets	$	2	$	—
Liabilities Derivatives:
Zero cost collars	Other current liabilities	$	888	$	453
Liabilities Derivatives:
Forwards	Other current liabilities	$	73	$	—

Offsetting of derivative assets and liabilities as of June 30, 2017 is as follows (in thousands):

As of June 30, 2017	Gross amounts of recognized assets/liabilities		Gross amounts offset in the balance sheets		Net amounts of assets/liabilities presented in the balance sheets		Gross amounts not offset in the balance sheets					Net amount
							Financial instruments		Cash collateral pledged
Asset Derivatives:
Zero cost collars	$	2	$	—	$	2	$	—	$	—		$	2
Liabilities Derivatives:
Zero cost collars	$	888	$	—	$	888	$	—	$	(590	)	$	298
Liabilities Derivatives:
Forwards	$	73	$	—	$	73	$	—	$	—		$	73

Offsetting of derivative liabilities as of December 31, 2016 is as follows (in thousands):

As of December 31, 2016	Gross amounts of recognized liabilities		Gross amounts offset in the balance sheets		Net amounts of liabilities presented in the balance sheets		Gross amounts not offset in the balance sheets					Net amount
							Financial instruments		Cash collateral pledged
Liabilities Derivatives:
Zero cost collars	$	453	$	—	$	453	$	—	$	(650	)	$	(197	)

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.

The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the three months ended June 30, 2017 and 2016 (in thousands):

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)						Location of Gain Reclassified from AOCI into Statement of Operations (Effective Portion)		Amount of Gain Reclassified from AOCI into Statement of Operations (Effective Portion)				Location of Loss Recognized in Statement of Operations on Derivative (Ineffective Portion)		Amount of Loss Recognized in Statement of Operations on Derivatives (Ineffective Portion)
	Three Months Ended June 30,								Three Months Ended June 30,						Three Months Ended June 30,
	2017			2016					2017		2016				2017			2016
Zero cost collars	$	(1,620	)	$	(24	)		Net sales	$	808	$	—		Other income, net	$	(368	)	$	(8	)
Forwards	$	26		$	—			Net sales	$	—	$	—		Other income, net	$	(99	)	$	—
Total	$	(1,594	)	$	(24	)			$	808	$	—			$	(467	)	$	(8	)

The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the six months ended June 30, 2017 and 2016 (in thousands):

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain Recognized in AOCI on Derivatives (Effective Portion)				Location of Gain Reclassified from AOCI into Statement of Operations (Effective Portion)		Amount of Gain Reclassified from AOCI into Statement of Operations (Effective Portion)				Location of Gain (Loss) Recognized in Statement of Operations on Derivative (Ineffective Portion)		Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives (Ineffective Portion)
	Six Months Ended June 30,						Six Months Ended June 30,						Six Months Ended June 30,
	2017		2016				2017		2016				2017			2016
Zero cost collars	$	883	$	41		Net sales	$	1,305	$	—		Other income, net	$	269		$	34
Forwards	$	26	$	—		Net sales	$	—	$	—		Other income, net	$	(99	)	$	—
Total	$	909	$	41			$	1,305	$	—			$	170		$	34

As of June 30, 2017, the amount expected to be reclassified from accumulated other comprehensive income (loss) into loss within the next twelve months is $832 thousand.

The Company set aside $6,000 thousand and $2,500 thousand cash deposits to the counterparty, Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) for the zero cost collar and forward contracts outstanding as of June 30, 2017 and for the zero cost collar contracts outstanding as of December 31, 2016, respectively. These cash deposits are recorded as hedge collateral on the consolidated balance sheets.

The Company is required to deposit additional cash collateral with NFIK for any exposure in excess of $500 thousand, and $590 thousand and $650 thousand of additional cash collateral were required and recorded as hedge collateral on the consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively. These outstanding zero cost collar contracts and forward contracts are subject to termination if the sum of qualified and unrestricted cash and cash equivalents held by the Company is less than $30,000 thousand on the last day of a fiscal quarter.