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Derivative Instruments
6 Months Ended
Jun. 29, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Derivative Instruments
The Company is exposed to certain risks relating to its ongoing business operations including foreign currency exchange rate risk and interest rate risk. The Company currently mitigates certain foreign currency exchange rate risks with derivative instruments. The Company does not currently manage its interest rate risk with derivative instruments.
The Company faces exposure to foreign currency exchange rate fluctuations, as a significant portion of its revenues, expenses, assets, and liabilities are denominated in currencies other than the functional currencies of the Company’s subsidiaries or the reporting currency of the Company, which is the U.S. Dollar. The Company faces two types of foreign currency exchange rate exposures: 
Transactional currency/functional currency exchange rate exposures from transactions that are denominated in currencies other than the functional currency of the subsidiary. These transaction gains and losses are reported in "Foreign currency gain (loss)" on the Consolidated Statements of Operations.
Functional currency/reporting currency exchange rate exposures from the revaluation of the assets and liabilities of our foreign subsidiaries, whose functional currency is generally their local currency, to the Company’s reporting currency, which is the U.S. Dollar. These translation gains and losses are reported in “Accumulated other comprehensive loss” on the Consolidated Balance Sheets and also on the Consolidated Statements of Comprehensive Income.
The Company’s foreign currency risk management strategy is principally designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. Currently, the Company enters into two types of hedges to manage this risk. The first are economic hedges which utilize foreign currency forward contracts with maturities of up to 45 days to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables. The gains and losses on these derivatives are largely offset by changes in the fair value of the assets and liabilities being hedged. The second are cash flow hedges which utilize foreign currency forward contracts with maturities of up to 18 months to hedge specific forecasted transactions of the Company's foreign subsidiaries with the goal of protecting our budgeted revenues and expenses against foreign currency exchange rate changes compared to our budgeted rates.
The Company had the following outstanding forward contracts that were entered into to mitigate foreign currency exchange rate risk (in thousands):
 
As of June 29, 2014
 
As of December 31, 2013
Currency
Notional
Value
 
USD
Equivalent
 
Notional
Value
 
USD
Equivalent
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
Japanese Yen
696,500

 
$
6,765

 
625,000

 
$
6,122

Hungarian Forint
641,750

 
2,830

 
570,175

 
2,603

Singapore Dollar
2,955

 
2,361

 
2,867

 
2,346

British Pound
744

 
1,230

 
613

 
1,010

Canadian Dollar
1,202

 
1,106

 
985

 
932

Derivatives Not Designated as Hedging Instruments:
 
 
 
 
Japanese Yen
1,000,000

 
$
9,850

 
294,500

 
$
2,797

British Pound
1,500

 
1,881

 
1,100

 
1,820

Taiwanese Dollar
32,500

 
1,090

 
27,000

 
908

Korean Won
900,000

 
886

 
650,000

 
620

Singapore Dollar
1,000

 
800

 

 

Hungarian Forint
99,000

 
436

 
123,000

 
568

Euro

 

 
2,828

 
3,887

Chinese Renminbi

 

 
9,000

 
1,467

Brazilian Real

 

 
250

 
106


Information regarding the fair value of the outstanding forward contracts was as follows (in thousands):
 
Asset Derivatives
 
Liability Derivatives
 
Balance
 
Fair Value
 
Balance
 
Fair Value
 
Sheet
Location
 
June 29, 2014
 
December 31, 2013
 
Sheet
Location
 
June 29, 2014
 
December 31, 2013
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
Cash flow hedge forward contracts
Prepaid expenses and
other current assets
 
$
45

 
$
204

 
Accrued
expenses
 
$
127

 
$
98

Derivatives Not Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
Economic hedge forward contracts
Prepaid expenses and
other current assets
 
$
6

 
$
6

 
Accrued expenses
 
$
27

 
$
24



The table below details the gross activity for all derivative assets and liabilities which were presented on a net basis on the Consolidated Balance Sheets due to the right of offset with each counterparty (in thousands):
Asset Derivatives
 
Liability Derivatives
 
 
June 29, 2014
 
December 31, 2013
 
 
 
June 29, 2014
 
December 31, 2013
Gross amounts of recognized assets
 
$
57

 
$
210

 
Gross amounts of recognized liabilities
 
$
179

 
$
122

Gross amounts offset
 
(6
)
 

 
Gross amounts offset
 
(25
)
 

Net amount of assets presented
 
$
51

 
$
210

 
Net amount of liabilities presented
 
$
154

 
$
122





Information regarding the effect of derivative instruments, net of the underlying exposure, on the consolidated financial statements was as follows (in thousands):
 
Location in Financial Statements
 
Three-months Ended
 
Six-months Ended
 
 
June 29, 2014
 
June 30, 2013
 
June 29, 2014
 
June 30, 2013
Derivatives Designated as Hedging Instruments:
 
 
 
Gains (losses) in Shareholders' equity on derivatives (effective portion)
Accumulated other comprehensive income (loss), net of tax
 
$
(74
)
 
$

 
$
(74
)
 
$

Gains (losses) reclassified from accumulated other comprehensive income (loss) into net income (effective portion)
Product revenue
 
$
4

 
$

 
$
17

 
$

 
Research, development, and engineering expenses
 
(9
)
 

 
(25
)
 

 
Selling, general, and administrative expenses
 
(19
)
 

 
(49
)
 

 
Total gains (losses) reclassified from accumulated other comprehensive income (loss) into net income
 
$
(24
)
 
$

 
$
(57
)
 
$

Gains (losses) recognized in net income on derivatives (ineffective portion and discontinued derivatives)
Foreign currency gain (loss)
 
$

 
$

 
$

 
$

Derivatives Not Designated as Hedging Instruments:
 
 
 
Gains (losses) recognized in net income
Foreign currency gain (loss)
 
$
(21
)
 
$
64

 
$
(173
)
 
$
197


The following table provides the changes in accumulated other comprehensive income (loss), net of tax, related to derivative instruments (in thousands):
Beginning balance as of December 31, 2013
 
$
104

Amount of loss reclassified to net income
 
57

Change in fair value of derivative instruments
 
(235
)
Ending balance as of June 29, 2014
 
$
(74
)

Net losses expected to be reclassified from accumulated other comprehensive income (loss), net of tax, into net income within the next twelve months are $70,000.