Derivative Instruments

9 Months Ended

Sep. 28, 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 September 28, 2014			As of December 31, 2013
Currency	Notional Value	USD Equivalent		Notional Value	USD Equivalent
Derivatives Designated as Hedging Instruments:
Japanese Yen	665,000	$	6,059	625,000	$	6,122
Hungarian Forint	604,000	2,479		570,175	2,603
Singapore Dollar	3,225	2,450		2,867	2,346
British Pound	750	1,177		613	1,010
Canadian Dollar	1,173	1,069		985	932
Derivatives Not Designated as Hedging Instruments:
Japanese Yen	885,000	$	8,128	294,500	$	2,797
British Pound	1,375	2,244		1,100	1,820
Taiwanese Dollar	32,500	1,078		27,000	908
Korean Won	925,000	887		650,000	620
Singapore Dollar	1,200	946		—	—
Hungarian Forint	225,000	919		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	September 28, 2014		December 31, 2013		Sheet Location	September 28, 2014		December 31, 2013
Derivatives Designated as Hedging Instruments:
Cash flow hedge forward contracts	Prepaid expenses and other current assets	$	133	$	204	Accrued expenses	$	105	$	98
Derivatives Not Designated as Hedging Instruments:
Economic hedge forward contracts	Prepaid expenses and other current assets	$	9	$	6	Accrued expenses	$	9	$	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
	September 28, 2014		December 31, 2013			September 28, 2014			December 31, 2013
Gross amounts of recognized assets	$	142	$	210	Gross amounts of recognized liabilities	$	120		$	122
Gross amounts offset	—		—		Gross amounts offset	(6		)	—
Net amount of assets presented	$	142	$	210	Net amount of liabilities presented	$	114		$	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						Nine-months Ended
		September 28, 2014			September 29, 2013			September 28, 2014			September 29, 2013
Derivatives Designated as Hedging Instruments:
Gains (losses) in Shareholders' equity on derivatives (effective portion)	Accumulated other comprehensive income (loss), net of tax	$	32		$	—		$	32		$	—
Gains (losses) reclassified from accumulated other comprehensive income (loss) into net income (effective portion)	Product revenue	$	(50	)	$	—		$	(33	)	$	—
	Research, development, and engineering expenses	(15		)	—			(40		)	—
	Selling, general, and administrative expenses	21			—			(28		)	—
	Total gains (losses) reclassified from accumulated other comprehensive income (loss) into net income	$	(44	)	$	—		$	(101	)	$	—
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)	$	425		$	(186	)	$	252		$	10

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	101
Change in fair value of derivative instruments	(173		)
Ending balance as of September 28, 2014	$	32

Net gains expected to be reclassified from accumulated other comprehensive income (loss), net of tax, into net income within the next twelve months are $30,000.