Derivative and Hedgiing Activities Derivative and Hedging Activities

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure

DERIVATIVES AND HEDGING ACTIVITIES

The Company uses forward contracts to manage exposures to foreign currency exchange rates. The Company’s primary objective in holding derivative instruments is to reduce the volatility of earnings and cash flows associated with fluctuations in foreign currency exchange rates and the Company does not use derivative instruments for trading purposes. The use of derivative instruments expose the Company to credit risk to the extent that the counterparties may be unable to meet their contractual obligations, as such, the potential risk of loss with any one counterparty is closely monitored by the Company.

Derivatives Designated as Hedging Instruments (Cash Flow Hedges)

The Company’s cash flow hedges consisted of foreign currency forward contracts to hedge forecasted operating expenses and service costs related to employee salaries and benefits denominated in Israeli shekels (“ILS”) for its subsidiaries in Israel. These ILS forward contracts mature generally within 12 months. There were no outstanding foreign currency forward contracts under cash flow hedges at March 31, 2017 or December 31, 2016.

Derivatives Not Designated as Hedging Instruments (Balance Sheet Hedges)

The Company’s balance sheet hedges consist of foreign currency forward contracts, mature generally within three months, are carried at fair value and they are used to minimize the short-term impact of foreign currency exchange rate fluctuation on cash and certain trade and inter-company receivables and payables. Changes in the fair value of these foreign currency forward contracts are recognized in “Other expense, net” in the Condensed Consolidated Statement of Operations and are largely offset by the changes in the fair value of the assets or liabilities being hedged.

The locations and amounts of designated and non-designated derivative instruments’ gains and losses reported in the Company’s Accumulated Other Comprehensive Loss and Condensed Consolidated Statements of Operations were as follows (in thousands):

		Three months ended
	Financial Statement Location	March 31, 2017			April 1, 2016
Derivatives designated as hedging instruments:
Loss in AOCI on derivatives (effective portion)	AOCI	$	—		$	(323	)
Loss reclassified from AOCI into income (effective portion)	Cost of Revenue	$	—		$	(10	)
	Operating Expense	—			(68		)
	Total	$	—		$	(78	)
Losses recognized in income on derivatives (ineffectiveness portion and amount excluded from effectiveness testing)	Other expense, net	$	—		$	(27	)
Derivatives not designated as hedging instruments:
Loss recognized in income	Other expense, net	$	(132	)	$	(284	)

The U.S. dollar equivalents of all outstanding notional amounts of foreign currency forward contracts are summarized as follows (in thousands):

	March 31, 2017		December 31, 2016
Derivatives not designated as hedging instruments:
Purchase	$	9,577	$	4,056
Sell	$	11,771	$	11,157

The locations and fair value amounts of the Company’s derivative instruments reported in its Condensed Consolidated Balance Sheets are as follows (in thousands):

		Asset Derivatives					Derivative Liabilities
	Balance Sheet Location	March 31, 2017		December 31, 2016		Balance Sheet Location	March 31, 2017		December 31, 2016
Derivatives not designated as hedging instruments:
Foreign currency contracts	Prepaid expenses and other current assets	$	137	$	54	Accrued Liabilities	$	48	$	40
Total derivatives		$	137	$	54		$	48	$	40

Offsetting of Derivative Assets and Liabilities

The Company recognizes all derivative instruments on a gross basis in the Condensed Consolidated Balance Sheets. However, the arrangements with its counterparties allows for net settlement, which are designed to reduce credit risk by permitting net settlement with the same counterparty. As of March 31, 2017, information related to the offsetting arrangements was as follows (in thousands):

						Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets	Net Amounts of Derivatives Presented in the Condensed Consolidated Balance Sheets		Financial Instrument			Cash Collateral Pledged	Net Amount
Derivative Assets	$	137	—	$	137	$	(8	)	—	$	129
Derivative Liabilities	$	48	—	$	48	$	(8	)	—	$	40

In connection with foreign currency derivatives entered in Israel, the Company’s subsidiaries in Israel are required to maintain a compensating balance with their bank at the end of each month. The compensating balance arrangements do not legally restrict the use of cash and as of March 31, 2017, the total compensating balance maintained was $2.5 million.