Derivative and Hedging Activities

9 Months Ended

Sep. 25, 2020

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 exposes 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 Not Designated as Hedging Instruments (Balance Sheet Hedges)

The Company’s balance sheet hedges consist of foreign currency forward contracts that generally mature within three months, are carried at fair value, and 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.

Gains (losses) on the non-designated derivative instruments recognized during the periods presented were as follows (in thousands):

		Three months ended					Nine months ended
	Financial Statement Location	September 25, 2020		September 27, 2019			September 25, 2020		September 27, 2019
Derivatives not designated as hedging instruments:
Gains (losses) recognized in operations	Other expense, net	$	618	$	(1,357	)	$	285	$	(1,966	)

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

	September 25, 2020		December 31, 2019
Derivatives not designated as hedging instruments:
Purchase	$	36,107	$	14,806
Sell	$	—	$	2,629

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	September 25, 2020		December 31, 2019		Balance Sheet Location	September 25, 2020		December 31, 2019
Derivatives not designated as hedging instruments:
Foreign currency contracts	Prepaid expenses and other current assets	$	—	$	43	Accrued and other current liabilities	$	273	$	112
Total derivatives		$	—	$	43		$	273	$	112

Offsetting of Derivative 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 September 25, 2020, information related to the offsetting arrangements was as follows (in thousands):

	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
Derivative liabilities	$	273	—	$	273

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. As of September 25, 2020, the total compensating balance maintained was $1.0 million.