Derivative Financial Instruments

3 Months Ended

Mar. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The Company uses derivatives to partially offset its exposure to foreign currency exchange risk. The Company may enter into foreign currency forward contracts to offset some of the foreign exchange risk on expected future cash flows on certain forecasted revenue and expenses and on certain existing assets and liabilities.

To address fluctuations in foreign currency exchange rates, a portion of forecasted foreign currency revenue and expenses of certain of the Company’s subsidiaries are hedged. The Company hedges portions of its forecasted foreign currency exposure associated with revenue, cost of sales, and operating expenses for generally up to twelve months.

The Company may also enter into foreign currency forward contracts to partially offset the foreign currency exchange gains and losses generated by the re-measurement of certain assets and liabilities. However, the Company may choose not to hedge certain foreign currency exchange exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. The Company does not hold or purchase any currency contracts for trading purposes.

The Company records all derivatives in the Condensed Consolidated Balance Sheet at fair value. The Company’s accounting treatment of these instruments is based on whether the instruments are designated as hedge or non-hedge instruments. For derivative instruments that are designated and qualify as cash flow hedges, the Company initially records the effective portion of the gain or loss on the derivative instrument in AOCI, a separate component of shareholders’ equity and subsequently reclassifies these amounts into earnings within the same financial statement line item as the hedged item in the period during which the hedged transaction is recognized in earnings. The ineffective portions of cash flow hedges are recorded in foreign currency exchange loss and other, net.

The Company had a net deferred loss of $0.2 million and $0.4 million associated with cash flow hedges recorded in AOCI as of March 31, 2016 and December 31, 2015, respectively. Deferred gains and losses associated with cash flow hedges of forecasted foreign currency revenue are recognized as a component of revenues in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of forecasted expenses are recognized as a component of cost of sales, research and development expense, sales and marketing expense and general and administrative expense in the same period as the related expenses are recognized. The Company’s hedged transactions as of March 31, 2016 are expected to occur within twelve months.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable that the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified immediately into foreign currency exchange loss and other, net. Any subsequent changes in fair value of such derivative instruments are reflected in foreign currency exchange loss and other, net unless they are re-designated as hedges of other transactions. The Company did not recognize any significant net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the three months ended March 31, 2016 and 2015.

Gains or losses on derivatives not designated as hedging instruments are recorded in foreign currency exchange loss and other, net. During the three months ended March 31, 2016 and 2015, the Company recognized a loss of $0.5 million and a gain of $2.0 million, respectively, as a component of foreign currency exchange loss and other, net, related to derivative instruments not designated as hedging instruments. These amounts represent the net gain or loss on the derivative contracts and do not include changes in the related exposures or ineffective portion or amounts excluded from the effectiveness testing of cash flow hedges.

The notional principal amounts of the Company’s outstanding derivative instruments designated as cash flow hedges are $133.8 million and $117.6 million as of March 31, 2016 and December 31, 2015, respectively. The notional principal amounts of the Company’s outstanding derivative instruments not designated as cash flow hedges are $27.8 million and $25.9 million as of March 31, 2016 and December 31, 2015, respectively.

The following tables show the Company’s derivative instruments at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015, respectively (in thousands):

	March 31, 2016
	Fair Value of Derivatives Designated as Hedge Instruments			Fair Value of Derivatives Not Designated as Hedge Instruments			Total Fair Value
Derivative Assets (a):
Foreign exchange contracts	$	1,207		$	324		$	1,531
Derivative Liabilities (b):
Foreign exchange contracts	(1,292		)	(24		)	(1,316		)

	December 31, 2015
	Fair Value of Derivatives Designated as Hedge Instruments			Fair Value of Derivatives Not Designated as Hedge  Instruments			Total Fair Value
Derivative Assets (a):
Foreign exchange contracts	$	1,390		$	41		$	1,431
Derivative Liabilities (b):
Foreign exchange contracts	(1,250		)	(48		)	(1,298		)

(a) The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

(b) The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued and other liabilities in the Condensed Consolidated Balance Sheets.

The following tables show the pre-tax effect of the Company’s derivative instruments designated as cash flow hedges in the Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2016 and 2015 (in thousands):

	Three Months Ended
	Gain (Loss) Recognized in OCI - Effective Portion					Loss Reclassified from AOCI into Income - Effective Portion						Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
	March 31, 2016			March 31, 2015		March 31, 2016 (a)			March 31, 2015 (b)			Location	March 31, 2016			March 31, 2015
Cash flow hedges:
Foreign exchange contracts	$	(74	)	$	404	$	(331	)	$	(23	)	Foreign currency exchange loss and other, net	$	(161	)	$	(86	)
Total	$	(74	)	$	404	$	(331	)	$	(23	)		$	(161	)	$	(86	)

(a) Includes gains and losses reclassified from AOCI into net loss for the effective portion of cash flow hedges, of which a $0.4 million loss within costs and operating expenses and a $0.1 million gain within revenue, were recognized within the Condensed Consolidated Statement of Operations for the three months ended March 31, 2016.

(b) Includes gains and losses reclassified from AOCI into net income for the effective portion of cash flow hedges, of which a $2.3 million loss within costs and operating expenses and a $2.3 million gain within revenue, were recognized within the Condensed Consolidated Statement of Operations for the three months ended March 31, 2015.