The Company’s subsidiaries have material future cash flows related to revenue and expenses denominated in currencies other than the U.S. dollar, the Company’s functional currency worldwide. The Company executes currency forward contracts that typically mature in less than 6 months to mitigate its currency risk, in currencies including Australian dollars, British pounds, euros, Canadian dollar, and Japanese yen. The Company does not enter into derivatives transactions for trading or speculative purposes.

The Company’s foreign currency forward contracts do not contain any credit-risk-related contingent features. The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any individual counter-party. The Company continuously evaluates the credit quality of its counter-party financial institutions and does not consider non-performance a material risk.

The Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, materiality, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange rates. The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with the authoritative guidance for derivatives and hedging. The Company records all derivatives on the balance sheets at fair value. Cash flow hedge gains and losses are recorded in other comprehensive income ("OCI") until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in Other income (expense), net in the unaudited condensed consolidated statements of operations.

To help manage the exposure of operating margins to fluctuations in foreign currency exchange rates, the Company hedges a portion of its anticipated foreign currency revenue, costs of revenue and certain operating expenses. These hedges are designated at the inception of the hedge relationship as cash flow hedges under the authoritative guidance for derivatives and hedging. Effectiveness of the hedge relationships are tested at least quarterly both prospectively and retrospectively using regression analysis to ensure that the hedge relationship has been effective and is likely to remain effective in the future. The Company typically executes ten forward contracts per quarter with maturities under six months and with USD notional amount of approximately $6.0 million each that are designated as cash flow hedges.

The Company expects to reclassify to earnings all of the amounts recorded in OCI associated with its cash flow hedges over the next twelve months. OCI associated with cash flow hedges of foreign currency revenue, cost of revenue and operating expenses are recognized in the same period and in the same line item in the statement of operations as hedged item. The Company did not recognize any material net gains or losses related to anticipated transactions that failed to occur during the three and six months ended June 28, 2020 and June 30, 2019.

The Company enters into non-designated hedges under the authoritative guidance for derivatives and hedging to manage the exposure of non-functional currency monetary assets and liabilities not already hedged by de-designated cash flow hedges. The non-designated hedges are generally expected to offset the changes in value of its net non-functional currency asset and liability position resulting from foreign exchange rate fluctuations. The Company adjusts its non-designated hedges monthly and typically executes about ten non-designated forwards per quarter with maturities less than three months and a USD notional amount of approximately $2.0 million.

The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded as of June 28, 2020, and December 31, 2019, are summarized as follows:

	Balance Sheet					Balance Sheet
	Location	June 28, 2020		December 31, 2019		Location	June 28, 2020		December 31, 2019
		(In thousands)					(In thousands)
Derivatives not designated as hedging instruments	Prepaid expenses and other current assets	$	261	$	109	Other accrued liabilities	$	1,336	$	493
Derivatives designated as hedging instruments	Prepaid expenses and other current assets		12		43	Other accrued liabilities		—		32
Total		$	273	$	152		$	1,336	$	525

Refer to Note 12, Fair Value Measurements, in Notes to Unaudited Condensed Consolidated Financial Statements for detailed disclosures regarding fair value measurements in accordance with the authoritative guidance for fair value measurements and disclosures.

The Company has entered into master netting arrangements which allow net settlements under certain conditions. Although netting is permitted, it is currently the Company's policy and practice to record all derivative assets and liabilities on a gross basis on the unaudited condensed consolidated balance sheets. As of June 28, 2020, the Company holds and reports $0.3 million of gross assets and $1.3 million of gross liabilities. Net of offset, the Company holds no assets and $1.0 million of liabilities.

Effect of Derivative Contracts on Consolidated Statement of Operations and Accumulated Other Comprehensive Income

The effect of the Company’s derivative instruments on AOCI and the unaudited condensed consolidated statements of operations for the three and six months ended June 28, 2020 and June 30, 2019 are summarized as follows:

	Three Months Ended						Six Months Ended
	June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019
Derivatives designated as hedging instruments:
Cash flow hedges
Foreign currency forward contracts:
Gains (losses) recognized in accumulated other comprehensive income- Effective Portion	$	(63	)	$	534		$	922		$	863
Gains (losses) reclassified from accumulated other comprehensive income into Income -Effective Portion ⁽¹⁾:
Net revenue	$	343		$	672		$	1,019		$	1,086
Cost of revenue	$	1		$	(6	)	$	(1	)	$	(8	)
Research and development	$	7		$	(20	)	$	5		$	(46	)
Sales and marketing	$	5		$	(98	)	$	(72	)	$	(167	)
General and administrative	$	(1	)	$	(12	)	$	(14	)	$	(23	)
Derivatives not designated as hedging instruments:
Gains (losses) recognized in Other income (expense), net	$	(1,128	)	$	304		$	650		$	906