Derivative Financial Instruments

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

7. Derivative Financial Instruments

The Company’s Korean subsidiary from time to time has entered into zero cost collar contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on U.S. dollar denominated revenues.

Details of derivative contracts as of June 30, 2015 are as follows:

Date of transaction	Type of derivative	Total notional amount		Month of settlement
May 11, 2015	Zero cost collar	$	42,000	July to December 2015
May 27, 2015	Zero cost collar	$	42,000	July to December 2015

The Company did not have any derivative contracts in effect as of December 31, 2014.

The zero cost collar contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging,” (“ASC 815”), since at both the inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the contracts. The Company is utilizing the “hypothetical derivative” method to measure the effectiveness by comparing the changes in value of the actual derivative versus the change in fair value of the “hypothetical derivative.”

The fair values of the Company’s outstanding zero cost collar contracts recorded as liabilities as of June 30, 2015 and December 31, 2014 are as follows:

Derivatives designated as hedging instruments:		June 30, 2015		December 31, 2014
Liability Derivatives:
Zero cost collars	Other current liabilities	$	1,702	$	—

Offsetting of derivative liabilities as of June 30, 2015 is as follows:

As of June 30, 2015	Gross amounts of recognized liabilities		Gross amounts offset in the balance sheets		Net amounts of liabilities presented in the balance sheets		Gross amounts not offset in the balance sheets					Net amount
							Financial instruments		Cash collateral pledged
Liability Derivatives:
Zero cost collars	$	1,702	$	—	$	1,702	$	—	$	(1,380	)	$	322

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative, representing hedge ineffectiveness, are recognized in current earnings.

The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the three months ended June 30, 2015 and 2014:

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)					Location of Gain Reclassified from AOCI into Statement of Operations (Effective Portion)	Amount of Gain Reclassified from AOCI into Statement of Operations (Effective Portion)				Location of Loss Recognized in Statement of Operations on Derivative (Ineffective Portion)		Amount of Loss Recognized in Statement of Operations on Derivatives (Ineffective Portion)
	Three Months Ended June 30,						Three Months Ended June 30,						Three Months Ended June 30,
	2015			2014			2015		2014				2015			2014
Zero cost collars	$	(1,417	)	$	8,002	Net sales	$	—	$	2,647		Other income, net	$	(306	)	$	(36	)
Total	$	(1,417	)	$	8,002		$	—	$	2,647			$	(306	)	$	(36	)

The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the six months ended June 30, 2015 and 2014:

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)					Location of Gain Reclassified from AOCI into Statement of Operations (Effective Portion)	Amount of Gain Reclassified from AOCI into Statement of Operations (Effective Portion)				Location of Loss Recognized in Statement of Operations on Derivative (Ineffective Portion)		Amount of Loss Recognized in Statement of Operations on Derivatives (Ineffective Portion)
	Six Months Ended June 30,						Six Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015		2014				2015			2014
Zero cost collars	$	(1,417	)	$	6,201	Net sales	$	485	$	2,644		Other income, net	$	(306	)	$	(52	)
Total	$	(1,417	)	$	6,201		$	485	$	2,644			$	(306	)	$	(52	)

As of June 30, 2015, the amount expected to be reclassified from accumulated other comprehensive income into loss within the next twelve months is $1,417 thousand.

The Company set aside $5.0 million cash deposits to a financial institution, the counterparty to the zero cost collar contracts outstanding as of June 30, 2015. The Company is required to deposit cash collateral with the counterparty for any exposure in excess of $0.5 million and $1.4 million of cash collateral was required as of June 30, 2015. The Company recorded the cash deposits and cash collateral totaling $6.4 million as hedge collateral in the consolidated balance sheet as of June 30, 2015. These outstanding zero cost collar contracts are subject to termination if the sum of qualified and unrestricted cash and cash equivalents held by the Company is less than $30 million on the last day of a fiscal quarter.