Derivative Financial Instruments

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

8. Derivative Financial Instruments

The Company’s Korean subsidiary from time to time has entered into zero cost collar and forward 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 December 31, 2017 are as follows (in thousands):

Date of transaction	Type of derivative	Total notional amount		Month of settlement
June 22, 2017	Zero cost collar	$	20,000	January 2018 to February 2018
September 28, 2017	Zero cost collar	$	54,000	January 2018 to June 2018
September 28, 2017	Forward	$	36,000	January 2018 to June 2018

Details of derivative contracts as of December 31, 2016 are as follows (in thousands):

Date of transaction	Type of derivative		Total notional amount		Month of settlement
November 11, 2016		Zero cost collar	$	18,000		March to August 2017

The zero cost collar and forward contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging,” 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 and forward contracts recorded as assets and liabilities as of December 31, 2017 and 2016 are as follows (in thousands):

Derivatives designated as hedging instruments:		December 31,
		2017		2016
Asset Derivatives:
Zero cost collars	Other current assets	$	2,827	$	—
Forward	Other current assets	$	2,352	$	—
Liability Derivatives:
Zero cost collars	Other current liabilities	$	—	$	453

Offsetting of derivative assets as of December 31, 2017 is as follows (in thousands):

As of December 31, 2017	Gross amounts of recognized assets		Gross amounts offset in the balance sheets		Net amounts of assets presented in the balance sheets		Gross amounts not offset in the balance sheets				Net amount
							Financial instruments		Cash collateral pledged
Asset Derivatives:
Zero cost collars	$	2,827	$	—	$	2,827	$	—	$	—	$	2,827
Forward	$	2,352	$	—	$	2,352	$	—	$	—	$	2,352

Offsetting of derivative liabilities as of December 31, 2016 is as follows (in thousands):

As of December 31, 2016	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	$	453	$	—	$	453	$	—	$	(650	)	$	(197	)

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 either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.

The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the years ended December 31, 2017 and 2016 (in thousands):

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain  (Loss) Recognized in AOCI  on Derivatives (Effective Portion)					Location of Gain (loss) Reclassified from AOCI  into Statement  of Operations (Effective Portion)		Amount of Gain  (loss) Reclassified from AOCI  into Statement  of Operations (Effective Portion)					Location of Gain  (loss) Recognized in Statement  of Operations  on Derivative (Ineffective Portion)		Amount of Gain  (loss) Recognized in Statement  of Operations  on Derivatives (Ineffective Portion)
	2017		2016					2017		2016					2017			2016
Zero cost collars	$	4,692	$	(1,032	)		Net sales	$	1,501	$	(637	)		Other income, net	$	606		$	(272	)
Forwards	$	3,044	$	—			Net sales	$	500	$	—			Other income, net	$	(370	)	$	—
Total	$	$7,736	$	(1,032	)			$	2,001	$	—				$	236		$	(272	)

As of December 31, 2017, the amount expected to be reclassified from accumulated other comprehensive income into income within the next twelve months is $5,299 thousand.

The Company set aside $7,600 thousand and $2,500 thousand of cash deposits to the counterparty, Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) as required for the zero cost collar and forward contracts outstanding as of December 31, 2017 and 2016, respectively. These cash deposits are recorded as hedge collateral on the consolidated balance sheets.

The Company is required to deposit additional cash collateral with NFIK for any exposure in excess of $500 thousand, and no such cash collateral was required as of December 31, 2017. As of December 31, 2016, $650 thousand of additional cash collateral was required and recorded as hedge collateral on the consolidated balance sheets. These outstanding zero cost collar and forward contracts are subject to termination if the sum of qualified and unrestricted cash and cash equivalents held by the Company is less than $30,000 thousand on the last day of a fiscal quarter.