7. 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 June 30, 2018 are as follows (in thousands):


Date of transaction	Type of derivative	Total notional amount		Month of settlement
June 18, 2018	Zero cost collar	$	20,000	September 2018 to December 2018
June 18, 2018	Forward	$	40,000	September 2018 to December 2018
June 27, 2018	Zero cost collar	$	32,000	September 2018 to June 2019
June 27, 2018	Forward	$	58,000	September 2018 to June 2019

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

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 June 30, 2018 and December 31, 2017 are as follows (in thousands):


Derivatives designated as hedging instruments:		June 30, 2018		December 31, 2017
Asset Derivatives:
Zero cost collars	Other current assets	$	—	$	2,827
Forward	Other current assets	$	—	$	2,352
Liability Derivatives:
Zero cost collars	Other current liabilities	$	684	$	—
Forward	Other current liabilities	$	1,911	$	—

Offsetting of derivative liabilities as of June 30, 2018 is as follows (in thousands):


As of June 30, 2018	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
As of June 30, 2018	Gross amounts of recognized liabilities		Gross amounts offset in the balance sheets				Financial instruments		Cash collateral received/ pledged		Net amount
Liability Derivatives:
Zero cost collars	$	684	$	—	$	684	$	—	$	—	$	684
Forward	$	1,911	$	—	$	1,911	$	—	$	—	$	1,911

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
As of December 31, 2017	Gross amounts of recognized assets		Gross amounts offset in the balance sheets				Financial instruments		Cash collateral pledged		Net amount
Asset Derivatives:
Zero cost collars	$	2,827	$	—	$	2,827	$	—	$	—	$	2,827
Forward	$	2,352	$	—	$	2,352	$	—	$	—	$	2,352

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 three months ended June 30, 2018 and 2017 (in thousands):


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,
	2018			2017				2018		2017			2018			2017
Zero cost collars	$	(1,009	)	$	(1,620	)	Net sales	$	865	$	808	Other income (expenses), net	$	(247	)	$	(368	)
Forwards	$	(861	)	$	26		Net sales	$	1,170	$	—	Other income (expenses), net	$	(1,385	)	$	(99	)

Total	$	(1,870	)	$	(1,594	)		$	2,035	$	808		$	(1,632	)	$	(467	)

The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the six months ended June 30, 2018 and 2017 (in thousands):


Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain 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 Gain (Loss) Recognized in Statement of Operations on Derivative (Ineffective Portion)	Amount of Gain (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,
	2018			2017			2018		2017			2018			2017
Zero cost collars	$	(1,142	)	$	883	Net sales	$	2,191	$	1,305	Other income (expenses), net	$	(318	)	$	269
Forwards	$	(795	)	$	26	Net sales	$	2,450	$	—	Other income (expenses), net	$	(1,390	)	$	(99	)

Total	$	(1,937	)	$	909		$	4,641	$	1,305		$	(1,708	)	$	170

As of June 30, 2018, the amount expected to be reclassified from accumulated other comprehensive loss into loss within the next twelve months is $1,280 thousand.

The Company set aside $10,100 thousand and $7,600 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 June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017, respectively. 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.