Derivative Financial Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

9. 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 September 30, 2020 are as follows (in thousands):

Date of transaction	Type of derivative		Total notional amount		Month of settlement
December 4, 2019		Zero cost collar	$	15,000	October 2020 to December 2020
January 31, 2020		Zero cost collar	$	15,000	October 2020 to December 2020
February 3, 2020		Zero cost collar	$	9,000	October 2020 to December 2020
February 21, 2020		Zero cost collar	$	15,000	October 2020 to December 2020
July 13, 2020		Zero cost collar	$	30,000	January 2021 to June 2021

Details of derivative contracts as of December 31, 2019 are as follows (in thousands):

Date of transaction	Type of derivative		Total notional amount		Month of settlement
August 13, 2019		Zero cost collar	$	60,000		January 2020 to June 2020
September 27, 2019		Zero cost collar	$	42,000		January 2020 to June 2020
December 4, 2019		Zero cost collar	$	30,000		July 2020 to December 2020

The zero cost collar 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 fair values of the Company’s outstanding zero cost collar contracts recorded as assets and liabilities as of September 30, 2020 and December 31, 2019 are as follows (in thousands):

Derivatives designated as hedging instruments:		September 30, 2020		December 31, 2019
Asset Derivatives:
Zero cost collars	Other current assets	$	262	$	1,456
Liability Derivatives:
Zero cost collars	Other current liabilities	$	33	$	—

Offsetting of derivative assets and liabilities as of September 30, 2020 is as follows (in thousands):

As of September 30, 2020	Gross amounts of recognized assets/liabilities		Gross amounts offset in the balance sheets		Net amounts of assets/liabilities 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	$	262	$	—	$	262	$	—	$	—	$	262
Liability Derivatives:
Zero cost collars	$	33	$	—	$	33	$	—	$	—	$	33

Offsetting of derivative assets as of December 31, 2019 is as follows (in thousands):

As of December 31, 2019	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	$	1,456	$	—	$	1,456	$	—	$	1,070	$	2,526

For derivative instruments that are designated and qualify as cash flow hedges, gains or losses on the derivative aside from components excluded from the assessment of effectiveness are 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 components excluded from the assessment of effectiveness, are recognized in current earnings.

The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 and net sales of discontinued operation are included in the below table (in thousands):

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives					Location/Amount of Loss Reclassified from AOCI Into Statement of Operations								Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives
	Three Months Ended September 30,							Three Months Ended September 30,								Three Months Ended September 30,
	2020		2019					2020			2019					2020		2019
Zero cost collars	$	1,390	$	(2,803	)		Net sales	$	(41	)	$	(1,600	)		Other income, net	$	50	$	(33	)

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Loss Recognized in AOCI on Derivatives						Location/Amount of Loss Reclassified from AOCI Into Statement of Operations								Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives
	Nine Months Ended September 30,								Nine Months Ended September 30,								Nine Months Ended September 30,
	2020			2019					2020			2019					2020		2019
Zero cost collars	$	(1,410	)	$	(3,905	)		Net sales	$	(292	)	$	(1,803	)		Other income, net	$	222	$	(44	)
Forwards	$	—		$	(1,798	)		Net sales	$	—		$	(1,750	)		Other income, net	$	—	$	(125	)
	$	(1,410	)	$	(5,703	)			$	(292	)	$	(3,553	)			$	222	$	(169	)

As of September 30, 2020, the amount expected to be reclassified from accumulated other comprehensive income into income within the next twelve months is $427 thousand.

The Company set aside $9,650 thousand and $8,750 thousand of cash deposits to the counterparties, Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) and Deutsche Bank AG, Seoul Branch (“DB”), as required for the zero cost collar contracts outstanding as of September 30, 2020 and December 31, 2019, 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 and DB for any exposure in excess of $500 thousand, and no such cash collateral was required as of September 30, 2020. As of December 31, 2019, $1,070 thousand of additional cash collateral were required and recorded as hedge collateral on the consolidated balance sheet.

These forward and zero cost collar contracts may be terminated by the counterparty in a number of circumstances, including if the Company’s borrowing rating falls below B-/B3 or if the Company’s total cash and cash equivalents is less than $30,000 thousand at the end of a fiscal quarter, unless a waiver is obtained from the counterparty.