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Derivative Financial Instruments | 9 Months Ended
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Oct. 03, 2021
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Note 5. Derivative Financial Instruments 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. Cash flow hedges 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 an average USD notional amount of approximately $6.0 million 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. The Company did not recognize any material net gains or losses related to anticipated transactions that failed to occur during the three and nine months ended October 3, 2021 and September 27, 2020. Non-designated hedges 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 an average USD notional amount of approximately $2.0 million. Fair Value of Derivative Instruments 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 October 3, 2021, and December 31, 2020, were summarized as follows:
|  | Balance Sheet |  |  |  |  |  |  |  |  |  | Balance Sheet |  |  |  |  |  |  |  |
|  | Location |  | October 3, 2021 |  |  | December 31, 2020 |  |  | Location |  | October 3, 2021 |  |  | December 31, 2020 |
|  |  |  | (In thousands) |  |  |  |  | (In thousands) |
Derivatives not designated as hedging instruments |  | Prepaid expenses and other current assets |  | $ | 1,011 |  |  | $ | 324 |  |  | Other accrued liabilities |  | $ | 116 |  |  | $ | 2,344 |
Derivatives designated as hedging instruments |  | Prepaid expenses and other current assets |  |  | 5 |  |  |  | — |  |  | Other accrued liabilities |  |  | 1 |  |  |  | 38 |
Total |  |  |  | $ | 1,016 |  |  | $ | 324 |  |  |  |  | $ | 117 |  |  | $ | 2,382 |
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. Effect of Derivative Contracts on Unaudited Condensed Consolidated Statement of Operations and Accumulated Other Comprehensive Income ("AOCI") The effects of the Company's derivative instruments on AOCI and the unaudited condensed consolidated statements of operations for the three and nine months ended October 3, 2021 and September 27, 2020 were summarized as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | October 3, 2021 |  |  | September 27, 2020 |  |  | October 3, 2021 |  |  | September 27, 2020 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains (losses) recognized in accumulated other comprehensive income - Effective Portion |  | $ | 444 |  |  | $ | (1,530 | ) |  | $ | (235 | ) |  | $ | (608 | )
Gains (losses) reclassified from accumulated other comprehensive income into income - Effective Portion (1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net revenue |  | $ | 545 |  |  | $ | (1,614 | ) |  | $ | (407 | ) |  | $ | (595 | )
Cost of revenue |  | $ | (1 | ) |  | $ | 3 |  |  | $ | — |  |  | $ | 2 |
Research and development |  | $ | 12 |  |  | $ | 27 |  |  | $ | 56 |  |  | $ | 32 |
Sales and marketing |  | $ | (27 | ) |  | $ | 167 |  |  | $ | 50 |  |  | $ | 95 |
General and administrative |  | $ | (4 | ) |  | $ | 24 |  |  | $ | 13 |  |  | $ | 10 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains (losses) recognized in Other income (expense), net |  | $ | 1,818 |  |  | $ | (1,424 | ) |  | $ | 2,871 |  |  | $ | (774 | )
(1) | Refer to Note 9, Stockholders' Equity, which summarizes the accumulated other comprehensive income activity related to derivatives.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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