v3.5.0.2
Derivative Financial Instruments
 6 Months Ended
Jul. 30, 2016
Derivative Financial Instruments

Note 5. Derivative Financial Instruments

The Company manages some of its foreign currency exchange rate risk through the purchase of foreign currency exchange contracts that hedge against the short-term effect of currency fluctuations. The Company’s policy is to enter into foreign currency forward contracts with maturities less than 12 months that mitigate the effect of rate fluctuations on certain local currency denominated operating expenses. All derivative instruments are recorded at fair value in either prepaid expenses and other current assets or accrued liabilities. The Company reports cash flows from derivative instruments in cash flows from operating activities. The Company uses quoted prices to value its derivative instruments.

The notional amounts of outstanding forward contracts were as follows (in thousands):

 

     Buy Contracts  
     July 30,      January 30,  
     2016      2016  

Israeli shekel

    $ 22,850       $ 19,082   
  

 

 

     

 

 

  

Cash Flow Hedges. The Company designates and documents its foreign currency forward exchange contracts as cash flow hedges for certain operating expenses. The Company evaluates and calculates the effectiveness of each hedge at least quarterly. The effective change is recorded in accumulated other comprehensive income and is subsequently reclassified to operating expense when the hedged expense is recognized. Ineffectiveness is recorded in interest and other income, net.

Other Foreign Currency Forward Contracts. The Company enters into foreign currency forward exchange contracts to hedge certain assets and liabilities denominated in various foreign currencies that it does not designate as hedges for accounting purposes. The maturities of these contracts are generally less than 12 months. Gains or losses arising from the remeasurement of these contracts to fair value each period are recorded in interest and other income, net.

The fair value of foreign currency exchange contracts was not significant as of any period presented.

The following table provides information about gains (losses) associated with the Company’s derivative financial instruments (in thousands):

 

          Amount of Gains (Losses) in Statement of Operations  
          Three Months Ended      Six Months Ended  
     Location of Gains (Losses)    July 30,      August 1,      July 30,      August 1,  
    

in Statement of Operations

    2016      2015      2016      2015  

Derivatives designated as cash flow hedges:

               

Forward contracts:

   

Research and development

    $ 265       $ 415       $ 451       $ (576 ) 
  

Selling and marketing

      6         6         10         (71 ) 
  

General and administrative

      31         32         53         18   
     

 

 

     

 

 

     

 

 

     

 

 

  
      $ 302       $ 453       $ 514       $ (629 ) 
     

 

 

     

 

 

     

 

 

     

 

 

  

The portion of gains (losses) excluded from the assessment of hedge effectiveness are included in interest and other income, net, and these amounts were not material in the three and six months ended July 30, 2016 and August 1, 2015. In addition, realized losses from forward contracts that are not designated as hedging instruments and are included in interest and other income, net, were not material in the three and six months ended July 30, 2016 and August 1, 2015. The Company also reports hedge ineffectiveness from derivative financial instruments in current earnings, which was not material in the three and six months ended July 30, 2016 and August 1, 2015. No cash flow hedges were terminated as a result of forecasted transactions that did not occur.