DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2015

DERIVATIVE INSTRUMENTS

4. DERIVATIVE INSTRUMENTS

The Company has historically used foreign currency forward contracts (“forward contracts”) to manage its exposure to changes in foreign currency exchange rates associated with its foreign currency denominated cash, accounts receivable, and intercompany receivables and payables held by its U.S. operating company.

Effective April 1, 2015, the Company restructured its operations with its clients based outside the Americas. These clients began transacting with Pegasystems Limited, a United Kingdom subsidiary of Pegasystems Inc., which has the British pound as its functional currency. This reorganization resulted in increased cash, accounts receivable, and intercompany receivables and payables held by Pegasystems Limited in currencies other than the British pound. As a result, the Company’s exposure to foreign currency exchange rate fluctuations in the U.S. dollar, the Euro, and the Australian dollar relative to the British pound increased, while its exposure to foreign currency exchange rate fluctuations in the Euro and the Australian dollar relative to the U.S. dollar decreased.

The Company did not enter into any forward contracts between March 2014 and June 2015. In July 2015, as a result of its operational reorganization, the Company implemented its revised hedging program under which it hedges its non-functional currency exposures for Pegasystems Inc. and Pegasystems Limited.

As of December 31, 2015, the total notional amount of the Company’s outstanding forward contracts was $32.3 million. The Company did not have any outstanding forward contracts as of December 31, 2014.

The fair value of the Company’s outstanding forward contracts as of December 31, 2015 was as follows:

(in thousands)	Asset Derivatives				Liability Derivatives
	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Foreign currency forward contracts		Other current assets	$	48		Accrued expenses	$	1,052

The Company entered into forward contracts with notional values as follows:

	Year Ended December 31,
Currency (in thousands)	2015		2014		2013
Euro	€	55,850	€	21,900	€	102,300
British pound	£	13,600	£	26,500	£	85,400
Australian dollar	A$	43,000	A$	12,900	A$	26,300
Indian rupee	Rs	1,100,000	Rs	204,000	Rs	690,000
United States dollar	$	77,900	$	—	$	—

	Change in Fair Value in USD
	Year Ended December 31,
(in thousands)	2015			2014			2013
Loss from the change in the fair value of forward contracts included in other expense, net	$	(1,047	)	$	(532	)	$	(747	)
Foreign currency transaction losses from the remeasurement of foreign currency assets and liabilities		(4,168	)		(3,769	)		(1,593	)