Note 7 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

From time to time, we enter into forward exchange contracts as a hedge against foreign currency asset and liability commitments and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value. We do not use financial instruments for trading or speculative purposes.

During fiscal year 2018 and the nine months ended December 31, 2018, we entered into foreign currency put option contracts of £5 million per month through November 2019 to mitigate a portion of our foreign currency exposure. These derivatives were designated as cash flow hedges.

The designation of a derivative instrument as a hedge and its ability to meet relevant hedge accounting criteria determines how the change in fair value of the derivative instrument will be reflected in the consolidated financial statements. A derivative qualifies for hedge accounting if, at inception, the derivative is expected to be highly effective in offsetting the hedged item’s underlying cash flows or fair value and the documentation requirements of the accounting standard for derivative instruments and hedging activities are fulfilled at the time we enter into the derivative contract. A hedge is designated as a cash flow hedge, fair value hedge, or a net investment in foreign operations hedge based on the exposure being hedged. The asset or liability value of the derivative will change in tandem with its fair value. For derivatives designated as cash flow hedges, the changes in fair value are recorded in accumulated other comprehensive income (loss). The derivative’s gain or loss is released from accumulated other comprehensive income (loss) to match the timing of the effect on earnings of the hedged item’s underlying cash flows.

We review the effectiveness of our hedging instruments on a quarterly basis. We discontinue hedge accounting for any hedge that we no longer consider to be highly effective. Changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting are recognized in current period earnings.

None of our derivative instruments contain credit-risk-related contingent features. Counterparties to our derivative contracts are high credit quality financial institutions.

The following table presents the balance sheet location and fair value of the portions of our derivative instruments that were designated as hedging instruments as of December 31, 2018 (in thousands):



	Derivatives designated as hedging instruments		Derivatives not designated as hedging instruments		Gross amounts of recognized assets and liabilities		Gross amounts offset in the Balance Sheet		Net amounts of assets and liabilities presented in the Balance Sheet

Prepaid expenses and other current assets	$	3,174	$	—	$	3,174	$	—	$	3,174
Net	$	3,174	$	—	$	3,174	$	—	$	3,174

The following table presents the balance sheet location and fair value of the portions of our derivative instruments that were designated as hedging instruments as of March 31, 2018 (in thousands):



	Derivatives designated as hedging instruments		Derivatives not designated as hedging instruments		Gross amounts of recognized assets and liabilities		Gross amounts offset in the Balance Sheet		Net amounts of assets and liabilities presented in the Balance Sheet

Prepaid expenses and other current assets	$	718	$	—	$	718	$	—	$	718
Net	$	718	$	—	$	718	$	—	$	718

The following table presents the impact that derivative instruments, designated as cash flow hedges, had on our accumulated other comprehensive loss (net of tax) and our consolidated statements of operations for the three months ended December 31, 2018 (in thousands):

The following table presents the impact that derivative instruments, designated as cash flow hedges, had on our accumulated other comprehensive loss (net of tax) and our consolidated statements of operations for the nine months ended December 31, 2018 (in thousands):

We estimate that $1.2 million of net gain in accumulated other comprehensive loss associated with our derivative instruments is expected to be reclassified into earnings within the next twelve months.

Financial statement location

Amount of loss recognized in accumulated other comprehensive loss

Accumulated other comprehensive loss

Amount of loss reclassified from accumulated other comprehensive loss into earnings

Statement of operations — Direct cost