Hedging

Foreign currency forward contracts - Designated as hedging instruments

The Company maintains a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of the Company’s forecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward contracts that are designated as cash flow hedges under GAAP having contractual durations from one to eighteen months. The Company recognizes realized gains and losses for the effective portion of such contracts in “Product revenues, net” in its condensed consolidated statements of operations in the same period that it recognizes the product revenues that were impacted by the cash flow hedge contracts.

The Company formally documents the relationship between foreign currency forward contracts (hedging instruments) and forecasted product revenues (hedged items), as well as the Company’s risk management objective and strategy for undertaking various hedging activities, which includes matching all foreign currency forward contracts that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. If the Company were to determine that a (i) foreign currency forward contract is not highly effective as a cash flow hedge, (ii) foreign currency forward contract has ceased to be a highly effective hedge or (iii) forecasted transaction is no longer probable of occurring, the Company would discontinue hedge accounting treatment prospectively. The Company measures effectiveness based on the change in fair value of the forward contracts and the fair value of the hypothetical foreign currency forward contracts with terms that match the critical terms of the risk being hedged. As of June 30, 2018, all hedges were determined to be highly effective, and the Company has not recorded any ineffectiveness related to its hedging program since its inception.

The Company considers the impact of its counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of June 30, 2018 and December 31, 2017, credit risk did not change the fair value of the Company’s foreign currency forward contracts.

The following table summarizes the notional amount of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under GAAP:



	As of June 30, 2018		As of December 31, 2017
Foreign Currency	(in thousands)
Euro	$	317,429	$	257,230
British pound sterling	71,288		77,481
Australian dollar	31,853		30,501
Canadian dollar	32,789		—
Total foreign currency forward contracts	$	453,359	$	365,212

Foreign currency forward contracts - Not designated as hedging instruments

The Company also enters into foreign exchange forward contracts with contractual maturities of less than one month designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including intercompany balances. These contracts are not designated as hedging instruments under GAAP. The Company recognizes realized gains and losses for such contracts in “Other income (expense), net” in its condensed consolidated statements of operations each period. As of June 30, 2018, the notional amount of foreign exchange contracts where hedge accounting under GAAP is not applied was $90.4 million.

During the three and six months ended June 30, 2018 and 2017, the Company recognized the following related to foreign currency forward contacts in its condensed consolidated statements of operations:



	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
	(in thousands)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	$	(2,675	)	$	1,973	$	(9,159	)	$	6,752
Not designated as hedging instruments
Other income (expense), net	$	(4,152	)	$	5,304	$	(2,614	)	$	8,823

The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts included on its condensed consolidated balance sheets:



As of June 30, 2018
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Designated as hedging instruments
Prepaid expenses and other current assets	$	10,812	Other liabilities, current portion	$	(1,948	)
Other assets	1,451		Other liabilities, excluding current portion	(299		)
Not designated as hedging instruments
Prepaid expenses and other current assets	206		Other liabilities, current portion	—
Total assets	$	12,469	Total liabilities	$	(2,247	)



As of December 31, 2017
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Designated as hedging instruments
Prepaid expenses and other current assets	$	13	Other liabilities, current portion	$	(13,642	)
Other assets	—		Other liabilities, excluding current portion	(866		)
Not designated as hedging instruments
Prepaid expenses and other current assets	—		Other liabilities, current portion	(684		)
Total assets	$	13	Total liabilities	$	(15,192	)

As of June 30, 2018, the Company expects amounts that are related to foreign exchange forward contracts designated as cash flow hedges under GAAP recorded in “Prepaid expenses and other current assets” and “Other liabilities, current portion” to be reclassified to earnings within twelve months.

The following table summarizes the potential effect of offsetting derivatives by type of financial instrument designated as cash flow hedges under GAAP on the Company’s condensed consolidated balance sheets:



	As of June 30, 2018
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	12,263		$	—	$	12,263		$	(2,247	)	$	10,016
Total liabilities	$	(2,247	)	$	—	$	(2,247	)	$	2,247		$	—



	As of December 31, 2017
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	13		$	—	$	13		$	(13	)	$	—
Total liabilities	$	(14,508	)	$	—	$	(14,508	)	$	13		$	(14,495	)