Hedging

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 hedged foreign exchange rate changes.

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. 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, 2019, all hedges were determined to be highly effective.

The Company considers the impact of its counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of June 30, 2019 and December 31, 2018, 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, 2019		As of December 31, 2018
Foreign Currency	(in thousands)
Euro	$	448,778	$	335,179
British pound sterling	65,278		73,460
Australian dollar	77,010		52,820
Canadian dollar	47,950		43,759
Total foreign currency forward contracts	$	639,016	$	505,218

Foreign currency forward contracts - Not designated as hedging instruments

The Company also enters into foreign currency forward contracts with contractual maturities of less than one month, which are 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, net” in its condensed consolidated statements of operations each period. As of June 30, 2019, the notional amount of the Company’s outstanding foreign currency forward contracts where hedge accounting under GAAP is not applied was $352.0 million.

During the three and six months ended June 30, 2019 and 2018, 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,
	2019			2018			2019		2018
	(in thousands)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	$	8,238		$	(2,675	)	$	15,077	$	(9,159	)
Not designated as hedging instruments
Other income, net	$	(1,089	)	$	(4,152	)	$	2,062	$	(2,614	)

The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under GAAP included on its condensed consolidated balance sheets:



As of June 30, 2019
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Prepaid expenses and other current assets	$	13,215	Other current liabilities	$	(761	)
Other assets	314		Other long-term liabilities	(207		)
Total assets	$	13,529	Total liabilities	$	(968	)



As of December 31, 2018
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Prepaid expenses and other current assets	$	19,023	Other current liabilities	$	(340	)
Other assets	1,514		Other long-term liabilities	(108		)
Total assets	$	20,537	Total liabilities	$	(448	)

As of June 30, 2019, 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 current liabilities” 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, 2019
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	13,529		$	—	$	13,529		$	(968	)	$	12,561
Total liabilities	$	(968	)	$	—	$	(968	)	$	968		$	—



	As of December 31, 2018
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	20,537		$	—	$	20,537		$	(448	)	$	20,089
Total liabilities	$	(448	)	$	—	$	(448	)	$	448		$	—