Hedging

6 Months Ended

Jun. 30, 2020

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 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, 2020, 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, 2020 and December 31, 2019, 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, 2020		As of December 31, 2019
Foreign Currency	(in thousands)
Euro	$	633,770	$	501,197
British pound sterling	150,407		87,032
Australian dollar	89,443		89,705
Canadian dollar	57,578		50,452
Total foreign currency forward contracts	$	931,198	$	728,386

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, that 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, 2020, the notional amount of the Company’s outstanding foreign currency forward contracts where hedge accounting under GAAP is not applied was $574.6 million.

During the three and six months ended June 30, 2020 and 2019, 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,
	2020		2019		2020		2019
	(in thousands)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	$	6,366	$	8,238	$	15,288	$	15,077
Not designated as hedging instruments
Other income, net	$	(6,056)	$	(1,089)	$	10,173	$	2,062

Total reported in the Condensed Consolidated Statement of Operations
Product revenues, net	$	1,524,485	$	940,380	$	3,039,592	$	1,797,633
Other income, net	$	116,365	$	53,939	$	55,235	$	96,549

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, 2020
Assets				Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Prepaid expenses and other current assets	$	8,054	Other current liabilities	$	(4,871)
Other assets	44		Other long-term liabilities	(1,462)
Total assets	$	8,098	Total liabilities	$	(6,333)


As of December 31, 2019
Assets				Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Prepaid expenses and other current assets	$	9,725	Other current liabilities	$	(5,533)
Other assets	—		Other long-term liabilities	(1,821)
Total assets	$	9,725	Total liabilities	$	(7,354)

As of June 30, 2020, the Company expects the 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, 2020
	Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	8,098	$	—	$	8,098	$	(6,333)	$	1,765
Total liabilities	(6,333)		—		(6,333)		6,333		—


	As of December 31, 2019
	Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	9,725	$	—	$	9,725	$	(7,354)	$	2,371
Total liabilities	(7,354)		—		(7,354)		7,354		—