FOREIGN CURRENCY DERIVATIVES

The Company's foreign currency derivatives consist primarily of foreign currency forward exchange contracts, option contracts, and cross-currency swaps. The Company does not purchase derivative financial instruments for speculative trading purposes. The derivatives expose the Company to credit risk to the extent the counterparties may be unable to meet the terms of the derivative instrument. The Company's maximum exposure to loss that it would incur due to credit risk if parties to derivative contracts failed completely to perform according to the terms of the contracts was equal to the carrying value of the Company's derivative assets as of December 31, 2017. The Company seeks to mitigate such risk by limiting its counterparties to large financial institutions. In addition, the Company monitors the potential risk of loss with any one counterparty resulting from this type of credit risk on an ongoing basis.

The Company enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions. A master netting arrangement may allow each counterparty to net settle amounts owed between the Company and the counterparty as a result of multiple, separate derivative transactions. As of December 31, 2017, the Company had International Swaps and Derivatives Association (ISDA) agreements with four applicable banks and financial institutions which contained netting provisions. Plantronics has elected to present the fair value of derivative assets and liabilities on the Company's condensed consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. For each counterparty, if netted, the Company would offset the asset and liability balances of all derivatives at the end of the reporting period. Derivatives not subject to master netting agreements are not eligible for net presentation. As of March 31, 2017 and December 31, 2017, no cash collateral had been received or pledged related to these derivative instruments.

The gross fair value of the Company's outstanding derivative contracts at the end of each period was as follows:



(in thousands)	March 31, 2017		December 31, 2017
Derivative Assets⁽¹⁾
Non-designated hedges	$	86	$	19
Cash flow hedges	2,034		332
Total Derivative Assets	$	2,120	$	351

Derivative Liabilities⁽²⁾
Non-designated hedges	$	286	$	1,155
Cash flow hedges	1,109		3,345
Total Derivative Liabilities	$	1,395	$	4,500

⁽¹⁾Short-term derivative assets are recorded in "other current assets" and long-term derivative assets are recorded in "deferred tax and other assets". As of December 31, 2017 the portion of derivative assets classified as long-term was immaterial.

⁽²⁾Short-term derivative liabilities are recorded in "accrued liabilities" and long-term derivative liabilities are recorded in "other long-term liabilities". As of December 31, 2017 the portion of derivative liabilities classified as long-term was immaterial.

Non-Designated Hedges

As of December 31, 2017, the Company had foreign currency forward contracts denominated in Euros ("EUR"), British Pound Sterling ("GBP"), Australian Dollars ("AUD"), and Canadian Dollars ("CAD"). The Company does not elect to obtain hedge accounting for these forward contracts. These forward contracts hedge against a portion of the Company’s foreign currency-denominated cash balances, receivables, and payables. The following table summarizes the notional value of the Company’s outstanding foreign exchange currency contracts and approximate U.S. Dollar ("USD") equivalent at December 31, 2017:



(in thousands)	Local Currency		USD Equivalent		Position	Maturity
EUR	€	38,700	$	46,560	Sell EUR	1 month
GBP	£	5,100	$	6,899	Sell GBP	1 month
AUD	A$	14,200	$	11,092	Sell AUD	1 month
CAD	C$	2,900	$	2,315	Sell CAD	1 month

Effect of Non-Designated Derivative Contracts on the Condensed Consolidated Statements of Operations

The effect of non-designated derivative contracts recognized in other non-operating income and (expense), net in the condensed consolidated statements of operations was as follows:



	Three Months Ended December 31,				Nine Months Ended December 31,
(in thousands)	2016		2017		2016		2017
Gain (loss) on foreign exchange contracts	$	3,801	$	848	$	5,551	$	6,083

Cash Flow Hedges

Costless Collars

The Company hedges a portion of the forecasted EUR and GBP denominated revenues with costless collars. On a monthly basis, the Company enters into option contracts with a six to eleven month term. Collar contracts are scheduled to mature at the beginning of each fiscal quarter, at which time the instruments convert to forward contracts. The Company also enters into cash flow forwards with a three month term. Once the hedged revenues are recognized, the forward contracts become non-designated hedges to protect the resulting foreign monetary asset position for the Company.

The notional value of the Company's outstanding EUR and GBP option and forward contracts at the end of each period was as follows:



	March 31, 2017		December 31, 2017
(in millions)	EUR	GBP	EUR	GBP
Option contracts	€73.5	£23.9	€75.8	£22.9
Forward contracts	€11.2	£3.3	€13.0	£4.1

The Company will reclassify all amounts accumulated in other comprehensive income into earnings within the next twelve months.

Cross-currency Swaps

The Company hedges a portion of the forecasted Mexican Peso (“MXN”) denominated expenditures with a cross-currency swap. As of March 31, 2017 and December 31, 2017, the Company had foreign currency swap contracts of approximately MXN 287.2 million and MXN 76.3 million, respectively.

The following table summarizes the notional value of the Company’s outstanding MXN cross-currency swaps and approximate USD Equivalent at December 31, 2017:

(in thousands)

Local Currency

USD Equivalent

Position

Maturity

MXN

76,340

3,935

Buy MXN

Monthly over

6 months

Effect of Designated Derivative Contracts on AOCI and Condensed Consolidated Statements of Operations

The following table presents the pre-tax effects of derivative instruments designated as cash flow hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three and nine months ended December 31, 2016 and 2017:



	Three Months Ended December 31,						Nine Months Ended December 31,
(in thousands)	2016			2017			2016			2017
Gain (loss) included in AOCI as of beginning of period	$	(471	)	$	(3,089	)	$	(1,106	)	$	541

Amount of gain (loss) recognized in other comprehensive income (“OCI”) (effective portion)	2,090			(446		)	2,394			(5,093		)

Amount of gain (loss) reclassified from OCI into net revenues (effective portion)	2,178			1,357			3,163			2,506
Amount of gain (loss) reclassified from OCI into cost of revenues (effective portion)	(756		)	(61		)	(2,072		)	(193		)
Total amount of gain (loss) reclassified from AOCI to income (loss) (effective portion)	1,422			1,296			1,091			2,313

Gain (loss) included in AOCI as of end of period	$	197		$	(2,239	)	$	197		$	(2,239	)

During the three and nine months ended December 31, 2016 and 2017 the Company recognized an immaterial gain and immaterial loss on the ineffective portion of its cash flow hedges, respectively, which is reported in other non-operating income and (expense), net in the condensed consolidated statements of operations.