Fair Value Measurement

6 Months Ended

Jun. 30, 2019

Note 3— Fair Value Measurement

Based on the observability of the inputs used in the valuation techniques used to determine the fair value of certain financial assets and liabilities, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The following table presents information about the Company’s financial assets that have been measured at fair value as of June 30, 2019, and indicates the level within the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):



Description	Fair Value as of June 30, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Cash, cash equivalents and restricted cash	$	165,152	$	165,152	$	—
Foreign currency exchange contracts (1)	2,400		—		2,400
Assets measured at fair value at June 30, 2019	$	167,552	$	165,152	$	2,400
Liabilities:
Foreign currency exchange contracts (2)	111		$	—	111
Liabilities measured at fair value at June 30, 2019	$	111	$	—	$	111


(1)	Included in “Prepaid expenses and other current assets” and “Other non-current assets” on the Company’s Condensed Consolidated Balance Sheets.


(2)	Included in “Other accrued liabilities” and “Other non-current liabilities” on the Company’s Consolidated Balance Sheets.

Foreign Currency Derivatives

The Company may enter into foreign currency derivatives to hedge future cash receipts on certain sales transactions that are payable in foreign currencies.

As of June 30, 2019 and December 31, 2018, the Company had outstanding foreign currency exchange contracts that were designated and accounted for as cash flow hedges of anticipated future cash receipts on sales contracts payable in foreign currencies. The outstanding notional amounts were approximately (in millions):

The Company had hedged foreign currency exposure related to these designated cash flow hedges of approximately $12.9 million as of June 30, 2019 and $41.6 million as of December 31, 2018.

As of June 30, 2019 and December 31, 2018, the Company had outstanding foreign currency exchange contracts that had been dedesignated for the purposes of hedge accounting treatment. The Company dedesignates cash flow hedges when the receivable related to the hedged cash flow is recorded. The outstanding notional amounts were approximately (in millions):



	June 30, 2019	December 31, 2018
British Pounds (GBP)	13.1	24.8
Canadian Dollars (CAD)	47.9	—
Korean Won (KRW)	—	4,446.5
Singapore Dollars (SGD)	—	2.0

The foreign currency exposure related to these contracts was approximately $55.8 million as of June 30, 2019 and $40.6 million as of December 31, 2018. Unrealized gains or losses related to these dedesignated contracts are recorded in other expense in the Condensed Consolidated Statements of Operations and are generally offset by foreign currency adjustments on related receivables. These foreign currency exchange contracts are considered to be economic hedges.

Cash receipts associated with the foreign currency exchange contracts are expected to be received from 2019 through 2022, during which time the revenue on the associated sales contracts is expected to be recognized, or in the case of receivables denominated in a foreign currency, the receivables balances will be collected. Any gain or loss on hedged foreign currency will be recognized at the time of customer acceptance, or in the case of receivables denominated in a foreign currency, over the period during which hedged receivables denominated in a foreign currency are outstanding.

Fair values of derivative instruments designated as cash flow hedges (in thousands):



Balance Sheet Location	Fair Value as of June 30, 2019			Fair Value as of December 31, 2018
Prepaid expenses and other current assets	$	—		$	1,296
Other non-current assets	—			137
Other accrued liabilities	(62		)	—
Other non-current liabilities	(6		)	—
Total fair value of derivative instruments designated as cash flow hedges	$	(68	)	$	1,433

Fair values of derivative instruments not designated as cash flow hedges (in thousands):



Balance Sheet Location	Fair Value as of June 30, 2019			Fair Value as of December 31, 2018
Prepaid expenses and other current assets	$	1,941		$	1,894
Other non-current assets	459			1,242
Accrued and other liabilities	(43		)	(63		)
Total fair value of derivative instruments not designated as cash flow hedges	$	2,357		$	3,073

The following table shows the impact on product revenue of foreign currency exchange contracts that were designated as cash flow hedges (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Total amounts of product revenue presented in the condensed consolidated statement of operations in which the effects of cash flow hedges are recorded	$	29,924		$	83,379		$	64,082		127,833
Amount of gain (loss) recognized in other comprehensive income included in the assessment of effectiveness	(171		)	2,939			(1,020		)	2,183
Amount of loss reclassified from accumulated other comprehensive income to product revenue	(143		)	(633		)	(143		)	(1,109	)
Amount excluded from effectiveness testing recognized as an increase in product revenue based on changes in fair value	63			—			119			—
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach	6			—			6			—

The following table shows the impact on other expense of losses on foreign currency exchange contracts that were not designated as cash flow hedges. These amounts increased other income for all periods presented (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Other income, net	$	442	$	3,501	$	16	$	1,590

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

June 30,
2019

December 31, 2018

Canadian Dollars (CAD)

Japanese Yen (JPY)

Singapore Dollars (SGD)