DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

The Company uses forward foreign currency exchange contracts (forward contracts) to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates. Such exposures result from portions of the Company’s forecasted product revenues and operating expenses being denominated in currencies other than the U.S. Dollar (USD), primarily the Euro. The Company designates certain of these forward contracts as hedging instruments and also uses forward contracts for economic hedging purposes which are not designated as hedging instruments. Whether designated or undesignated, these forward contracts protect against the reduction in value of forecasted foreign currency cash flows resulting from net product revenues, operating expenses and asset or liability positions designated in currencies other than the USD. To receive hedge accounting treatment, derivatives that hedge cash flows must be highly effective at offsetting changes to expected future cash flows on hedged transactions. The Company does not hold or issue derivative instruments for trading or speculative purposes.

The following table summarizes the Company’s derivatives designated as hedging instruments outstanding as of September 30, 2019 (notional amounts in millions):



Foreign Exchange Contracts	Number of Contracts	Aggregate Notional Amount in Foreign Currency	Maturity
Australian Dollars – Sell	6	2.8	Oct 2019 - Dec 2019
Canadian Dollars – Sell	24	28.1	Oct 2019 - Sept 2020
Colombian Pesos – Sell	12	89,400.0	Oct 2019 - Sept 2020
Euros – Purchase	150	189.4	Oct 2019 - Sept 2022
Euros – Sell	453	624.2	Oct 2019 - Sept 2022
Norwegian Krone – Sell	3	11.7	Oct 2019 - Dec 2019
Total	648

The following table summarizes the Company’s derivatives not designated as hedging instruments outstanding as of September 30, 2019 (notional amounts in millions):



Foreign Exchange Contracts	Number of Contracts	Aggregate Notional Amount in Foreign Currency	Maturity
Colombian Pesos – Sell	2	96,000.0	Oct 2019 - Nov 2019
Euros – Purchase	2	44.1	Oct 2019 - Nov 2019
Great British Pounds - Purchase	1	4.9	Oct 2019
Great British Pounds - Sell	1	2.0	Oct 2019
Rubles – Sell	2	1,420.0	Oct 2019 - Nov 2019
Total	8

The fair value carrying amounts of the Company’s derivatives, as classified within the fair value hierarchy, were as follows:



Balance Sheet Location	September 30, 2019		December 31, 2018
Derivatives designated as hedging instruments:
Asset Derivatives - Level 2 ⁽¹⁾
Other current assets	$	29,900	$	12,686
Other assets	22,892		10,324
Subtotal	$	52,792	$	23,010

Liability Derivatives - Level 2 ⁽¹⁾
Accounts payable and accrued liabilities	$	7,875	$	4,036
Other long-term liabilities	7,641		3,653
Subtotal	$	15,516	$	7,689

Derivatives not designated as hedging instruments:
Asset Derivatives - Level 2 ⁽¹⁾
Other current assets	$	71	$	168
Other assets	—		—
Subtotal	$	71	$	168
Liability Derivatives - Level 2 ⁽¹⁾
Accounts payable and accrued liabilities	$	858	$	142
Other long-term liabilities	—		—
Subtotal	$	858	$	142

Total Derivatives Assets	$	52,863	$	23,178
Total Derivatives Liabilities	$	16,374	$	7,831


(1)	For additional discussion of fair value measurements, see Note 3 – Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

The following tables summarize the impact of gains and losses from the Company's derivatives on its Condensed Consolidated Financial Statements for the period presented.



	Three Months Ended		Nine Months Ended
Derivatives Designated as Cash Flow Hedging Instruments	September 30, 2019		September 30, 2019
Amount of Gain (Loss) Recognized in Other Comprehensive Income	$	23,973	$	35,431



	Three Months Ended					Nine Months Ended
	September 30, 2019					September 30, 2019
Derivatives Designated as Cash Flow Hedging Instruments			Cash Flow Hedging Gains (Losses) Reclassified into Earnings					Cash Flow Hedging Gains (Losses) Reclassified into Earnings

Net product revenues as reported	$	450,900	$	6,196		$	1,224,458	$	11,171
Operating expenses as reported	$	457,087	$	(1,388	)	$	1,340,900	$	(1,885	)

Derivatives Not Designated as Hedging Instruments			Gains (Losses) Recognized in Earnings					Gains (Losses) Recognized in Earnings
Operating Expenses			$	(1,286	)			$	(5,182	)

As of September 30, 2019, the Company expects to reclassify unrealized gains of $19.2 million from AOCI to earnings as the forecasted revenue and operating expense transactions occur over the next 12 months.

The Company is exposed to counterparty credit risk on its derivatives. The Company has established and maintains strict counterparty credit guidelines and enters into hedging agreements with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults. The Company is not required to pledge collateral under these agreements.