DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

3 Months Ended

Mar. 31, 2017

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

(12) DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

The Company uses forward foreign currency exchange 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 revenues and operating expenses being denominated in currencies other than the U.S. dollar, primarily the Euro.

The Company designates certain of these forward foreign currency exchange contracts as hedging instruments and enters into some forward foreign currency exchange contracts that are considered to be economic hedges that are not designated as hedging instruments. Whether designated or undesignated, these forward foreign currency exchange contracts protect against the reduction in value of forecasted foreign currency cash flows resulting from product revenues, royalty revenues, operating expenses and asset or liability positions designated in currencies other than the U.S. dollar. The fair values of forward foreign currency exchange contracts are estimated using current exchange rates and interest rates, and take into consideration the current creditworthiness of the counterparties or the Company, as applicable. Information regarding the specific instruments used by the Company to hedge its exposure to foreign currency exchange rate fluctuations is provided below. See Note 13 to these Condensed Consolidated Financial Statements for additional discussion regarding the fair value of forward foreign currency exchange contracts.

The Company enters into forward foreign currency exchange contracts in order to protect against the fluctuations in revenue and operating expenses associated with foreign currency-denominated cash flows. The Company has formally designated these forward foreign currency exchange contracts as cash flow hedges and expects them to be highly effective in offsetting fluctuations in operating expenses denominated in Euros and revenues denominated in currencies other than the U.S. dollar related to changes in foreign currency exchange rates.

The following table summarizes the Company’s designated forward foreign currency exchange contracts outstanding as of March 31, 2017 (notional amounts in millions):

			Aggregate Notional
	Number of		Amount in
Foreign Exchange Contracts	Contracts		Foreign Currency		Maturity
Euros – Purchase		79		110.7	Apr. 2017 - Mar. 2020
Euros – Sell		294		340.8	Apr. 2017 - Mar. 2020
Canadian Dollars – Sell		18		17.5	Apr. 2017 - Dec. 2017
Colombian Pesos – Sell		9		46,728.0	Apr. 2017 - Dec. 2017
Brazilian Reais – Sell		3		64.5	May 2017
Total		403

The maximum length of time over which the Company is hedging its exposure to the reduction in value of forecasted foreign currency revenues through forward foreign currency exchange contracts is through March 2020. Over the next twelve months, the Company expects to reclassify $2.4 million from accumulated other comprehensive income to earnings as the forecasted revenue and operating expense transactions occur.

The Company also enters into forward foreign currency exchange contracts that are not designated as hedges for accounting purposes. The changes in fair value of these forward foreign currency exchange contracts are included as a part of selling, general and administrative (SG&A) expense in the Company’s Condensed Consolidated Statements of Comprehensive Loss.

The following table summarizes the Company’s non-designated forward foreign currency exchange contracts outstanding as of March 31, 2017 (notional amounts in millions):

			Aggregate Notional
	Number of		Amount in
Foreign Exchange Contracts	Contracts		Foreign Currency		Maturity
Euros – Purchase		1		97.8	April 2017
Brazilian Reais – Purchase		2		64.5	April 2017
British Pounds – Sell		1		12.9	May 2017
Total		4

The fair value carrying amounts of the Company’s derivative instruments were as follows:

	Asset Derivatives			Liability Derivatives
	March 31, 2017			March 31, 2017
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Forward foreign currency exchange contracts	Other current assets	$	7,847	Accounts payable and accrued liabilities	$	5,884
Forward foreign currency exchange contracts	Other assets		6,030	Other long- term liabilities		1,832
Total			13,877			7,716
Derivatives not designated as hedging instruments:
Forward foreign currency exchange contracts	Other current assets		845	Accounts payable and accrued liabilities		1,004
Forward foreign currency exchange contracts	Other assets		—	Other long- term liabilities		—
Total			845			1,004
Total value of derivative contracts		$	14,722		$	8,720

	Asset Derivatives			Liability Derivatives
	December 31, 2016			December 31, 2016
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Forward foreign currency exchange contracts	Other current assets	$	13,048	Accounts payable and accrued liabilities	$	5,176
Forward foreign currency exchange contracts	Other assets		8,194	Other long- term liabilities		2,342
Total			21,242			7,518
Derivatives not designated as hedging instruments:
Forward foreign currency exchange contracts	Other current assets		964	Accounts payable and accrued liabilities		25
Total			964			25
Total value of derivative contracts		$	22,206		$	7,543

The effect of the Company’s derivative instruments on the Condensed Consolidated Financial Statements for the three months ended March 31, 2017 and 2016 was as follows:

	Three Months Ended March 31,
	2017			2016
Derivatives Designated as Hedging Instruments:
Net loss recognized in Other Comprehensive Income (OCI) (1)	$	(4,199	)	$	(8,481	)
Net gain reclassified from accumulated OCI into earnings (2)		2,516			3,327
Net gain recognized in net loss (3)		880			4,663
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in net loss(4)	$	258		$	(2,260	)

(1) Net change in the fair value of the effective portion classified as OCI.

(2) Effective portion classified as Net Product Revenues and SG&A expense.

(3) Ineffective portion and amount excluded from effectiveness testing classified as SG&A expense.

(4) Classified as SG&A expense.

The Company is exposed to counterparty credit risk on all of its derivative financial instruments. The Company has established and maintains strict counterparty credit guidelines and enters into hedges only with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults. The Company does not require collateral to be pledged under these agreements.