(11) 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 monetary assets and liabilities and forecasted 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 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 USD related to changes in foreign currency exchange rates. The Company also enters into some forward foreign currency exchange contracts 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 USD. 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.

The following table summarizes the Company’s designated forward foreign currency exchange contracts outstanding as of June 30, 2018 (notional amounts in millions):

			Aggregate Notional
	Number of		Amount in
Foreign Exchange Contracts	Contracts		Foreign Currency		Maturity
Brazilian Reais – Sell		2		143.8	Aug. 2018
Canadian Dollars – Sell		12		15.0	Jul. 2018 - Dec. 2018
Colombian Pesos – Sell		6		48,000.0	Jul. 2018 - Dec. 2018
Euros – Purchase		108		134.4	Jul. 2018 - Jun. 2021
Euros – Sell		394		488.2	Jul. 2018 - Jun. 2021
Total		522

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 June 2021. Over the next twelve months, the Company expects to reclassify unrealized losses of $2.2 million from Accumulated Other Comprehensive Loss to earnings as the forecasted revenue and operating expense transactions occur.

The following table summarizes the Company’s non-designated forward foreign currency exchange contracts outstanding as of June 30, 2018 (notional amounts in millions):

			Aggregate Notional
	Number of		Amount in
Foreign Exchange Contracts	Contracts		Foreign Currency		Maturity
Brazilian Reais – Purchase		5		52.2	Aug. 2018
British Pounds – Sell		1		2.6	Jul. 2018
Colombian Pesos – Sell		1		34,000.0	Jul. 2018
Euros – Purchase		3		52.2	Jul. 2018
Total		10

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

	Asset Derivatives			Liability Derivatives
	June 30, 2018			June 30, 2018
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Level 2⁽¹⁾
Forward foreign currency exchange contracts	Other current assets	$	8,599	Accounts payable and accrued liabilities	$	6,608
Forward foreign currency exchange contracts	Other assets		5,852	Other long- term liabilities		4,571
Total			14,451			11,179
Derivatives not designated as hedging instruments:
Level 2⁽¹⁾
Forward foreign currency exchange contracts	Other current assets		1,440	Accounts payable and accrued liabilities		557
Total			1,440			557
Total value of derivative contracts		$	15,891		$	11,736

	Asset Derivatives			Liability Derivatives
	December 31, 2017			December 31, 2017
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Level 2⁽¹⁾
Forward foreign currency exchange contracts	Other current assets	$	4,015	Accounts payable and accrued liabilities	$	14,420
Forward foreign currency exchange contracts	Other assets		4,973	Other long- term liabilities		12,686
Total			8,988			27,106
Derivatives not designated as hedging instruments:
Level 2⁽¹⁾
Forward foreign currency exchange contracts	Other current assets		675	Accounts payable and accrued liabilities		44
Total			675			44
Total value of derivative contracts		$	9,663		$	27,150

(1) See Note 12 to these Condensed Consolidated Financial Statements for additional information related to the Company’s fair value measurements.

The effect of the Company’s derivative instruments on the Condensed Consolidated Financial Statements for the three and six months ended June 30, 2018 and 2017 was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Derivatives Designated as Hedging Instruments:

Net gain (loss) recognized in accumulated other comprehensive loss ⁽¹⁾	$	23,582		$	(19,165	)	$	14,356		$	(23,364	)
Net gain (loss) reclassified from accumulated other comprehensive income (loss) into earnings⁽²⁾		(2,659	)		695			(8,444	)		3,211
Net gain recognized in net loss ⁽³⁾		2,700			826			2,322			1,706
Derivatives Not Designated as Hedging Instruments:

Net gain (loss) recognized in net loss⁽⁴⁾		(4,238	)		5,373			2,985			5,631

(1)

Net change in the fair value of the effective portion classified as accumulated other comprehensive loss.

(2)

Effective portion classified as Net Product Revenues and Operating expenses.

(3)

Ineffective portion and amount excluded from effectiveness testing classified as Operating expenses.

(4)

Classified as Operating expenses.

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.