Derivatives and Hedging Activities

6 Months Ended

Jun. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Derivatives and Hedging Activities

The Company uses derivatives to manage selected foreign exchange exposures for its investments in foreign subsidiaries. In general, the types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates and interest rates. The Company documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge.

Net Investment Hedge

As of June 30, 2017, and December 31, 2016, the amount of notional foreign exchange contracts outstanding was approximately $88.0 million. There is no significant credit risk associated with the potential failure of any counterparty to perform under the terms of any derivative financial instrument.

The net investment hedge is measured at fair value within the consolidated balance sheet either as an asset or a liability. At June 30, 2017 and December 31, 2016, the fair value of the derivative instrument was $0.1 million and $2.4 million, respectively, and was recorded in non-current other assets.

The Company recognized a loss of $0.9 million and $1.4 million, net of taxes of $0.6 million and $0.9 million, respectively, for the three and six months ended June 30, 2017, respectively, recorded in comprehensive income (loss) related to the net investment hedge. For the three months ended June 30, 2017, the Company recorded a loss of $64,000 in other income, net, related to the ineffective portion of the net investment hedge. For the six months ended June 30, 2017, the Company recorded a loss totaling $95,000 in other income, net, related to the ineffective portion of the net investment hedge. The Company did not have any foreign exchange contracts during the three and six months ended June 30, 2016.

Embedded Derivative

The Company has the option to prepay its $575.0 million Senior Secured Notes due 2021 (the "Notes") at any time prior to August 15, 2018 at a price equal to 100% of the principal amount, plus the applicable premium and any accrued and unpaid interest. Redemption on or after August 15, 2018 is subject to the applicable premium, in each case as set forth in the indenture governing the Notes.

Prior to August 15, 2018, in the event of equity offerings, the Company has the option to prepay up to 40% of the Notes using the proceeds from such offering within 180 days from closing of the offering.However, 50% of the principal needs to remain outstanding. The redemption price is determined at 108.25% plus accrued and unpaid interest.

The optional prepayment subsequent to an equity offering constitutes an embedded derivative and is bifurcated from the debt host and accounted for separately. The embedded derivative is recorded at fair value at inception and on an ongoing basis, with any changes in fair value from inception recorded in earnings. The fair value of the embedded derivative at June 30, 2017 and December 31, 2016 was $0 and $13.2 million, respectively. The fair value of the embedded derivative at June 30, 2017 was $0 due to a minimal probability of an equity offering occurring where the proceeds are used to pay down the Notes prior to the expiration of the optional prepayment time period on August 15, 2018. At December 31, 2016, the fair value of the embedded derivative was included in the balance sheet as non-current other liabilities.

The change in fair value in the amount of $0 and $13.2 million for the three and six months ended June 30, 2017, respectively, was included in the statements of operations in other income, net. The Company did not have an embedded derivative during the three and six months ended June 30, 2016 as the Notes were issued in August 2016.