Hedging

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Foreign currency forward contracts - Designated as hedging instruments

The Company maintains a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of the Company’s forecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward contracts that are designated as cash flow hedges under GAAP having contractual durations from one to eighteen months. The Company recognizes realized gains and losses for the effective portion of such contracts in “Product revenues, net” in its consolidated statements of operations in the same period that it recognizes the product revenues that were impacted by the hedged foreign exchange rate changes.

The Company formally documents the relationship between foreign currency forward contracts (hedging instruments) and forecasted product revenues (hedged items), as well as the Company’s risk management objective and strategy for undertaking various hedging activities, which includes matching all foreign currency forward contracts that are designated as cash flow hedges to forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. If the Company were to determine that a (i) foreign currency forward contract is not highly effective as a cash flow hedge, (ii) foreign currency forward contract has ceased to be a highly effective hedge or (iii) forecasted transaction is no longer probable of occurring, the Company would discontinue hedge accounting treatment prospectively. The Company measures effectiveness based on the change in fair value of the forward contracts and the fair value of the hypothetical foreign currency forward contracts with terms that match the critical terms of the risk being hedged. As of December 31, 2019, all hedges were determined to be highly effective.

Prior to the adoption of ASU 2017-12 on January 1, 2019, the Company did not record any ineffectiveness related to its foreign currency forward contracts that were designated as hedging instruments in the years ended December 31, 2018 and 2017. ASU 2017-12 eliminated the requirement to separately measure and report hedge ineffectiveness.

The Company considers the impact of its counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of December 31, 2019 and December 31, 2018, credit risk did not change the fair value of the Company’s foreign currency forward contracts.

The following table summarizes the notional amount of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under GAAP:



	As of December 31,
	2019		2018
Foreign Currency	(in thousands)
Euro	$	501,197	$	335,179
Australian dollar	89,705		52,820
British pound sterling	87,032		73,460
Canadian dollar	50,452		43,759
Total foreign currency forward contracts	$	728,386	$	505,218

Foreign currency forward contracts - Not designated as hedging instruments

The Company also enters into foreign currency forward contracts with contractual maturities of less than one month that are designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including intercompany balances. These contracts are not designated as hedging instruments under GAAP. The Company recognizes realized gains and losses for such contracts in “Other income (expense), net” in its consolidated statements of operations each period. As of December 31, 2019, the notional amount of the Company’s outstanding foreign currency forward contracts where hedge accounting under GAAP is not applied was $412.1 million.

During the three years ended December 31, 2019, the Company recognized the following related to foreign currency forward contacts in its consolidated statements of operations:



	December 31,
	2019		2018			2017
	(in thousands)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	$	32,546	$	(1,252	)	$	768
Not designated as hedging instruments
Other income (expense), net	$	4,838	$	623		$	14,129

Total reported in the Consolidated Statement of Operations
Product revenues, net	$	4,160,726	$	3,038,325		$	2,165,480
Other income (expense), net	$	192,177	$	(790	)	$	(81,382	)

The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under GAAP included on its consolidated balance sheets:



As of December 31, 2019
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Prepaid expenses and other current assets	$	9,725	Other current liabilities	$	(5,533	)
Other assets	—		Other long-term liabilities	(1,821		)
Total assets	$	9,725	Total liabilities	$	(7,354	)



As of December 31, 2018
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Prepaid expenses and other current assets	$	19,023	Other current liabilities	$	(340	)
Other assets	1,514		Other long-term liabilities	(108		)
Total assets	$	20,537	Total liabilities	$	(448	)

As of December 31, 2019, the Company expects amounts that are related to foreign exchange forward contracts designated as cash flow hedges under GAAP recorded in “Prepaid expenses and other current assets” and “Other current liabilities” to be reclassified to earnings within twelve months.

The following table summarizes the potential effect of offsetting derivatives by type of financial instrument designated as cash flow hedges under GAAP on the Company’s consolidated balance sheets:



	As of December 31, 2019
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	9,725		$	—	$	9,725		$	(7,354	)	$	2,371
Total liabilities	(7,354		)	—		(7,354		)	7,354			—



	As of December 31, 2018
	Gross Amounts Recognized			Gross Amounts Offset		Gross Amounts Presented			Gross Amounts Not Offset			Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	20,537		$	—	$	20,537		$	(448	)	$	20,089
Total liabilities	(448		)	—		(448		)	448			—