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Derivatives and Risk Management | 3 Months Ended
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Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Risk Management | Note 7. Derivatives and Risk Management Due to the global nature of our operations, we are exposed to foreign currency exchange rate fluctuations. We enter into FX derivative contracts to reduce the impact of foreign currency exchange rate fluctuations on earnings and cash flow. We are also exposed to equity price risk in connection with our Notes, including exchange and settlement provisions based on the price of our ordinary shares at exchange or maturity of the Notes. In addition, the capped call transactions associated with the Notes also include settlement provisions that are based on the price of our ordinary shares, subject to a capped price per share. We measure all outstanding derivatives each period end at fair value and report the fair value as either financial assets or liabilities on the condensed consolidated balance sheets. We do not enter into derivative contracts for speculative purposes. At inception of the contract, the derivative is designated as either a freestanding derivative or a hedge. Derivatives that are not designated as hedging instruments are referred to as freestanding derivatives with changes in fair value included in earnings. If the derivative qualifies for hedge accounting, changes in the fair value of the derivative will be recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings upon settlement/termination. FX derivative gains and losses in AOCI are reclassified to our condensed consolidated statements of income (loss) as shown in the tables below. We evaluate hedge effectiveness at inception. Cash flows from derivative contracts are reported as operating activities on our condensed consolidated statements of cash flows. Freestanding FX Derivative Contracts The gross notional amount of FX derivative contracts not designated as hedging instruments outstanding at March 31, 2021 and December 31, 2020 was $200.4 million and $352.6 million, respectively. These derivative contracts are designed to offset the FX effects in earnings of various intercompany loans and trade receivables. We recorded net gains for these freestanding derivatives of $7.7 million and $8.1 million for the three months ended March 31, 2021 and 2020, respectively. These gains are included in foreign exchange and other losses on our condensed consolidated statement of income (loss). Counterparty Credit Risk We are exposed to credit risk in the event of non-performance by the counterparties to our derivatives. The two counterparties to the capped call transactions are financial institutions. To limit our credit risk, we selected financial institutions with a minimum long-term investment grade credit rating. Our exposure to the credit risk of the counterparties is not secured by any collateral. If a counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under the capped call transactions with that counterparty. To manage credit risk with respect to our other derivatives, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market positions. However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations, any transactions with the counterparty could be subject to early termination, which could result in substantial losses for the Company. Cash Flow Hedges We utilize FX derivative contracts, designed as cash flow hedges, to hedge the variability of cash flows associated with our 12 months U.S. dollar forecasts of revenues and costs denominated in British Pound, Japanese Yen and the Euro. We transfer to earnings from AOCI the gain or loss realized on the FX derivative contracts at the time of invoicing. The gross notional amounts of open derivative contracts designated as cash flow hedges at March 31, 2021 and December 31, 2020 were as follows (in thousands):
Description of Derivative Contract |  | March 31, 2021 |  | December 31, 2020
FX derivative contracts to be exchanged for British Pounds |  | $ | 10,214 |  |  | $ | 9,545 |
FX derivative contracts to be exchanged for Japanese Yen |  | 16,209 |  |  | 18,637 |
FX derivative contracts to be exchanged for Euros |  | 41,325 |  |  | 47,444 |
|  | $ | 67,748 |  |  | $ | 75,626 |
After-tax net loss associated with derivatives designated as cash flow hedges recorded in the ending balance of AOCI and the amount expected to be reclassified to earnings in the next 12 months are as follows (in thousands):
Description of Derivative Contract |  | After-Tax Net Gain in AOCI as of March 31, 2021 |  | After-Tax Net Gain in AOCI as of Amount Expected to be Reclassified to Earnings in Next 12 Months
FX derivative contracts |  | $ | 1,249 |  |  | $ | 1,249 |
Pre-tax gains (losses) for derivative contracts designated as cash flow hedges recognized in other comprehensive income (loss) (“OCI”) and the amount reclassified to earnings from AOCI were as follows (in thousands):
|  |  |  | Three Months Ended March 31,
|  |  |  | 2021 |  | 2020
Description of Derivative Contract |  | Location in Earnings of Reclassified Gain or Loss |  | Losses Recognized in OCI |  | (Losses) Gains Reclassified from AOCI to Earnings |  | Losses Recognized in OCI |  | Losses Reclassified from AOCI to Earnings
FX derivative contracts |  | Foreign exchange and other losses |  | $ | (2,223) |  |  | $ | (1,496) |  |  | $ | (2,080) |  |  | $ | (605) |
FX derivative contracts |  | SG&A |  | — |  |  | 685 |  |  | — |  |  | (91) |
Interest rate swap contracts |  | Interest expense |  | — |  |  | — |  |  | — |  |  | (28) |
|  |  |  | $ | (2,223) |  |  | $ | (811) |  |  | $ | (2,080) |  |  | $ | (724) |
We offset fair value amounts associated with our derivative instruments on our condensed consolidated balance sheets that are executed with the same counterparty under master netting arrangements. Our netting arrangements include a right to set off or net together purchases and sales of similar products in the settlement process. The following tables present the fair value and the location of derivative contracts reported on the condensed consolidated balance sheets (in thousands):
March 31, 2021 |  | Asset Derivatives |  | Liability Derivatives
Derivatives Designated as Hedging Instruments |  | Balance Sheet Location |  | Fair Value (1) |  | Balance Sheet Location |  | Fair Value (1)
FX derivative contracts |  | Prepaid expenses and other current assets |  | $ | 1,048 |  |  | Accrued liabilities |  | $ | 724 |
FX derivative contracts |  | Accrued liabilities |  | 331 |  |  |  |  |
Total derivatives designated as hedging instruments |  |  |  | 1,379 |  |  |  |  | 724 |
Derivatives Not Designated as Hedging Instruments |  |  |  |  |  |  |  |
Interest rate swap contracts |  |  |  |  |  | Accrued liabilities |  | 36 |
FX derivative contracts |  | Prepaid expenses and other current assets |  | 863 |  |  | Accrued liabilities |  | 705 |
Capped call derivatives |  | Other assets |  | 84,852 |  |  |  |  |
Embedded exchange feature |  |  |  |  |  | Long-term derivative liability |  | 148,091 |
Other derivatives |  |  |  |  |  | Accrued liabilities |  | 931 |
Other derivatives |  |  |  |  |  | Long-term derivative liability |  | 192 |
Total derivatives not designated as hedging instruments |  |  |  | 85,715 |  |  |  |  | 149,955 |
Total derivatives |  |  |  | $ | 87,094 |  |  |  |  | $ | 150,679 |
December 31, 2020 |  | Asset Derivatives |  | Liability Derivatives
Derivatives Designated as Hedging Instruments |  | Balance Sheet Location |  | Fair Value (1) |  | Balance Sheet Location |  | Fair Value (1)
FX derivative contracts |  | Prepaid expenses and other current assets |  | $ | 1,998 |  |  | Accrued liabilities |  | $ | 14 |
FX derivative contracts |  | Accrued liabilities |  | 895 |  |  |  |  |
Total derivatives designated as hedging instruments |  |  |  | 2,893 |  |  |  |  | 14 |
Derivatives Not Designated as Hedging Instruments |  |  |  |  |  |  |  |
Interest rate swap contracts |  |  |  |  |  | Accrued liabilities |  | 74 |
FX derivative contracts |  | Prepaid expenses and other current assets |  | 55 |  |  | Accrued liabilities |  | 4,073 |
Capped call derivatives |  | Long-term derivative assets |  | 72,302 |  |  |  |  |
Embedded exchange feature |  |  |  |  |  | Long-term derivative liability |  | 121,756 |
Other derivatives |  |  |  |  |  | Accrued liabilities |  | 4,106 |
Other derivatives |  |  |  |  |  | Long-term derivative liability |  | 184 |
Total derivatives not designated as hedging instruments |  |  |  | 72,357 |  |  |  |  | 130,193 |
Total derivatives |  |  |  | $ | 75,250 |  |  |  |  | $ | 130,207 |
(1)For the classification of inputs used to evaluate the fair value of our derivatives, refer to “Note 5. Fair Value Measurements.”

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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