INFORMATICA LLC - 10-Q filing on 2015-04-30

Derivative Financial Instruments

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company uses derivative instruments to manage its exposures to fluctuations in certain foreign currency exchange rates which exist as part of ongoing business operations. The Company and its subsidiaries do not enter into derivative contracts for speculative purposes.

Cash Flow Hedges

The Company enters into certain cash flow hedge programs in an attempt to reduce the impact of certain foreign currency fluctuations. These contracts are designated and documented as cash flow hedges. The purpose of these programs is to reduce the volatility of identified cash flow and expenses caused by movement in certain foreign currency exchange rates, in particular, the Indian rupee. The Company is currently using foreign exchange forward contracts to hedge the foreign currency anticipated expenses of its subsidiary in India.

The Company releases the amounts accumulated in other comprehensive income into earnings in the same period or periods during which the forecasted hedge transaction affects earnings. The Company will reclassify all amounts accumulated in other comprehensive income into earnings within the next 12 months.

The Company has forecasted the amount of its anticipated foreign currency expenses based on its historical performance and its projected financial plan. As of March 31, 2015, the remaining open foreign exchange contracts, carried at fair value, are hedging Indian rupee expenses and have a maturity of twelve months or less. These foreign exchange contracts mature monthly as the foreign currency denominated expenses are paid and any gain or loss is offset against operating expense. Once the hedged item is recognized, the cash flow hedge is de-designated and subsequent changes in value are recognized in other income (expense) to offset changes in the value of the resulting non-functional currency monetary assets or liabilities.

The notional amounts of these foreign exchange forward contracts in U.S. dollar equivalents were to buy $41.0 million and $45.9 million of Indian rupees as of March 31, 2015 and December 31, 2014, respectively.

Balance Sheet Hedges

Balance Sheet hedges consist of cash flow hedge contracts that have been de-designated and non-designated balance sheet hedges. These foreign exchange contracts are carried at fair value and either did not or no longer qualify for hedge accounting treatment and are not designated as hedging instruments. Changes in the value of the foreign exchange contracts are recognized in other income (expense) and offset the foreign currency gain or loss on the underlying net monetary assets or liabilities. The notional amounts of foreign currency contracts open at period end in US dollar equivalents were to buy $10.4 million and $10.6 million of Indian rupees at March 31, 2015 and December 31, 2014, respectively. The notional amounts of foreign currency contracts open at period end in U.S. dollar equivalents were to sell $6.2 million of Indian rupees and $57.1 million of Euros at March 31, 2015 and December 31, 2014, respectively.

The following table reflects the fair value amounts for the foreign exchange contracts designated and not designated as hedging instruments at March 31, 2015 and December 31, 2014 (in thousands):



	March 31, 2015				December 31, 2014
	Fair Value Derivative Assets⁽ⁱ⁾		Fair Value Derivative Liabilities⁽ⁱⁱ⁾		Fair Value Derivative Assets⁽ⁱ⁾		Fair Value Derivative Liabilities⁽ⁱⁱⁱ⁾
Derivatives designated as hedging instruments	$	385	$	14	$	141	$	761
Derivatives not designated as hedging instruments	170		190		169		154
Total fair value of derivative instruments	$	555	$	204	$	310	$	915

____________________


(i)	Included in prepaid expenses and other current assets on the condensed consolidated balance sheets.


(ii)	Included in accrued liabilities on the condensed consolidated balance sheets.


(iii)	Included in accrued liabilities and other liabilities on the condensed consolidated balance sheets.

The Company presents its derivative assets and derivative liabilities at gross fair values in the condensed consolidated balance sheets. However, under the master netting agreements with the respective counterparties of the foreign exchange contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. The derivatives held by the Company are not subject to any credit contingent features negotiated with its counterparties. The Company is not required to pledge nor is entitled to receive cash collateral related to the above contracts.

The following table sets forth the offsetting of derivative assets as of March 31, 2015 and December 31, 2014 (in thousands):



							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets		Financial Instruments⁽ⁱ⁾			Cash Collateral Pledged		Net Amount
As of March 31,
2015:
Foreign exchange contracts	$	555	$	—	$	555	$	(78	)	$	—	$	477
As of December 31,
2014:
Foreign exchange contracts	$	310	$	—	$	310	$	(62	)	$	—	$	248

____________________


(i)	The balances at March 31, 2015 and December 31, 2014 were related to derivative liabilities which are allowed to be net settled against derivative assets in accordance with the master netting agreements.

The following table sets forth the offsetting of derivative liabilities as of March 31, 2015 and December 31, 2014 (in thousands):



							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets		Financial Instruments⁽ⁱⁱ⁾			Cash Collateral Pledged		Net Amount
As of March 31,
2015:
Foreign exchange contracts	$	204	$	—	$	204	$	(78	)	$	—	$	126
As of December 31,
2014:
Foreign exchange contracts	$	915	$	—	$	915	$	(62	)	$	—	$	853

____________________


(ii)	The balances at March 31, 2015 and December 31, 2014 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with the master netting agreements.

The Company evaluates prospectively as well as retrospectively the effectiveness of its hedge programs using statistical analysis. Prospective testing is performed at the inception of the hedge relationship and quarterly thereafter. Retrospective testing is performed on a quarterly basis.

The before-tax effects of derivative instruments designated as cash flow hedges on the accumulated other comprehensive income (loss) and condensed consolidated statements of income for the three months ended March 31, 2015 and 2014 are as follows (in thousands):



	Three Months Ended March 31,
	2015		2014
Amount of gain recognized in other comprehensive income (effective portion)	$	1,247	$	1,448
Amount of gain (loss) reclassified from accumulated other comprehensive income to cost of service revenues and operating expenses (effective portion)	$	358	$	(486	)
Amount of gain on derivatives due to hedge ineffectiveness recognized in cost of service revenues and operating expenses	$	116	$	—

No amounts were excluded from the assessment of hedge effectiveness during the three months ended March 31, 2015 and 2014.

The before-tax loss recognized in other expense, net for non-designated foreign currency forward contracts for the three months ended March 31, 2015 and 2014 are as follows (in thousands):



	Three Months Ended March 31,
	2015			2014
Gain (loss) recognized in other expense, net	$	(77	)	$	75

See Note 1. Summary of Significant Accounting Policies, Note 5. Accumulated Other Comprehensive Income (Loss), and Note 11. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.