General duration of foreign currency exchange contracts

  
sheets on a gross basis. All cash flows related to our foreign currency exchange contracts are classified as operating cash flows, which is consistent with the cash flow treatment of the underlying items being hedged.   
Cash Flow Hedges   
We have designated our foreign currency exchange contracts as cash flow hedges as these derivative instruments mitigate the exposure to variability in the cash flows of forecasted transactions attributable to foreign currency exchange. Unless noted otherwise, we have also designated our derivative instruments as qualifying for hedge accounting treatment.    
We did not de-designate any instruments from hedge accounting treatment during either the three and nine months ended September 30, 2022 or 2021. As of September 30, 2022, the estimated amount of net gains, net of tax, which are expected to be reclassified out of AOCI and into earnings within the next 12 months, is $16.8 million if exchange rates do not fluctuate from the levels as of September 30, 2022.   
We target to hedge approximately 75% to 85% of the estimated exposure from intercompany product purchases and sales denominated in the euro, British pound, Canadian dollar, Japanese yen, and Australian dollar. We have additional unhedged foreign currency exposures related to foreign services and emerging markets where it is not practical to hedge. We primarily utilize foreign currency exchange contracts with durations of less than 24 months. Quarterly, we enter into contracts to hedge incremental portions of anticipated foreign currency transactions for the current and following year. As a result, our risk with respect to foreign currency exchange rate fluctuations and the notional value of foreign currency exchange contracts may vary throughout the year. The U.S. dollar is the currency purchased or sold in all of our foreign currency exchange contracts. The notional amount of foreign currency exchange contracts to hedge forecasted intercompany inventory purchases and sales totaled $250.6 million and $286.7 million as of September 30, 2022 and December 31, 2021, respectively.  
The following tables present the effect of cash flow hedge accounting on our unaudited condensed consolidated statements of income and comprehensive income, and provide information regarding the location and amounts of pretax gains or losses of derivatives: 

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |
| (in thousands) |  |   |  | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30, |
|  |  |   |  | 2022 |  | 2021 |  | 2022 |  | 2021 |
|  |  |  |  |  |  |  |  |  |  |  |
| Financial statement line items in which effects of cash flow hedges are recorded |  | Cost of revenue |  | $ | 335,035  |  |  | $ | 337,500  |  |  | $ | 1,019,345  |  |  | $ | 981,259  |  |
| Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |
| Amount of gain (loss) reclassified from accumulated other comprehensive income into income |  |  |  | $ | 8,635  |  |  | $ | (1,583) |  |  | $ | 16,652  |  |  | $ | (6,728) |  |

  
Net Investment Hedges, Euro-Denominated Notes  
In June 2015, we issued and sold through a private placement an aggregate principal amount of €88.9 million in euro-denominated 1.785% Series C Senior Notes due June 18, 2025. We have designated these euro-denominated notes as a hedge of our euro net investment in certain foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the euro relative to the U.S. dollar. As a result of this designation, gains and losses from the change in translated U.S. dollar value of these euro-denominated notes are recorded in AOCI rather than to earnings. We recorded gains of $5.5 million and $11.0 million, net of tax, within AOCI as a result of this net investment hedge for the three and nine months ended September 30, 2022, respectively, and gains of $1.6 million and $4.2 million for the three and nine months ended September 30, 2021, respectively. The related cumulative unrealized gain recorded as of September 30, 2022, will not be reclassified in earnings until the complete or substantially complete liquidation of the net investment in the hedged foreign operations or a portion of the hedge no longer qualifies for hedge accounting treatment. Refer to Note 13 to the consolidated financial statements included in our 2021 Annual Report for further information regarding the issuance of these euro-denominated notes.  
  
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