Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

We operate internationally and, in the normal course of business, are exposed to fluctuations in foreign currency exchange rates. The exposures result from portions of our revenues, as well as the related receivables, and expenses that are denominated in currencies other than the U.S. dollar, primarily the Euro and Japanese Yen. We are also exposed to fluctuations in interest rates on our outstanding term loan debt. We manage these exposures within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes.

We enter into foreign exchange forward contracts, with durations of up to 60 months, to hedge exposures resulting from portions of our forecasted revenues, including intercompany revenues, and certain forecasted expenses that are denominated in currencies other than the U.S. dollar. The purpose of these hedges is to reduce the volatility of exchange rate fluctuations on our operating results. These hedges are designated as cash flow hedges upon contract inception. As of September 30, 2017, we had open revenue related foreign exchange forward contracts with notional amounts totaling $1,576 that qualified for hedge accounting. As of September 30, 2017, we had open expense related foreign exchange forward contracts with notional amounts totaling $28 that qualified for hedge accounting.

To achieve a desired mix of floating and fixed interest rates on our term loan, we enter into interest rate swap agreements that qualify for and are designated as cash flow hedges. These contracts convert the floating interest rate on a portion of our debt to a fixed rate, plus a borrowing spread. As ofSeptember 30, 2017we are party to interest rate swap agreements with atotal notional amount of $2,331 that convert the floating rate on a portion of our term loan to fixed rates ranging from 0.98% to 2.08%, plus borrowing spreads. These agreements cover periods through December 31, 2019.

The following tables summarize the total interest rate swap contracts executed as of September 30, 2017:

Type of Interest Rate Swap	Notional Amount	Effective Date	Termination Date	Fixed Interest Rate
Floating to Fixed	656	December 31, 2016	December 31, 2019	0.98%
Floating to Fixed	300	January 31, 2017	December 31, 2018	1.29%
Floating to Fixed	300	January 2, 2019	December 31, 2019	2.08%
Floating to Fixed	200	March 31, 2017	December 31, 2019	1.62%
Floating to Fixed	200	March 31, 2017	December 31, 2018	1.40%
Floating to Fixed	200	June 30, 2017	December 31, 2019	1.53%
Floating to Fixed	100	June 30, 2017	December 31, 2019	1.50%
Floating to Fixed	100	June 30, 2017	December 31, 2019	1.52%
Floating to Fixed	200	June 30, 2017	December 31, 2019	1.57%
Floating to Fixed	75	January 1, 2018	December 31, 2019	1.58%

The impact on accumulated other comprehensive income (AOCI) and earnings from foreign exchange and interest rate swap contracts that qualified as cash flow hedges, for the three and nine months ended September 30, 2017 and 2016 were as follows:

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Foreign Exchange Contracts:
Loss recognized in AOCI, net of tax	$	(27	)	$	(10	)	$	(88	)	$	(50	)
(Loss) gain reclassified from AOCI to net product sales (effective portion), net of tax	$	(1	)	$	8		$	20		$	33
Interest Rate Contracts:
Gain (loss) recognized in AOCI, net of tax	$	1		$	2		$	—		$	(1	)
Loss reclassified from AOCI to interest expense, net of tax	$	—		$	—		$	(1	)	$	—

Assuming no change in foreign exchange rates from market rates at September 30, 2017, $15 of losses recognized in AOCI will be reclassified to revenue over the next 12 months. Assuming no change in LIBOR-based interest rates from market rates at September 30, 2017, $3 of gains recognized in AOCI will be reclassified to interest expense over the next 12 months.

We enter into foreign exchange forward contracts, with durations up to 180 days, designed to limit the balance sheet exposure of monetary assets and liabilities. We enter into these hedges to reduce the impact of fluctuating exchange rates on our operating results. Hedge accounting is not applied to these derivative instruments as gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheet exposures. As of September 30, 2017, the notional amount of foreign exchange contracts where hedge accounting is not applied was $599.

We recognized a loss of $3 in other income and expense for the three months ended September 30, 2017 and 2016, and $12 and $21, for the nine months ended September 30, 2017 and 2016, respectively, associated with the foreign exchange contracts not designated as hedging instruments. These amounts were partially offset by gains or losses on monetary assets and liabilities.

The following tables summarize the fair value of outstanding derivatives at September 30, 2017 and December 31, 2016:

	September 30, 2017
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets	$	17	Other current liabilities	$	32
Foreign exchange forward contracts	Other assets	7		Other liabilities	28
Interest rate contracts	Prepaid expenses and other current assets	4		Other current liabilities	1
Interest rate contracts	Other assets	10		Other liabilities	1
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets	4		Other current liabilities	5
Total fair value of derivative instruments		$	42		$	67

	December 31, 2016
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets	$	80	Other current liabilities	$	2
Foreign exchange forward contracts	Other assets	59		Other liabilities	4
Interest rate contracts	Prepaid expenses and other current assets	—		Other current liabilities	—
Interest rate contracts	Other assets	10		Other liabilities	—
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets	17		Other current liabilities	10
Total fair value of derivative instruments		$	166		$	16

Although we do not offset derivative assets and liabilities within our condensed consolidated balance sheets, our International Swap and Derivatives Association agreements provide for net settlement of transactions that are due to or from the same counterparty upon early termination of the agreement due to an event of default or other termination event. The following tables summarize the potential effect on our condensed consolidated balance sheets of offsetting our foreign exchange forward contracts and interest rate contracts subject to such provisions:

	September 30, 2017
									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
Description	Gross Amounts of Recognized Assets/Liabilities			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets/Liabilities Presented in the Condensed Consolidated Balance Sheet			Derivative Financial Instruments			Cash Collateral Received (Pledged)		Net Amount
Derivative assets	$	42		$	—	$	42		$	(27	)	$	—	$	15
Derivative liabilities	(67		)	—		(67		)	27			—		(40		)

	December 31, 2016
									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
Description	Gross Amounts of Recognized Assets/Liabilities			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets/Liabilities Presented in the Condensed Consolidated Balance Sheet			Derivative Financial Instruments			Cash Collateral Received (Pledged)		Net Amount
Derivative assets	$	166		$	—	$	166		$	(16	)	$	—	$	150
Derivative liabilities	(16		)	—		(16		)	16			—		—