Hedging Activities

12 Months Ended

Mar. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Hedging Activities

Hedging Activities

In the normal course of business, we are exposed to interest rate and foreign exchange rate fluctuations. At times, we limit these risks through the use of derivatives such as interest rate swaps, cross currency swaps and foreign currency forward contracts. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.

Interest rate risk

From time to time, we may enter into interest rate swaps which involve the exchange of floating and fixed-rate interest payments. Our interest rate swaps that were outstanding at March 31, 2014 all matured during the first half of 2015. These contracts were not designated for hedge accounting and, accordingly, changes in the fair value of these swaps were recorded directly in earnings. Amounts recorded to earnings were not material for 2015 and 2014.

Foreign currency exchange risk

We conduct our business worldwide in U.S. dollars and the functional currencies of our foreign subsidiaries, including Euro, British pound sterling and Canadian dollar. Changes in foreign currency exchange rates could have a material adverse impact on our financial results that are reported in U.S. dollars. We are also exposed to foreign currency exchange rate risk related to our foreign subsidiaries, including intercompany loans denominated in non-functional currencies. We have certain foreign currency exchange rate risk programs that use foreign currency forward contracts and cross currency swaps. These forward contracts and cross currency swaps are generally used to offset the potential income statement effects from intercompany loans denominated in non-functional currencies. These programs reduce but do not entirely eliminate foreign exchange rate risk.

Derivatives Designated as Hedges

At March 31, 2016 and 2015, we had forward contracts to hedge the U.S. dollar against cash flows denominated in Canadian dollars with total gross notional amounts of $323 million and $399 million, which were designated as cash flow hedges. These contracts will mature between March 2017 and March 2020.

During the fourth quarter of 2016, we entered into cross currency swaps to convert fixed-rate British pound sterling denominated borrowings to fixed-rate U.S. dollar borrowings. For our cross currency swap transactions, we agree with another party to exchange, at specified intervals, one currency for another currency at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount. The notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. These cross currency swaps are designed to reduce the income statement effects from fluctuations in foreign exchange rates and have been designated as cash flow hedges. The cross currency swaps mature from February 2018 to March 2019 and have a total gross notional amount of approximately $546 million.

For forward contracts and currency swaps that are designated as cash flow hedges, the effective portion of changes in the fair values of hedges is recorded into accumulated other comprehensive income and reclassified into earnings in the same period in which the hedged transaction affects earnings. Changes in fair values representing hedge ineffectiveness are recognized in current earnings. Gain or losses on these hedges recorded in other comprehensive income and earnings were not material in 2016, 2015 and 2014.

Derivatives Not Designated as Hedges

We also have a number of forward contracts to primarily hedge the Euro against cash flows denominated in British pound sterling and other European currencies. At March 31, 2016 and 2015, the total gross notional amounts of these contracts were $876 million and $1,755 million.

These contracts will mature through December 2016 and none of these contracts were designated for hedge accounting. Changes in the fair values for contracts not designated as hedges are recorded directly into earnings and accordingly, net gains of $60 million and net losses of $189 million were recorded within operating expenses in 2016 and 2015. The losses from these contracts are largely offset by changes in the value of the underlying intercompany foreign currency loans. Gains and losses from these contracts were not material in 2014.

Information regarding the fair value of derivatives on a gross basis is as follows:

	Balance Sheet Caption	March 31, 2016						March 31, 2015
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
(In millions)		Asset		Liability				Asset		Liability
Derivatives designated for hedge accounting
Foreign exchange  contracts (current)	Prepaid expenses and other	$	16	$	—	$	80	$	14	$	—	$	76
Foreign exchange  contracts (non-current)	Other Noncurrent Assets	46		—		243		53		—		323
Cross currency  swaps (non-current)	Other Noncurrent Liabilities	—		8		546		—		—		—
Total		$	62	$	8			$	67	$	—
Derivatives not designated for hedge accounting
Foreign exchange  contracts (current)	Prepaid expenses and other	$	23	$	—	$	680	$	7	$	—	$	493
Foreign exchange  contracts (current)	Other accrued liabilities	—		—		196		—		79		1,262
Total		$	23	$	—			$	7	$	79

Refer to Financial Note 21, “Fair Value Measurements,” for more information on these recurring fair value measurements.