Hedging Activities

3 Months Ended

Jun. 30, 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.

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 June 30, 2016 and March 31, 2016, we had forward contracts to hedge the U.S. dollar against cash flows denominated in Canadian dollars with total gross notional values of $323 million, which were designated as cash flow hedges. These contracts will mature between March 2017 and March 2020.

From time to time, we enter into cross currency swaps to convert fixed-rate foreign currency 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. During the first quarter of 2017, we entered into cross currency swaps that have a total gross notional amount of approximately $355 million and mature in April 2020. During the fourth quarter of 2016, we entered into cross currency swaps that have a total gross notional amount of approximately $546 million and mature from February 2018 to March 2019.

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 the first quarters of 2017 and 2016.

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 June 30, 2016 and March 31, 2016, the total gross notional amounts of these contracts were $148 million and $876 million.

These contracts will mature through December 2016 and none of these contracts were designated for hedge accounting. Changes in the fair values of contracts not designated for hedges are recorded directly into earnings and accordingly, net gains of $2 million and losses of $45 million were recorded within operating expenses for the first quarters of 2017 and 2016. The gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany foreign currency loans.

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

	Balance Sheet Caption	June 30, 2016						March 31, 2016
		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	$	16	$	—	$	80
Foreign exchange contracts (non-current)	Other Noncurrent Assets	47		—		243		46		—		243
Cross currency swaps (non-current)	Other Noncurrent Assets/Liabilities	49		—		901		—		8		546
Total		$	112	$	—			$	62	$	8
Derivatives not designated for hedge accounting
Foreign exchange contracts (current)	Prepaid expenses and other	$	6	$	—	$	139	$	23	$	—	$	680
Foreign exchange contracts (current)	Other accrued liabilities	—		—		9		—		—		196
Total		$	6	$	—			$	23	$	—

Refer to Financial Note 14, "Fair Value Measurements," for more information on these recurring fair value measurements.