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Financial Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments and Hedging Activities Financial Instruments and Hedging Activities
The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency fluctuations. The Company uses foreign currency denominated debt and derivative instruments to mitigate the impact of these changes. The Company does not hold or issue derivatives for trading purposes.
The following table presents the fair values of derivative instruments included on the condensed consolidated balance sheet:
  
Derivative Assets
 
Derivative Liabilities
In millions
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
Total derivatives designated as hedging instruments
 
$
11.0

 
 
$
36.9

 
 
$
(42.7
)
 
 
$
(3.7
)
Total derivatives not designated as hedging instruments
 
152.6

 
 
144.4

 
 
(12.0
)
 
 
(1.9
)
Total derivatives
 
$
163.6

 
 
$
181.3

 
 
$
(54.7
)
 
 
$
(5.6
)

The following table presents the pre-tax amounts from derivative instruments affecting income and other comprehensive income (“OCI”) for the nine months ended September 30, 2017 and 2016, respectively:
 
Gain (Loss)
Recognized in
Accumulated OCI
 
Gain (Loss) Reclassified
into Income from
Accumulated OCI
 
Gain (Loss) Recognized in
Income on Derivative
 
 
 
 
 
 
In millions
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Cash Flow Hedges
 
$
(70.1
)
 
 
$
(13.6
)
 
 
$
(5.0
)
 
 
$
15.6

 

 
 

 
Net Investment Hedges
 
$
(1,393.5
)
 
 
$
(96.5
)
 
 
$
8.6

 
 
$
(18.3
)
 
 
 
 
 
 
Undesignated derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
$
40.3


 
$
(4.1
)

•
Fair Value Hedges
The Company enters into fair value hedges that convert a portion of its fixed-rate debt into floating-rate debt by use of interest rate swaps. At September 30, 2017, $2.3 billion of the Company's outstanding fixed-rate debt was effectively converted. For the nine months ended September 30, 2017, the Company recognized a $1.0 million loss on fair value interest rate swaps, which was exactly offset by a corresponding gain in the fair value of the hedged debt instruments.
•
Cash Flow Hedges
The Company enters into cash flow hedges to reduce the exposure to variability in certain expected future cash flows.
To protect against the reduction in value of forecasted foreign currency cash flows (such as royalties denominated in foreign currencies), the Company uses foreign currency forwards to hedge a portion of anticipated exposures. The hedges cover the next 18 months for certain exposures and are denominated in various currencies. As of September 30, 2017, the Company had derivatives outstanding with an equivalent notional amount of $791.5 million that hedged a portion of forecasted foreign currency denominated royalties.
Based on market conditions at September 30, 2017, the $18.7 million in cumulative cash flow hedging losses, after tax, is not expected to have a significant effect on earnings over the next 12 months.
•
Net Investment Hedges
The Company primarily uses foreign currency denominated debt (third party and intercompany) and foreign currency forwards to hedge its investments in certain foreign subsidiaries and affiliates. Realized and unrealized translation adjustments from these hedges are included in shareholders' equity in the foreign currency translation component of OCI and offset translation adjustments on the underlying net assets of foreign subsidiaries and affiliates, which also are recorded in OCI. As of September 30, 2017, $10.1 billion of the Company's third party foreign currency denominated debt, $3.8 billion of intercompany foreign currency denominated debt and $897.5 million of derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.
•
Credit Risk
The Company is exposed to credit-related losses in the event of non-performance by its derivative counterparties. The Company did not have significant exposure to any individual counterparty at September 30, 2017 and has master agreements that contain netting arrangements. For financial reporting purposes, the Company presents gross derivative balances in the financial statements and supplementary data, including for counterparties subject to netting arrangements. Some of these agreements also require each party to post collateral if credit ratings fall below, or aggregate exposures exceed, certain contractual limits. At September 30, 2017, the Company was required to post an immaterial amount of collateral due to the negative fair value of certain derivative positions. The Company's counterparties were not required to post collateral on any derivative position, other than on hedges of certain of the Company’s supplemental benefit plan liabilities where the counterparties were required to post collateral on their liability positions.