Derivative Instruments

In August 2017 the FASB issued ASU 2017-12. We adopted this standard on January 1, 2018, using the modified retrospective method, which did not have an impact on our financial position or results of operations; however, the adoption of this standard resulted in additional disclosures and a change in the income statement classification with respect to where we recognize cash flow hedge ineffective or excluded hedge transaction gains and losses. For additional information on this standard, please read Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, to these consolidated financial statements.

Foreign Currency Forward Contracts - Hedging Instruments

Due to the global nature of our operations, portions of our revenues and operating expenses are recorded in currencies other than the U.S. dollar. The value of revenues and operating expenses measured in U.S. dollars is therefore subject to changes in foreign currency exchange rates. In order to mitigate these changes, we use foreign currency forward contracts to lock in exchange rates associated with a portion of our forecasted international revenues and operating expenses.

Foreign currency forward contracts in effect, as of December 31, 2018 and 2017, had durations of 1 to 12 months and 1 to 21 months, respectively. These contracts have been designated as cash flow hedges and unrealized gains or losses on the portion of these foreign currency forward contracts that are included in the effectiveness test are reported in accumulated other comprehensive income (loss) (referred to as AOCI in the tables below). Realized gains and losses of such contracts are recognized in revenues when the sale of product in the currency being hedged is recognized and in operating expenses when the expense in the currency being hedged is recorded. Prior to the adoption of ASU 2017-12 on January 1, 2018, to the extent ineffective or excluded, cash flow hedge transaction gains and losses were reported in other income (expense), net. Effective January 1, 2018, we recognize all cash flow hedge reclassifications from accumulated other comprehensive income and fair value changes of any cash flow hedge ineffectiveness or excluded portions in the same line item in our consolidated statements of income that has been impacted by the hedged item.

The notional value of foreign currency forward contracts that were entered into to hedge forecasted revenues and operating expenses is summarized as follows:



	Notional Amount As of December 31,
Foreign Currency: (In millions)	2018		2017
Euro	$	1,701.4	$	1,875.6
British pound sterling	215.3		150.9
Swiss francs	131.4		88.7
Japanese yen	98.8		—
Canadian dollar	92.2		83.5
Total foreign currency forward contracts	$	2,239.1	$	2,198.7

The pre-tax portion of the fair value of these foreign currency forward contracts that were included in accumulated other comprehensive income (loss) in total equity reflected net gains of $27.3 million as of December 31, 2018, net losses of $113.0 million as of December 31, 2017, and net gains of $49.8 million as of December 31, 2016. We expect the net gains of $27.3 million to be settled over the next 12 months, with any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenues or operating expenses. We consider the impact of our and our counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its contractual obligations. As of December 31, 2018 and 2017, credit risk did not change the fair value of our foreign currency forward contracts.

The following tables summarize the effect of foreign currency forward contracts designated as hedging instruments in our consolidated statements of income:



For the Year Ended December 31,
Net Gains/(Losses) Reclassified from AOCI into Operating Income (in millions)				Net Gains/(Losses) Recognized in Operating Income (in millions)
Location	2018			Location	2018
Revenues	$	(42.5	)	Revenues	$	10.8
Operating expenses	$	0.2		Operating expenses	$	(0.1	)



For the Years Ended December 31,
Net Gains/(Losses) Reclassified from AOCI into Operating Income (in millions)							Net Gains/(Losses) Recognized Directly into Net Income (in millions)
Location	2017			2016			Location	2017			2016
Revenues	$	(32.5	)	$	5.3		Other income (expense)	$	8.9		$	2.9
Operating expenses	$	0.6		$	(1.5	)	Other income (expense)	$	(0.2	)	$	0.1

Interest Rate Contracts - Hedging Instruments

We have entered into interest rate lock contracts or interest rate swap contracts on certain borrowing transactions to manage our exposure to interest rate changes and to reduce our overall cost of borrowing.

Interest Rate Swap Contracts

In connection with the issuance of our 2.90% Senior Notes, as described in Note 12, Indebtedness, to these consolidated financial statements, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which expire on September 15, 2020. The interest rate swap contracts are designated as hedges of the fair value changes in our 2.90% Senior Notes attributable to changes in interest rates. Since the specific terms and notional amount of the swaps match the debt being hedged, it is assumed to be a highly effective hedge and all changes in the fair value of the swaps are recorded as a component of our 2.90% Senior Notes with no net impact recorded in income. Any net interest payments made or received on the interest rate swap contracts are recorded as a component of interest expense in our consolidated statements of income.

Net Investment Hedges - Hedging Instruments

In February 2012 we entered into a joint venture agreement with Samsung BioLogics, establishing an entity, Samsung Bioepis, to develop, manufacture and market biosimilar products. In June 2018 we exercised our option under our joint venture agreement to increase our ownership percentage in Samsung Bioepis from approximately 5% to approximately 49.9%. The share purchase transaction was completed in November 2018 and, upon closing, we paid 759.5 billion South Korean won ($676.6 million) to Samsung BioLogics. Our investment in the equity of Samsung Bioepis is exposed to the currency fluctuations in the South Korean won.

In order to mitigate these currency fluctuations between the U.S. dollar and South Korean won, we have entered into foreign currency forward contracts. Foreign currency forward contracts in effect as of December 31, 2018, had remaining durations of 10 months. These contracts have been designated as net investment hedges. Since the critical terms of the investment and the foreign currency forward contracts match, these contracts are assumed to be highly effective. We recognize changes in the spot exchange rate in accumulated other comprehensive income (loss) (referred to as AOCI in the table below). The pre-tax portion of the fair value of these foreign currency forward contracts that were included in accumulated other comprehensive income (loss) in total equity reflected net losses of $3.8 million as of December 31, 2018. We exclude fair value changes related to the forward rate from our hedging relationship and will amortize the forward points in other income (expense), net in our consolidated statements of income over the term of the contract. The pre-tax portion of the fair value of the forward points that were included in accumulated other comprehensive income (loss) in total equity reflected gains of $7.3 million as of December 31, 2018.

The following table summarizes the effect of our net investment hedge in our consolidated financial statements:



(In millions)	Location	For the Year Ended December 31, 2018
Net Gains/(Losses) Recognized in AOCI	Gains (Losses) on Net Investment Hedge	$	(3.8	)
Net Gains/(Losses) Reclassified from AOCI into Net Income	Other income (expense)	$	1.5

For additional information on our collaboration arrangement with Samsung Bioepis, please read Note 19, Collaborative and Other Relationships, to these consolidated financial statements.

Foreign Currency Forward Contracts - Other Derivative Instruments

We also enter into other foreign currency forward contracts, usually with durations of one month or less, to mitigate the foreign currency risk related to certain balance sheet positions. We have not elected hedge accounting for these transactions.

The aggregate notional amount of these outstanding foreign currency contracts as of December 31, 2018 and 2017, were $735.1 million and $564.9 million, respectively. Net gains of $2.0 million and $4.5 million and net losses of $29.2 million related to these contracts were recorded as a component of other income (expense), net, for the years ended December 31, 2018, 2017 and 2016, respectively.

Summary of Derivative Instruments

While certain of our derivative instruments are subject to netting arrangements with our counterparties, we do not offset derivative assets and liabilities in our consolidated balance sheets. The amounts in the table below would not be substantially different if the derivative assets and liabilities were offset.

The following table summarizes the fair value and presentation in our consolidated balance sheets of our outstanding derivative instruments, including those designated as hedging instruments:



(In millions)	Balance Sheet Location	Fair Value As of December 31, 2018
Hedging Instruments:
Asset derivative instruments	Other current assets	$	65.8
Liability derivative instruments	Accrued expenses and other	$	6.9
	Other long-term liabilities	$	14.5
Other Derivative Instruments:
Asset derivative instruments	Other current assets	$	1.1
Liability derivative instruments	Accrued expenses and other	$	3.2



(In millions)	Balance Sheet Location	Fair Value As of December 31, 2017
Hedging Instruments:
Asset derivative instruments	Other current assets	$	0.7
	Investments and other assets	$	0.2
Liability derivative instruments	Accrued expenses and other	$	84.7
	Other long-term liabilities	$	23.6
Other Derivative Instruments:
Asset derivative instruments	Other current assets	$	1.8
Liability derivative instruments	Accrued expenses and other	$	3.0