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Derivative Instruments | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Foreign Currency Forward Contracts - Hedging Instruments Due to the global nature of our operations, portions of our revenue and operating expense are recorded in currencies other than the U.S. dollar. The value of revenue and operating expense 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 revenue and operating expense. Foreign currency forward contracts in effect as of September 30, 2021 and December 31, 2020, had durations of 1 to 18 months and 1 to 24 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 revenue when the sale of product in the currency being hedged is recognized and in operating expense when the expense in the currency being hedged is recorded. We recognize all cash flow hedge reclassifications from accumulated other comprehensive income (loss) and fair value changes of excluded portions in the same line item in our condensed 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 revenue and operating expense is summarized as follows:
|  | Notional Amount
(In millions) |  | As of September 30, 2021 |  | As of December 31, 2020
Euro |  | $ | 1,901.5 |  |  | $ | 2,979.1 |
British pound |  | 63.6 |  |  | 250.6 |
Swiss franc |  | 60.4 |  |  | — |
Japanese yen |  | 30.1 |  |  | — |
Canadian dollar |  | 25.2 |  |  | — |
Total foreign currency forward contracts |  | $ | 2,080.8 |  |  | $ | 3,229.7 |
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 as of September 30, 2021, reflected aggregate net unrealized gains of $21.9 million, composed of gross unrealized gains of approximately $38.4 million and gross unrealized losses of approximately $16.5 million, compared to aggregate net unrealized losses of $212.5 million as of December 31, 2020. We expect the net unrealized gains of $21.9 million to be settled over the next 18 months, of which $9.6 million of unrealized gains are expected to be settled over the next 12 months, with any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to revenue or operating expense. 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 September 30, 2021 and December 31, 2020, credit risk did not materially 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 condensed consolidated statements of income:
For the Three Months Ended September 30,
Net Gains/(Losses) Reclassified from AOCI into Operating Income (in millions) |  | Net Gains/(Losses) Recognized in Operating Income (in millions)
Location |  | 2021 |  | 2020 |  | Location |  | 2021 |  | 2020
Revenue |  | $ | (14.9) |  |  | $ | (9.1) |  |  | Revenue |  | $ | (0.7) |  |  | $ | (8.7) |
Operating expense |  | (0.3) |  |  | 1.5 |  |  | Operating expense |  | — |  |  | 0.4 |
For the Nine Months Ended September 30, |  |  |  |  |  |
Net Gains/(Losses) Reclassified from AOCI into Operating Income (in millions) |  | Net Gains/(Losses) Recognized in Operating Income (in millions) |  |  |  |  |  |
Location |  | 2021 |  | 2020 |  | Location |  | 2021 |  | 2020 |  |  |  |  |  |
Revenue |  | $ | (68.7) |  |  | $ | 41.6 |  |  | Revenue |  | $ | (4.5) |  |  | $ | (1.0) |  |  |  |  |  |  |
Operating expense |  | (0.3) |  |  | 1.4 |  |  | Operating expense |  | (0.4) |  |  | (0.7) |  |  |  |  |  |  |
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 due September 15, 2020, we entered into interest rate swaps with an aggregate notional amount of $675.0 million, which were originally set to expire on September 15, 2020. The interest rate swap contracts were designated as hedges of the fair value changes in our 2.90% Senior Notes attributable to changes in interest rates. In May 2020 we settled our interest rate swap contracts, in conjunction with our early redemption of our 2.90% Senior Notes, resulting in a gain of approximately $3.3 million, which was recorded as a component of interest expense in our condensed consolidated statements of income during the second quarter of 2020. 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 5.0% 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 the 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 September 30, 2021, had a remaining duration of one month. These contracts have been designated as net investment hedges. We recognize changes in the spot exchange rate in accumulated other comprehensive income (loss). 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 $25.0 million and net losses of $21.2 million as of September 30, 2021 and December 31, 2020, respectively. 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 condensed 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 $0.0 million and $0.2 million as of September 30, 2021 and December 31, 2020, respectively. The following tables summarize the effect of our net investment hedge in our condensed consolidated financial statements:
For the Three Months Ended September 30,
Net Gains/(Losses) Recognized in Other Comprehensive Income (Effective Portion) (in millions) |  | Net Gains/(Losses) Recognized in Other Comprehensive Income (Amounts Excluded from Effectiveness Testing) (in millions) |  | Net Gains/(Losses) Recognized in Net Income (Amounts Excluded from Effectiveness Testing) (in millions)
Location |  | 2021 |  | 2020 |  | Location |  | 2021 |  | 2020 |  | Location |  | 2021 |  | 2020
Gains (losses) on net investment hedge |  | $ | 24.9 |  |  | $ | (10.4) |  |  | Gains (losses) on net investment hedge |  | $ | — |  |  | $ | (0.2) |  |  | Other income (expense) |  | $ | — |  |  | $ | 0.9 |
For the Nine Months Ended September 30,
Net Gains/(Losses) Recognized in Other Comprehensive Income (Effective Portion) (in millions) |  | Net Gains/(Losses) Recognized in Other Comprehensive Income (Amounts Excluded from Effectiveness Testing) (in millions) |  | Net Gains/(Losses) Recognized in Net Income (Amounts Excluded from Effectiveness Testing) (in millions)
Location |  | 2021 |  | 2020 |  | Location |  | 2021 |  | 2020 |  | Location |  | 2021 |  | 2020
Gains (losses) on net investment hedge |  | $ | 46.1 |  |  | $ | 5.0 |  |  | Gains (losses) on net investment hedge |  | $ | (1.1) |  |  | $ | 3.1 |  |  | Other income (expense) |  | $ | 0.1 |  |  | $ | 2.6 |
For additional information on our collaboration arrangements with Samsung Bioepis, please read Note 16, Collaborative and Other Relationships, to these condensed 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 forward contracts was $1,400.6 million and $1,158.0 million as of September 30, 2021 and December 31, 2020, respectively. Net losses of $13.5 million and $26.1 million related to these contracts were recorded as a component of other income (expense), net for the three and nine months ended September 30, 2021, respectively, compared to net gains of $7.8 million and $13.7 million, respectively, in the prior year comparative periods. 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 condensed 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 condensed consolidated balance sheets of our outstanding derivative instruments, including those designated as hedging instruments:
(In millions) |  | Balance Sheet Location |  | As of September 30, 2021 |  | As of December 31, 2020
Cash Flow Hedging Instruments: |  |  |  |  |  |
Asset derivative instruments |  | Other current assets |  | $ | 34.5 |  |  | $ | — |
|  | Investments and other assets |  | 14.1 |  |  | — |
Liability derivative instruments |  | Accrued expense and other |  | 11.8 |  |  | 157.1 |
|  | Other long-term liabilities |  | — |  |  | 35.7 |
Net Investment Hedging Instruments: |  |  |  |  |  |
Asset derivative instruments |  | Other current assets |  | 25.3 |  |  | — |
Liability derivative instruments |  | Accrued expense and other |  | — |  |  | 19.7 |
Other Derivative Instruments: |  |  |  |  |  |
Asset derivative instruments |  | Other current assets |  | 6.1 |  |  | 20.5 |
Liability derivative instruments |  | Accrued expense and other |  | 15.9 |  |  | 4.7 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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