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Derivative Instruments | 3 Months Ended
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Mar. 31, 2023
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. We enter into foreign currency forward contracts and foreign currency options with financial institutions with the primary objective to mitigate the impact of foreign currency exchange rate fluctuations on our international revenue and operating expense. Foreign currency forward contracts and foreign currency options in effect as of March 31, 2023 and December 31, 2022, had durations of 1 to 18 months and 1 to 12 months, respectively. These contracts have been designated as cash flow hedges and unrealized gains and losses on the portion of these foreign currency forward contracts and foreign currency options that are included in the effectiveness test are reported in AOCI. Realized gains and losses of such contracts and options 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 AOCI and fair value changes of excluded portions in the same line item in our condensed consolidated statements of income that have been impacted by the hedged item. The notional amount of foreign currency forward contracts and foreign currency options that were entered into to hedge forecasted revenue and operating expense is summarized as follows:
|  | Notional Amount
(In millions) |  | As of March 31, 2023 |  | As of December 31, 2022
Euro |  | $ | 1,854.8 |  |  | $ | 1,495.5 |
British pound |  | 124.3 |  |  | 162.8 |
Swiss franc |  | 248.2 |  |  | — |
Canadian dollar |  | 43.3 |  |  | 57.2 |
Total foreign currency contracts and options |  | $ | 2,270.6 |  |  | $ | 1,715.5 |
The pre-tax portion of the fair value of these foreign currency forward contracts and foreign currency options that were included in AOCI in total equity is summarized as follows:
(In millions) |  | As of March 31, 2023 |  | As of December 31, 2022
Unrealized gains |  | $ | 8.8 |  |  | $ | 29.9 |
Unrealized (losses) |  | (39.0) |  |  | (21.3) |
Net unrealized gains (losses) |  | $ | (30.2) |  |  | $ | 8.6 |
We expect the net unrealized losses of approximately $30.2 million to be settled over the next 18 months, of which approximately $30.0 million of these net unrealized losses are expected to be settled over the next 12 months, with any amounts in AOCI 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 March 31, 2023 and December 31, 2022, credit risk did not materially change the fair value of our foreign currency forward contracts and forward currency options. The following table summarizes the effect of foreign currency forward contracts and forward currency options designated as hedging instruments in our condensed consolidated statements of income:
For the Three Months Ended March 31,
Net Gains/(Losses) Reclassified from AOCI into Operating Income (in millions) |  | Net Gains/(Losses) Recognized in Operating Income (in millions)
Location |  | 2023 |  | 2022 |  | Location |  | 2023 |  | 2022
Revenue |  | $ | 17.6 |  |  | $ | 20.9 |  |  | Revenue |  | $ | 1.6 |  |  | $ | (6.5) |
Operating expense |  | (0.5) |  |  | (0.3) |  |  | Operating expense |  | (2.1) |  |  | (0.1) |
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%. In order to mitigate the currency fluctuations between the U.S. dollar and South Korean won, we entered into foreign currency forward contracts. These contracts were designated as net investment hedges. In April 2022 we completed the sale of our 49.9% equity interest in Samsung Bioepis to Samsung BioLogics and closed these foreign currency forward contracts. Upon completing this sale, the cumulative gains on our net investment hedges of $57.0 million were reclassified from AOCI and reflected within the total pre-tax gain recognized from the sale, which was recorded in other (income) expense, net in our condensed consolidated statements of income. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 2, Dispositions, to these condensed consolidated financial statements. The following table summarizes the effect of our net investment hedges in our condensed consolidated financial statements:
For the Three Months Ended March 31,
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 |  |  |  | 2022 |  | Location |  |  |  | 2022 |  | Location |  |  |  | 2022
Gains (losses) on net investment hedges(1) |  |  |  | $ | 10.1 |  |  | Gains (losses) on net investment hedges(1) |  |  |  | $ | (3.3) |  |  | Other (income) expense(1) |  |  |  | $ | (1.1) |
(1) Beginning in the second quarter of 2022 we no longer held net investment hedges as they were closed with the sale of our 49.9% equity interest in Samsung Bioepis in April 2022. For additional information on the sale of our equity interest in Samsung Bioepis, please read Note 2, Dispositions, to these condensed consolidated financial statements. 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 $1,436.3 million and $1,238.8 million as of March 31, 2023 and December 31, 2022, respectively. Net gains of $1.8 million and net losses of $12.2 million related to these contracts were recorded as a component of other (income) expense, net for the three months ended March 31, 2023 and 2022, 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 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 March 31, 2023 |  | As of December 31, 2022
Cash Flow Hedging Instruments: |  |  |  |  |  |
Asset derivative instruments |  | Other current assets |  | $ | 12.3 |  |  | $ | 37.9 |
|  | Investments and other assets |  | 0.1 |  |  | — |
Liability derivative instruments |  | Accrued expense and other |  | 31.9 |  |  | 18.4 |
|  | Other long-term liabilities |  | 0.3 |  |  | — |
Other Derivative Instruments: |  |  |  |  |  |
Asset derivative instruments |  | Other current assets |  | 22.7 |  |  | 25.1 |
Liability derivative instruments |  | Accrued expense and other |  | 7.6 |  |  | 7.6 |

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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 https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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