Financial Instruments

Derivative Financial Instruments

The Company is exposed to changes in foreign currency exchange rates, primarily relating to certain anticipated cash flows and the value of the reported net assets of its international operations, as well as changes in the fair value of its fixed-rate debt obligations attributed to changes in a benchmark interest rate. Consequently, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not enter into derivative transactions for speculative or trading purposes.

The following table summarizes the Company's outstanding derivative instruments on a gross basis as recorded in its consolidated balance sheets as of December 29, 2018 and March 31, 2018:



	Notional Amounts				Derivative Assets						Derivative Liabilities
Derivative Instrument^(a)	December 29, 2018		March 31, 2018		December 29, 2018			March 31, 2018			December 29, 2018			March 31, 2018
					Balance Sheet Line^(b)	Fair Value		Balance Sheet Line^(b)	Fair Value		Balance Sheet Line^(b)	Fair Value		Balance Sheet Line^(b)	Fair Value
	(millions)
Designated Hedges:
FC — Cash flow hedges	$	637.6	$	514.5	^(e)	$	17.8	PP	$	1.1	AE	$	2.7	^(f)	$	13.5
IRS — Fixed-rate debt	300.0		600.0			—			—		ONCL	8.0		^(g)	12.4
Net investment hedges^(c)	708.4		1,081.2		ONCA	3.1		PP	0.1		ONCL	12.2		^(h)	82.6
Total Designated Hedges	1,646.0		2,195.7			20.9			1.2			22.9			108.5
Undesignated Hedges:
FC — Undesignated hedges^(d)	168.2		459.2		PP	0.3		PP	11.1		AE	1.6		AE	1.5
Total Hedges	$	1,814.2	$	2,654.9		$	21.2		$	12.3		$	24.5		$	110.0


^(a)	FC = Forward foreign currency exchange contracts; IRS = Interest rate swap contracts


^(b)	PP = Prepaid expenses and other current assets; AE = Accrued expenses and other current liabilities; ONCA = Other non-current assets; ONCL = Other non-current liabilities.


^(c)	Includes cross-currency swaps and forward foreign currency exchange contracts designated as hedges of the Company's net investment in certain foreign operations.


^(d)	Primarily includes undesignated hedges of foreign currency-denominated intercompany loans and other intercompany balances.


^(e)	$15.7 million included within prepaid expenses and other current assets and $2.1 million included within other non-current assets.


^(f)	$12.9 million included within accrued expenses and other current liabilities and $0.6 million included within other non-current liabilities.


^(g)	$1.6 million included within accrued expenses and other current liabilities and $10.8 million included within other non-current liabilities.


^(h)	$44.8 million included within accrued expenses and other current liabilities and $37.8 million included within other non-current liabilities.

The Company records and presents the fair values of all of its derivative assets and liabilities in its consolidated balance sheets on a gross basis, even when they are subject to master netting arrangements. However, if the Company were to offset and record the asset and liability balances of all of its derivative instruments on a net basis in accordance with the terms of each of its master netting arrangements, spread across eight separate counterparties, the amounts presented in the consolidated balance sheets as of December 29, 2018 and March 31, 2018 would be adjusted from the current gross presentation as detailed in the following table:



	December 29, 2018							March 31, 2018
	Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Agreements			Net Amount		Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Agreements			Net Amount
	(millions)
Derivative assets	$	21.2	$	(3.6	)	$	17.6	$	12.3	$	(10.7	)	$	1.6
Derivative liabilities	24.5		(3.6		)	20.9		110.0		(10.7		)	99.3

The Company's master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties. See Note 3 for further discussion of the Company's master netting arrangements.

The following tables summarize the pretax impact of gains and losses from the Company's designated derivative instruments on its consolidated financial statements for the three-month and nine-month periods ended December 29, 2018 and December 30, 2017:



	Gains (Losses) Recognized in OCI
	Three Months Ended					Nine Months Ended
	December 29, 2018		December 30, 2017			December 29, 2018		December 30, 2017
	(millions)
Designated Hedges:
FC — Cash flow hedges	$	11.1	$	(2.9	)	$	38.5	$	(28.8	)
Net investment hedges — effective portion	10.6		(10.4		)	50.8		(73.1		)
Net investment hedges — portion excluded from assessment of hedge effectiveness	6.8		—			0.1		—
Total Designated Hedges	$	28.5	$	(13.3	)	$	89.4	$	(101.9	)



	Location and Amount of Gains (Losses) from Cash Flow Hedges Reclassified from AOCI to Earnings
	Three Months Ended												Nine Months Ended
	December 29, 2018						December 30, 2017						December 29, 2018						December 30, 2017
	Cost of goods sold			Other income (expense), net			Cost of goods sold			Other income (expense), net			Cost of goods sold			Other income (expense), net			Cost of goods sold			Other income (expense), net
	(millions)
Total amounts presented in the consolidated statements of operations in which the effects of related cash flow hedges are recorded	$	(666.3	)	$	1.0		$	(645.6	)	$	(1.4	)	$	(1,822.8	)	$	(0.6	)	$	(1,809.9	)	$	(1.7	)
Effects of cash flow hedging:
FC — Cash flow hedges	4.3			(0.4		)	(5.9		)	0.6			(1.2		)	1.7			(4.3		)	(0.4		)



	Gains (Losses) from Net Investment Hedges Recognized in Earnings								Location of Gains (Losses) Recognized in Earnings
	Three Months Ended				Nine Months Ended
	December 29, 2018		December 30, 2017		December 29, 2018		December 30, 2017
	(millions)
Net Investment Hedges
Net investment hedges — portion excluded from assessment of hedge effectiveness^(a)	$	4.8	$	3.2	$	13.9	$	7.0	Interest expense
Total Net Investment Hedges	$	4.8	$	3.2	$	13.9	$	7.0


^(a)	Amounts recognized in other comprehensive income (loss) ("OCI") related to the effective portion of the Company's net investment hedges would be recognized in earnings only upon the sale or liquidation of the hedged net investment.

As of December 29, 2018, it is estimated that $17.9 million of pretax net gains on both outstanding and matured derivative instruments designated as cash flow hedges deferred in AOCI will be recognized in earnings over the next twelve months. The amounts ultimately recognized in earnings will depend on exchange rates in effect when outstanding derivative instruments are settled.

The following table summarizes the pretax impact of gains and losses from the Company's undesignated derivative instruments on its consolidated financial statements for the three-month and nine-month periods ended December 29, 2018 and December 30, 2017:



	Gains (Losses) Recognized in Earnings										Location of Gains (Losses) Recognized in Earnings
	Three Months Ended						Nine Months Ended
	December 29, 2018			December 30, 2017			December 29, 2018		December 30, 2017
	(millions)
Undesignated Hedges:
FC — Undesignated hedges	$	(1.0	)	$	(1.9	)	$	4.7	$	0.2	Other income (expense), net
Total Undesignated Hedges	$	(1.0	)	$	(1.9	)	$	4.7	$	0.2

Risk Management Strategies

Forward Foreign Currency Exchange Contracts

The Company uses forward foreign currency exchange contracts to reduce its risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, intercompany royalty payments made by certain of its international operations, the settlement of foreign currency-denominated balances, and the translation of certain foreign operations' net assets into U.S. dollars. As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, primarily to changes in the value of the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, the Swedish Krona, the Chinese Renminbi, the New Taiwan Dollar, and the Hong Kong Dollar, the Company hedges a portion of its foreign currency exposures anticipated over a two-year period. In doing so, the Company uses forward foreign currency exchange contracts that generally have maturities of two months to two years to provide continuing coverage throughout the hedging period of the respective exposure.

Interest Rate Swap Contracts

During Fiscal 2016, the Company entered into two pay-floating rate, receive-fixed rate interest rate swap contracts which it designated as hedges against changes in the respective fair values of its fixed-rate 2.125% Senior Notes and its fixed-rate 2.625% Senior Notes, attributed to changes in a benchmark interest rate (the "Interest Rate Swaps"). The interest rate swap related to the 2.125% Senior Notes (the "2.125% Interest Rate Swap"), which matured on September 26, 2018 in conjunction with the maturity of the related debt, had a notional amount of $300 million and swapped the fixed interest rate on the 2.125% Senior Notes for a variable interest rate based on the 3-month London Interbank Offered Rate ("LIBOR") plus a fixed spread. The interest rate swap related to the 2.625% Senior Notes (the "2.625% Interest Rate Swap"), which matures on August 18, 2020 and also has a notional amount of $300 million, swaps the fixed interest rate on the 2.625% Senior Notes for a variable interest rate based on 3-month LIBOR plus a fixed spread. Changes in the fair values of the Interest Rate Swaps were offset by changes in the fair values of the 2.125% Senior Notes and 2.625% Senior Notes attributed to changes in the benchmark interest rate, with no resulting net impact reflected in earnings during any of the fiscal periods presented. The following table summarizes the carrying values of the 2.125% and 2.625% Senior Notes and the impacts of the related fair value hedging adjustments as of December 29, 2018 and March 31, 2018, as applicable:



		Carrying Value of the Hedged Item				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Value of the Hedged Item
Hedged Item	Balance Sheet Line in which the Hedged Item is Included	December 29, 2018		March 31, 2018		December 29, 2018			March 31, 2018
		(millions)
$300 million 2.125% Senior Notes	Current portion of long-term debt	N/A		$	298.1	N/A			$	(1.6	)
$300 million 2.625% Senior Notes	Long-term debt	$	291.2	288.0		$	(8.0	)	(10.8		)

Cross-Currency Swap Contracts

During Fiscal 2016, the Company entered into two pay-floating rate, receive-floating rate cross-currency swap contracts, with notional amounts of €280 million and €274 million, that were designated as hedges of its net investment in certain of its European subsidiaries. The €280 million notional cross-currency swap, which was settled during the second quarter of Fiscal 2019, swapped the U.S. Dollar-denominated variable interest rate payments based on 3-month LIBOR plus a fixed spread (as paid under the 2.125% Interest Rate Swap discussed above) for Euro-denominated variable interest rate payments based on the 3-month Euro Interbank Offered Rate ("EURIBOR") plus a fixed spread, which, in conjunction with the 2.125% Interest Rate Swap, economically converted the Company's previously-outstanding $300 million fixed-rate 2.125% Senior Notes obligation to a €280 million floating-rate Euro-denominated obligation. Similarly, the €274 million notional cross-currency swap, which matures on August 18, 2020, swaps the U.S. Dollar-denominated variable interest rate payments based on 3-month LIBOR plus a fixed spread (as paid under the 2.625% Interest Rate Swap discussed above) for Euro-denominated variable interest rate payments based on 3-month EURIBOR plus a fixed spread, which, in conjunction with the 2.625% Interest Rate Swap, economically converts the Company's $300 million fixed-rate 2.625% Senior Notes obligation to a €274 million floating-rate Euro-denominated obligation.

Additionally, in August 2018, the Company entered into pay-fixed rate, receive-fixed rate cross-currency swap contracts with an aggregate notional amount of €346 million that were designated as hedges of its net investment in certain of its European subsidiaries. These contracts, which mature on September 15, 2025, swap the U.S. Dollar-denominated fixed interest rate payments on the Company's 3.750% Senior Notes for Euro-denominated 1.29% fixed interest rate payments, thereby economically converting the Company's $400 million fixed-rate 3.750% Senior Notes obligation to a €346 million fixed-rate 1.29% Euro-denominated obligation.

See Note 3 for further discussion of the Company's accounting policies relating to its derivative financial instruments.

Investments

As of December 29, 2018, the Company's short-term investments consisted of $1.185 billion of time deposits and $197.4 million of commercial paper, and its non-current investments consisted of $45.7 million of time deposits. As of March 31, 2018, the Company's short-term investment consisted of $480.2 million of time deposits and $219.2 million of commercial paper, and its non-current investments consisted of $86.2 million of time deposits.

No significant realized or unrealized gains or losses on available-for-sale investments or other-than-temporary impairment charges were recorded during any of the fiscal periods presented.

Refer to Note 3 of the Fiscal 2018 10-K for further discussion of the Company's accounting policies relating to its investments.