Derivative Instruments

In the normal course of business, the Company is exposed to interest rate and foreign exchange rate fluctuations. As part of its risk management strategy, the Company uses derivative instruments, primarily foreign currency forward contracts and interest rate swaps, to hedge certain foreign currency and interest rate exposures. The Company’s objective is to reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them. The Company does not use derivative instruments for trading or any speculative purpose.

Derivatives Designated for Hedge Accounting

Cash flow hedges

The Company uses interest rate swap agreements designated as cash flow hedges to mitigate its exposure to interest rate risk associated with the variability of cash outflows for interest payments on certain floating interest rate debt, which effectively converts the debt into fixed interest rate debt. During fiscal 2019, the Company terminated interest rate swap agreements with aggregate notional values of $375 million and fair values of $5 million and derecognized the relative derivative asset. The hedge gain of $5 million is recognized over the remaining original life of the swap against interest expense in the statements of operations. The Company had no interest rate swap agreements as of March 31, 2019. As of March 31, 2018, the Company had interest rate swap agreements with a total notional amount of $635 million.

The Company has designated certain foreign currency forward contracts as cash flow hedges to reduce foreign currency risk related to certain Indian Rupee denominated intercompany obligations and forecasted transactions. The notional amounts of foreign currency forward contracts designated as cash flow hedges as of March 31, 2019 and March 31, 2018 was $277 million and $634 million, respectively. As of March 31, 2019, the related forecasted transactions extend through March 2020.

For the fiscal years ended March 31, 2019 and March 31, 2018, the Company performed an assessment at the inception of the cash flow hedge transactions and determined all critical terms of the hedging instruments and hedged items matched. The Company performs an assessment of critical terms on an ongoing basis throughout the hedging period. During the fiscal years ended March 31, 2019 and March 31, 2018, the Company had no cash flow hedges for which it was probable that the hedged transaction would not occur. As of March 31, 2019, $1 million of the existing gain related to the cash flow hedge reported in AOCI is expected to be reclassified into earnings within the next 12 months.

Net investment hedges

The Company has designated certain foreign currency forward contracts as net investment hedges to protect its investment in certain foreign operations against adverse changes in exchange rates between the EUR and USD. As of March 31, 2019, the notional amount of foreign currency forward contracts designated as net investment hedges was $1.7 billion. As of March 31, 2018, the Company had no foreign currency forward contracts designated as net investment hedges.

The pre-tax loss on derivatives designated for hedge accounting recognized in other comprehensive income was $1 million and in income from continuing operations was $10 million during the fiscal year ended March 31, 2019.

Derivatives Not Designated For Hedge Accounting

The derivative instruments not designated as hedges for purposes of hedge accounting include certain short-term foreign currency forward contracts. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.

Interest rate swap agreements

During fiscal 2019, the Company elected to de-designate its interest rate swap agreements. The Company derecognized the related derivative asset and recognized the amount in earnings. The Company had no interest rate swap agreements as of March 31, 2019.

Foreign currency forward contracts

The Company manages the exposure to fluctuations in foreign currencies by using foreign currency forward contracts to hedge certain foreign currency denominated assets and liabilities, including intercompany accounts and forecasted transactions. The notional amount of the foreign currency forward contracts outstanding as of March 31, 2019 and March 31, 2018 was $2.5 billion and $3.1 billion, respectively.

The following table presents the pretax amounts impacting income related to foreign currency forward contracts:



		Fiscal Years Ended
(in millions)	Statement of Operations Line Item	March 31, 2019		March 31, 2018		March 31, 2017
Foreign currency forward contracts	Other expense (income), net	$	16	$	118	$	(84	)

Fair Value of Derivative Instruments

All derivative instruments are recorded at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation. The following tables present the fair values of derivative instruments included in the balance sheets:



	Derivative Assets
		As of
(in millions)	Balance Sheet Line Item	March 31, 2019		March 31, 2018

Derivatives designated for hedge accounting:
Interest rate swaps	Other assets	$	—	$	6
Foreign currency forward contracts ⁽¹⁾	Other current assets	38		14
Total fair value of derivatives designated for hedge accounting		$	38	$	20

Derivatives not designated for hedge accounting:
Foreign currency forward contracts	Other current assets	$	5	$	4
Total fair value of derivatives not designated for hedge accounting		$	5	$	4



	Derivative Liabilities
		As of
(in millions)	Balance Sheet Line Item	March 31, 2019		March 31, 2018

Derivatives designated for hedge accounting:
Foreign currency forward contracts⁽¹⁾	Accrued expenses and other current liabilities	$	4	$	3
Total fair value of derivatives designated for hedge accounting:		$	4	$	3

Derivatives not designated for hedge accounting:
Foreign currency forward contracts	Accrued expenses and other current liabilities	$	9	$	6
Total fair value of derivatives not designated for hedge accounting		$	9	$	6


⁽¹⁾	Foreign currency forward contracts designated for hedge accounting includes designated cash flow hedges and net investment hedges.

The fair value of foreign currency forward contracts represents the estimated amount required to settle the contracts using current market exchange rates and is based on the period-end foreign currency exchange rates and forward points which are classified as Level 2 inputs.

Other risks

The Company is exposed to the risk of losses in the event of non-performance by the counterparties to its derivative contracts. The amount subject to credit risk related to derivative instruments is generally limited to the amount, if any, by which a counterparty's obligations exceed the obligations of the Company with that counterparty. To mitigate counterparty credit risk, the Company regularly reviews its credit exposure and the creditworthiness of the counterparties. With respect to its foreign currency derivatives, as of March 31, 2019, there were five counterparties with concentration of credit risk, and based on gross fair value, the maximum amount of loss that the Company could incur is approximately $29 million.

The Company also enters into enforceable master netting arrangements with some of its counterparties. However, for financial reporting purposes, it is the Company's policy not to offset derivative assets and liabilities despite the existence of enforceable master netting arrangements. The potential effect of such netting arrangements on the Company's balance sheets is not material for the periods presented.