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Derivatives and Hedging
 12 Months Ended
Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging
Derivatives and Hedging
The Company is exposed to market risks, including changes in foreign currency exchange rates and interest rates. To manage the risk related to these exposures, the Company enters into various derivative instruments that reduce these risks by creating offsetting exposures. The Company does not enter into derivative transactions for trading or speculative purposes.
Foreign Exchange Risk Management
The Company is exposed to foreign exchange risk when it earns revenues, pays expenses, enters into monetary intercompany transfers denominated in a currency that differs from its functional currency, or enters into other transactions that are denominated in a currency other than its functional currency. The Company uses foreign exchange derivatives, typically forward contracts, options and cross-currency swaps, to reduce its overall exposure to the effects of currency fluctuations on cash flows. These exposures are hedged, on average, for less than two years. These derivatives are accounted for as hedges, and changes in fair value are recorded each period in Other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income.
The Company also uses foreign exchange derivatives, typically forward contracts and options to economically hedge the currency exposure of the Company’s global liquidity profile, including monetary assets or liabilities that are denominated in a non-functional currency of an entity, typically on a rolling 30-day basis, but may be for up to one year in the future. These derivatives are not accounted for as hedges, and changes in fair value are recorded each period in Other income in the Consolidated Statements of Income.
The notional and fair values of derivative instruments are as follows (in millions):
 
Notional Amount
 
Derivative Assets (1)
 
Derivative Liabilities (2)
As of December 31
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
  Accounted for as hedges
$
758

 
$
778

 
$
14

 
$
32

 
$
13

 
$
18

  Not accounted for as hedges (3)
189

 
280

 
1

 
—

 
1

 
—

Total
$
947

 
$
1,058

 
$
15

 
$
32

 
$
14

 
$
18

(1)
Included within Other current assets ($6 million in 2016 and $15 million in 2015, respectively) or Other non-current assets ($9 million in 2016 and $17 million in 2015, respectively)
(2)
Included within Other current liabilities ($7 million in 2016 and $13 million in 2015, respectively) or Other non-current liabilities ($7 million in 2016 and $5 million in 2015, respectively)
(3)
These contracts typically are for 30 day durations and executed close to the last day of the most recent reporting month, thereby resulting in nominal fair values at the balance sheet date.
Offsetting of financial assets and derivatives assets are as follows (in millions):
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amounts of Assets Presented in the Statement of Financial Position (1)
Derivatives accounted for as hedges:
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Foreign exchange contracts
$
14

 
$
32

 
$
(1
)
 
$
(13
)
 
$
13

 
$
19

(1)
Included within Other current assets ($4 million in 2016 and $6 million in 2015, respectively) or Other non-current assets ($9 million in 2016 and $13 million in 2015, respectively)
Offsetting of financial liabilities and derivative liabilities are as follows (in millions):
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amounts of Liabilities Presented in the Statement of Financial Position (1)
Derivatives accounted for as hedges:
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Foreign exchange contracts
$
13

 
$
18

 
$
(1
)
 
$
(13
)
 
$
12

 
$
5

(1)
Included within Other current liabilities ($5 million in 2016 and $4 million in 2015, respectively) or Other non-current liabilities ($7 million in 2016 and $1 million in 2015, respectively)
The amounts of derivative gains (losses) recognized in the Consolidated Financial Statements are as follows (in millions):
Cash Flow Hedge - Foreign Exchange Contracts
 
Location of future reclassification from Accumulated Other Comprehensive Loss
 
Gain (Loss) Recognized in Accumulated Other Comprehensive Loss:
 
 
Compensation and Benefits
 
Other General Expenses
 
Interest Expense
 
Other Income (Expense)
 
Total
2016
 
$
8

 
$
(13
)
 
$
—

 
$
(20
)
 
$
(25
)
2015
 
4

 
(3
)
 
—

 
(10
)
 
(9
)
2014
 
11

 
(3
)
 
—

 
(10
)
 
(2
)
Cash Flow Hedge - Foreign Exchange Contracts
 
 
 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion):

 
Compensation and Benefits
 
Other General Expenses
 
Interest Expense
 
Other Income
 
Total
2016
 
$
2

 
$
(4
)
 
$
(1
)
 
$
(7
)
 
$
(10
)
2015
 
4

 
(1
)
 
(9
)
 
(11
)
 
(17
)
2014
 
(5
)
 
3

 
(10
)
 
(2
)
 
(14
)

The Company recognized no gain (loss) in Interest expense for fair value hedges related to fixed rate debt for 2016 and 2015. There was a gain of $9 million recognized in 2014.
The Company estimates that approximately $12 million of pretax losses currently included within Accumulated other comprehensive loss will be reclassified in to earnings in the next twelve months.
The amount of gain (loss) recognized in income on the ineffective portion of derivatives for 2016, 2015, and 2014 was immaterial.
The Company recorded a loss of $0.2 million for 2016 and a loss of $8 million and $18 million in Other income for foreign exchange derivatives not designated or qualifying as hedges for 2015 and 2014, respectively.
Net Investments in Foreign Operations Risk Management
The Company uses non-derivative financial instruments to protect the value of its investments in a number of foreign subsidiaries. In 2016, the Company designated a portion of its Euro-denominated commercial paper issuances as a non-derivative economic hedge of the foreign currency exposure of a net investment in its European operations. The change in fair value of the designated portion of the Euro-denominated commercial paper due to changes in foreign currency exchange rates is recorded in Foreign currency translation adjustment, a component of Accumulated other comprehensive income (loss), to the extent it is effective as a hedge. The foreign currency translation adjustment of the hedged net investments that is also recorded in Accumulated other comprehensive income (loss). Ineffective portions of net investment hedges, if any, are reclassified from Accumulated other comprehensive income (loss) into earnings during the period of change.
As of December 31, 2016, the Company has €217 million ($227 million at December 31, 2016 exchange rates) of outstanding Euro-denominated commercial paper designated as a hedge of the foreign currency exposure of its net investment in its European operations. As of December 31, 2016, the unrealized gain recognized in Accumulated other comprehensive income (loss) related to the net investment non derivative hedging instrument was $18 million.
The Company did not reclassify any deferred gains or losses related to net investment hedges from Accumulated other comprehensive income (loss) to earnings during the twelve months ended December 31, 2016. In addition, the Company did not incur any ineffectiveness related to net investment hedges during the twelve months ended December 31, 2016.