Derivative Instruments

3 Months Ended

Mar. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

Cash Flow Hedges

Our exposure to market risk includes changes in foreign exchange rates. We have operations in foreign countries where the functional currency is primarily the local currency. For international operations that are determined to be extensions of the parent company, the U.S. dollar is the functional currency. We typically have naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. As of March 31, 2016 and December 31, 2015, we have entered into foreign exchange forward contracts to hedge the effect of adverse fluctuations in foreign currency exchange rates. We do not enter into any derivative financial instruments for speculative purposes.

During the three months ended March 31, 2016, we entered into a series of foreign exchange forward contracts to hedge a portion of our Indian Rupee exposure through the fourth quarter of 2016. These contracts are intended to offset the impact of movement of exchange rates on future operating costs and are scheduled to mature at the end of each quarter during 2016. The changes in the fair value of these contracts are initially reported in accumulated other comprehensive loss in our consolidated balance sheet and are subsequently reclassified into selling and general expenses in the same period that the hedge contract matures. As of March 31, 2016, we estimate that $2 million of the net gains related to derivatives designated as cash flow hedges recorded in other comprehensive income (loss) is expected to be reclassified into earnings within the next twelve months. There was no hedge ineffectiveness for the three months ended March 31, 2016.

As of March 31, 2016 and 2015, the aggregate notional value of our outstanding foreign currency forward contracts was $112 million and $59 million, respectively.

The following table provides information on the location and fair value amounts of our cash flow hedges as of March 31, 2016 and December 31, 2015:

(in millions) Balance Sheet Location		March 31, 2016		December 31, 2015
Prepaid and other current assets 1	Foreign exchange forward contracts	$	4	$	1

¹  We use the income approach to measure the fair value of our forward currency forward contracts. The income approach uses pricing models that rely on observable inputs such as forward rates, and therefore are classified as level 2.

The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges for the three months ended March 31:

(in millions)	Gain Recognized in Accumulated Other Comprehensive Loss (effective portion)				Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)	Gain Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
Cash flow hedges - designated as hedging instruments	2016		2015			2016		2015
Foreign exchange forward contracts	$	3	$	1	Selling and general expenses	$	1	$	—

The activity related to the change in unrealized (losses) gains in accumulated other comprehensive loss was as follows for the three months ended March 31:

(in millions)	2016			2015
Net unrealized losses on cash flow hedges, net of taxes, beginning of period	$	(1	)	$	(1	)
Change in fair value, net of tax	4			1
Reclassification into earnings, net of tax	(1		)	—
Net unrealized gains on cash flow hedges, net of taxes, end of period	$	2		$	—