Derivative Instruments

9 Months Ended

Sep. 30, 2017

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 September 30, 2017 and December 31, 2016, 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, 2017, we entered into a series of foreign exchange forward contracts to hedge a portion of our Indian rupee, British pound, and euro exposures through the fourth quarter of 2017. These contracts are intended to offset the impact of movement of exchange rates on future revenue and operating costs and are scheduled to mature within twelve months. 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 revenue and selling and general expenses in the same period that the hedged transaction affects earnings.

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 were intended to offset the impact of movement of exchange rates on future operating costs and matured at the end of each quarter during 2016. The changes in the fair value of these contracts were initially reported in accumulated other comprehensive loss in our consolidated balance sheet and were subsequently reclassified into selling and general expenses in the same period that the hedge contract matured.

As of September 30, 2017, we estimate that $4 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 material hedge ineffectiveness for the three and nine months ended September 30, 2017 and 2016. As of September 30, 2017 and September 30, 2016, the aggregate notional value of our outstanding foreign currency forward contracts was $133 million and $78 million, respectively.

The following table provides information on the location and fair value amounts of our cash flow hedges as of September 30, 2017 and December 31, 2016:

(in millions) Balance Sheet Location		September 30, 2017		December 31, 2016
Prepaid and other current assets 1	Foreign exchange forward contracts	$	5	$	3

¹  Foreign currency forward contracts are recorded at fair value that is based on foreign currency exchange rates in active markets; therefore we classify these derivative contracts 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 periods ended September 30:

Three Months

(in millions)	Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (effective portion)				Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)	Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
Cash flow hedges - designated as hedging instruments	2017		2016			2017		2016
Foreign exchange forward contracts	$	3	$	1	Selling and general expenses	$	2	$	1

Nine Months

(in millions)	Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (effective portion)				Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)	Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
Cash flow hedges - designated as hedging instruments	2017		2016			2017		2016
Foreign exchange forward contracts	$	2	$	3	Selling and general expenses	$	6	$	3

The activity related to the change in unrealized gains (losses) in accumulated other comprehensive loss was as follows for the periods ended September 30:

(in millions)	Three Months						Nine Months
	2017			2016			2017			2016
Net unrealized gains (losses) on cash flow hedges, net of taxes, beginning of period	$	1		$	1		$	2		$	(1	)
Change in fair value, net of tax	5			2			8			6
Reclassification into earnings, net of tax	(2		)	(1		)	(6		)	(3		)
Net unrealized gains on cash flow hedges, net of taxes, end of period	$	4		$	2		$	4		$	2