Derivative Instruments

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

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, 2018 and December 31, 2017, we have entered into foreign exchange forward contracts to mitigate or hedge the effect of adverse fluctuations in foreign currency exchange rates. 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 within Level 2 of the fair value hierarchy. We do not enter into any derivative financial instruments for speculative purposes.

Undesignated Derivative Instruments

During the three months ended December 31, 2017, we entered into foreign exchange forward contracts in order to mitigate the change in fair value of specific assets and liabilities in the consolidated balance sheet. These forward contracts do not qualify for hedge accounting. As of March 31, 2018, the aggregate notional value of these outstanding forward contracts was $156 million. The fair value of these forward contracts are recorded in prepaid and other assets or other current liabilities in the consolidated balance sheet with their corresponding change in fair value recognized into selling and general expenses in the consolidated statement of income. The net loss recorded in selling and general expense for the three months ended March 31, 2018 related to these contracts was $1 million.

Cash Flow Hedges

During the three months ended March 31, 2018 and December 31, 2017, we entered into a series of foreign exchange forward contracts to hedge a portion of the Indian rupee, British pound, and Euro exposures through the first quarter of 2019 and the fourth quarter of 2018, respectively. 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.

As of March 31, 2018, we estimate that $3 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 months ended March 31, 2018 and March 31, 2017. As of March 31, 2018 and March 31, 2017, the aggregate notional value of our outstanding foreign currency forward contracts was $275 million and $255 million, respectively.

The following table provides information on the location and fair value amounts of our cash flow hedges as of March 31, 2018 and December 31, 2017:

(in millions) Balance Sheet Location		March 31, 2018		December 31, 2017
Prepaid and other current assets	Foreign exchange forward contracts	$	3	$	3
Other current liabilities	Foreign exchange forward contracts	$	1	$	—

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 (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	2018		2017			2018		2017
Foreign exchange forward contracts	$	1	$	5	Selling and general expenses	$	1	$	1

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

(in millions)	Three Months
	2018			2017
Net unrealized gains on cash flow hedges, net of taxes, beginning of period	$	2		$	2
Change in fair value, net of tax	2			6
Reclassification into earnings, net of tax	(1		)	(1		)
Net unrealized gains on cash flow hedges, net of taxes, end of period	$	3		$	7