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Derivative Instruments | 12 Months Ended
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Dec. 31, 2019
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 December 31, 2019 and December 31, 2018, we have entered into foreign exchange forward contracts to mitigate or hedge the effect of adverse fluctuations in foreign exchange rates. As of December 31, 2019, we have entered into a cross currency swap contract to hedge a portion of our net investment in a foreign subsidiary against volatility in foreign exchange rates. These 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 twelve months ended December 31, 2019, 2018 and 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 December 31, 2019 and 2018, the aggregate notional value of these outstanding forward contracts was $116 million and $98 million, respectively. The changes in fair value of these forward contracts are recorded in prepaid and other assets 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 amount recorded in selling and general expense for the twelve months ended December 31, 2019 and 2018 related to these contracts was a net gain of $4 million and a net loss of $12 million, respectively. Net Investment Hedge During the twelve months ended December 31, 2019, we entered into a cross currency swap to hedge a portion of our net investment in a certain European subsidiary against volatility in the Euro/U.S. dollar exchange rate. This swap is designated and qualifies as a hedge of a net investment in a foreign subsidiary and is scheduled to mature in 2024. As of December 31, 2019, the notional value of our outstanding cross currency swap designated as a net investment hedge was $400 million. The changes in the fair value of this swap are recognized in foreign currency translation adjustments, a component of other comprehensive income (loss), and reported in accumulated other comprehensive loss in our consolidated balance sheet. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated. We have elected to assess the effectiveness of our net investment hedge based on changes in spot exchange rates. Accordingly, amounts related to the cross currency swap recognized directly in net income during 2019 represent net periodic interest settlements and accruals, which are recognized in interest expense, net. We recognized net interest income of $1 million in 2019. Cash Flow Hedges During the twelve months ended December 31, 2019, 2018 and 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 fourth quarter of 2020, 2019 and 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 December 31, 2019, we estimate that $2 million of the net gains related to derivatives designated as cash flow hedges recorded in other comprehensive income is expected to be reclassified into earnings within the next twelve months. As of December 31, 2019 and December 31, 2018, the aggregate notional value of our outstanding foreign exchange forward contracts designated as cash flow hedges was $249 million and $289 million, respectively. The following table provides information on the location and fair value amounts of our cash flow hedges and net investment hedge as of December 31, 2019 and December 31, 2018:
(in millions) |  | December 31, |  | December 31,
Balance Sheet Location |  | 2019 |  | 2018
Derivatives designated as cash flow hedges: |  |  |  |
Prepaid and other current assets | Foreign exchange forward contracts | $ | 1 |  |  | $ | 3 |
Derivative designated as a net investment hedge: |  |  |  |
Other non-current liabilities | Cross currency swap | $ | 10 |  |  | $ | — |
The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges and net investment hedge for the years ended December 31:
(in millions) | Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (effective portion) |  | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion) |  | Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
| 2019 |  | 2018 |  | 2017 |  |  |  | 2019 |  | 2018 |  | 2017
Cash flow hedges - designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange forward contracts | $ | (2 | ) |  | $ | 2 |  |  | $ | — |  |  | Revenue, Selling and general expenses |  | $ | 5 |  |  | $ | (4 | ) |  | $ | 9 |
Net investment hedge - designated as hedging instrument |  |  |  |  |  |  |  |  |  |  |  |  |
Cross currency swap | $ | (10 | ) |  | $ | — |  |  | $ | — |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The activity related to the change in unrealized gains (losses) in accumulated other comprehensive loss was as follows for the years ended December 31:
(in millions) | Year ended December 31,
| 2019 |  | 2018 |  | 2017
Cash Flow Hedges |  |  |  |  |
Net unrealized gains (losses) on cash flow hedges, net of taxes, beginning of year | $ | 4 |  |  | $ | 2 |  |  | $ | 2 |
Change in fair value, net of tax | 3 |  |  | (2 | ) |  | 9 |
Reclassification into earnings, net of tax | (5 | ) |  | 4 |  |  | (9 | )
Net unrealized gains (losses) on cash flow hedges, net of taxes, end of year | $ | 2 |  |  | $ | 4 |  |  | $ | 2 |
Net Investment Hedge |  |  |  |  |
Net unrealized gains (losses) on net investment hedge, net of taxes, beginning of year | $ | — |  |  | $ | — |  |  | $ | — |
Change in fair value, net of tax | (10 | ) |  | — |  |  | — |
Reclassification into earnings, net of tax | — |  |  | — |  |  | — |
Net unrealized gains (losses) on net investment hedge, net of taxes, end of year | $ | (10 | ) |  | $ | — |  |  | $ | — |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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