XML 29 R16.htm IDEA: XBRL DOCUMENT
v3.5.0.2

Derivative Financial Instruments | 9 Months Ended
--- | ---
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | 10. Derivative Financial Instruments ASC Topic 815, “Derivatives and Hedging” requires a company to recognize all of its derivative instruments as either assets or liabilities in the Consolidated Balance Sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency exchange rate risk. Forward contracts against various foreign currencies are entered into to manage the foreign currency exchange rate risk on forecasted revenues and expenses denominated in currencies other than the functional currency of the operating unit (cash flow hedge). In addition, the Company will enter into non-designated forward contracts against various foreign currencies to manage the foreign currency exchange rate risk on recognized nonfunctional currency monetary accounts (non-designated hedge). The Company records all derivative financial instruments at their fair value in its Consolidated Balance Sheet. Except for certain non-designated hedges discussed below, all derivative financial instruments that the Company holds are designated as cash flow hedges and are highly effective in offsetting movements in the underlying risks. Such arrangements typically have terms between 2 and 24 months, but may have longer terms depending on the underlying cash flows being hedged, typically related to the projects in our backlog. The Company may also use interest rate contracts to mitigate its exposure to changes in interest rates on anticipated long-term debt issuances. At September 30, 2016, the Company has determined that the fair value of its derivative financial instruments representing assets of $51 million and liabilities of $43 million (primarily currency related derivatives) are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available foreign exchange and interest rates at each financial reporting date. At September 30, 2016, the net fair value of the Company’s foreign currency forward contracts totaled a net asset of $8 million. At September 30, 2016, the Company did not have any interest rate swaps and its financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when the Company’s financial instruments are in net liability positions. We do not use derivative financial instruments for trading or speculative purposes. Cash Flow Hedging Strategy To protect against the volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company has instituted a cash flow hedging program. The Company hedges portions of its forecasted revenues and expenses denominated in nonfunctional currencies with forward contracts. When the U.S. dollar strengthens or weakens against the foreign currencies, the change in present value of future foreign currency revenues and expenses is offset by changes in the fair value of the forward contracts designated as hedges. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is subject to a particular currency risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “revenues” when the hedged transactions are cash flows associated with forecasted revenues). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), or hedge components excluded from the assessment of effectiveness, is recognized in the Consolidated Statements of Income during the current period. For the three and nine months ended September 30, 2016, the Company recognized losses of $2 million and $19 million, respectively, as a result of the discontinuance of certain cash flow hedges when it became probable that the original forecasted transactions would not occur by the end of the originally specified time period. At September 30, 2016, there were $17 million in pre-tax losses recorded in accumulated other comprehensive income (loss). Significant changes in forecasted operating levels or delays in large capital construction projects, whereby certain hedged transactions associated with these projects are no longer probable of occurring by the end of the originally specified time period, could result in additional losses due to the de-designation of existing hedge contracts. The Company had the following outstanding foreign currency forward contracts that were entered into to hedge nonfunctional currency cash flows from forecasted revenues and expenses (in millions):
|  | Currency Denomination |
Foreign Currency |  | September 30, 2016 |  |  | December 31, 2015 |
Norwegian Krone |  | NOK | 6,433 |  |  | NOK | 9,655 |
Euro |  | EUR | 186 |  |  | EUR | 78 |
U.S. Dollar |  | USD | 155 |  |  | USD | 321 |
Danish Krone |  | DKK | 37 |  |  | DKK | 57 |
Singapore Dollar |  | SGD | 8 |  |  | SGD | 14 |
British Pound Sterling |  | GBP | 1 |  |  | GBP | 4 |
Canadian Dollar |  | CAD | — |  |  | CAD | 2 |
Non-designated Hedging Strategy The Company enters into forward exchange contracts to hedge certain nonfunctional currency monetary accounts. The purpose of the Company’s foreign currency hedging activities is to protect the Company from risk that the eventual U.S. dollar equivalent cash flows from the nonfunctional currency monetary accounts will be adversely affected by changes in the exchange rates. For derivative instruments that are non-designated, the gain or loss on the derivative instrument subject to the hedged risk (i.e., nonfunctional currency monetary accounts) is recognized in other income (expense), net in current earnings. The Company had the following outstanding foreign currency forward contracts that hedge the fair value of nonfunctional currency monetary accounts (in millions):
|  | Currency Denomination |
Foreign Currency |  | September 30, 2016 |  |  | December 31, 2015 |
Russian Ruble |  | RUB | 1,956 |  |  | RUB | 2,164 |
Norwegian Krone |  | NOK | 1,311 |  |  | NOK | 2,265 |
U.S. Dollar |  | USD | 536 |  |  | USD | 515 |
Euro |  | EUR | 273 |  |  | EUR | 371 |
Danish Krone |  | DKK | 108 |  |  | DKK | 153 |
British Pound Sterling |  | GBP | 15 |  |  | GBP | 11 |
Canadian Dollar |  | CAD | 11 |  |  | CAD | 7 |
Singapore Dollar |  | SGD | 1 |  |  | SGD | 5 |
The Company has the following gross fair values of its derivative instruments and their balance sheet classifications:
|  | Asset Derivatives |  |  | Liability Derivatives |
|  |  |  | Fair Value |  |  |  |  | Fair Value |
|  | Balance Sheet Location |  | September 30, 2016 |  |  | December 31, 2015 |  |  | Balance Sheet Location |  | September 30, 2016 |  |  | December 31, 2015 |
Derivatives designated as hedging instruments under ASC Topic 815 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Prepaid and other current assets |  | $ | 28 |  |  | $ | 5 |  |  | Accrued liabilities |  | $ | 27 |  |  | $ | 212 |
Foreign exchange contracts |  | Other Assets |  |  | — |  |  |  | — |  |  | Other liabilities |  |  | — |  |  |  | 25 |
Total derivatives designated as hedging instruments under ASC Topic 815 |  |  |  | $ | 28 |  |  | $ | 5 |  |  |  |  | $ | 27 |  |  | $ | 237 |
Derivatives not designated as hedging instruments under ASC Topic 815 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Prepaid and other current assets |  | $ | 23 |  |  | $ | 21 |  |  | Accrued liabilities |  | $ | 16 |  |  | $ | 49 |
Foreign exchange contracts |  | Other Assets |  |  | — |  |  |  | — |  |  | Other Liabilities |  |  | — |  |  |  | — |
Total derivatives not designated as hedging instruments under ASC Topic 815 |  |  |  | $ | 23 |  |  | $ | 21 |  |  |  |  | $ | 16 |  |  | $ | 49 |
Total derivatives |  |  |  | $ | 51 |  |  | $ | 26 |  |  |  |  | $ | 43 |  |  | $ | 286 |
The Effect of Derivative Instruments on the Consolidated Statements of Income |
($ in millions) |
Derivatives in ASC Topic 815 Cash Flow Hedging Relationships |  | Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion) (a) |  |  | Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |  | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) |  |  | Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |  | Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) (b) |
|  | Nine Months Ended September 30, |  |  |  |  | Nine Months Ended September 30, |  |  |  |  | Nine Months Ended September 30, |
|  | 2016 |  |  | 2015 |  |  |  |  | 2016 |  |  | 2015 |  |  |  |  | 2016 |  |  | 2015 |
|  |  |  |  |  |  |  |  |  | Revenue |  |  | 3 |  |  |  | 11 |  |  | Cost of revenue |  |  | (19) |  |  |  | (27) |
Foreign exchange contracts |  |  | 96 |  |  |  | (196 | ) |  | Cost of revenue |  |  | (151 | ) |  |  | (207 | ) |  | Other income (expense), net |  |  | 3 |  |  |  | 1 |
Total |  |  | 96 |  |  |  | (196) |  |  |  |  |  | (148) |  |  |  | (196) |  |  |  |  |  | (16) |  |  |  | (26) |
Derivatives Not Designated as Hedging Instruments under ASC Topic 815 |  | Location of Gain (Loss) Recognized in Income on Derivative |  | Amount of Gain (Loss) Recognized in Income on Derivative
|  |  |  | Nine Months Ended September 30,
|  |  |  | 2016 |  | 2015
Foreign exchange contracts |  | Other income (expense), net |  | — |  | (84)
Total |  |  |  | — |  | (84)
(a) | The Company expects that $20 million of the accumulated other comprehensive income (loss) will be reclassified into earnings within the next twelve months with an offset by gains from the underlying transactions resulting in no impact to earnings or cash flow.
(b) | The amount of gain (loss) recognized in income represents $(19) million and $(27) million related to the ineffective portion of the hedging relationships for each of the nine months ended September 30, 2016 and 2015, respectively, and $3 million and $1 million related to the amount excluded from the assessment of the hedge effectiveness for the nine months ended September 30, 2016 and 2015, respectively.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration