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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

3. Derivative Financial Instruments

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). Other forward exchange contracts against various foreign currencies are entered into to manage the foreign currency exchange rate risk associated with certain firm commitments denominated in currencies other than the functional currency of the operating unit (fair value 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).

At December 31, 2016, the Company has determined that the fair value of its derivative financial instruments representing assets of $62 million and liabilities of $77 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 December 31, 2016, the net fair value of the Company’s foreign currency forward contracts totaled a net liability of $15 million.

At December 31, 2016, the Company’s 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 against the foreign currencies, the decrease in present value of future foreign currency revenues and expenses is offset by gains in the fair value of the forward contracts designated as hedges. Conversely, when the U.S. dollar weakens, the increase in the present value of future foreign currency cash flows is offset by losses in the fair value of the forward contracts.

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 (Loss) during the current period.

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

    December 31,
2016		      December 31,
2015		  

Norwegian Krone

    NOK      5,621       NOK      9,655   

Japanese Yen

    JPY      1,462       JPY      —     

U.S. Dollar

    USD      321       USD      321   

Euro

    EUR      279       EUR      78   

Danish Krone

    DKK      29       DKK      57   

Singapore Dollar

    SGD      2       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 the Consolidated Statement of Income (Loss).

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

    December 31,
2016		      December 31,
2015		  
Russian Ruble    RUB      1,893       RUB      2,164   
Norwegian Krone    NOK      538       NOK      2,265   
U.S. Dollar    USD      457       USD      515   
Euro    EUR      272       EUR      371   
South African Rand    ZAR      150       ZAR      —     
Danish Krone    DKK      49       DKK      153   
Singapore Dollar    SGD      7       SGD      5   
British Pound Sterling    GBP      3       GBP      11   
Canadian Dollar    CAD      1       CAD      7   

 

The Company has the following fair values of its derivative instruments and their balance sheet classifications (in millions):

Fair Values of Derivative Instruments

(In millions)

 

    Asset Derivatives     Liability Derivatives  
    Balance Sheet     Fair Value
December 31,		     Balance Sheet     Fair Value
December 31,		  
    Location     2016     2015     Location     2016     2015  

Derivatives designated as hedging instruments under ASC Topic 815

            

Foreign exchange contracts

     Prepaid and other current assets      $ 24      $ 5        Accrued liabilities      $ 37      $ 212   

Foreign exchange contracts

     Other Assets        6        —          Other Liabilities        11        25   
   

 

 

    

 

 

      

 

 

    

 

 

  

Total derivatives designated as hedging instruments under ASC Topic 815

     $ 30      $ 5        $ 48      $ 237   
   

 

 

    

 

 

      

 

 

    

 

 

  

Derivatives not designated as hedging instruments under ASC Topic 815

            

Foreign exchange contracts

     Prepaid and other current assets      $ 32      $ 21        Accrued liabilities      $ 29      $ 49   
   

 

 

    

 

 

      

 

 

    

 

 

  

Total derivatives not designated as hedging instruments under ASC Topic 815

     $ 32      $ 21        $ 29      $ 49   
   

 

 

    

 

 

      

 

 

    

 

 

  

Total derivatives

     $ 62      $ 26        $ 77      $ 286   
   

 

 

    

 

 

      

 

 

    

 

 

  

The Effect of Derivative Instruments on the Consolidated Statements of Income (Loss)

($ in millions)

 

Derivatives Designated as

Hedging Instruments under

ASC Topic 815

    Amount of
Gain (Loss)
Recognized
in OCI on
Derivatives
(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

Derivatives

(Ineffective

Portion and

Amount Excluded

from Effectiveness

Testing)

    Amount of
Gain (Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount Excluded
from Effectiveness
Testing) (b)		  
     Years Ended
December 31,		          Years Ended
December 31,		          Years Ended
December 31,		  
     2016      2015          2016     2015          2016     2015  
        Revenue      5        19      Cost of revenue      (21 )      (33 ) 

Foreign exchange contracts

      45         (243 )    Cost of revenue      (170 )      (262 )    Other income (expense), net      8        4   
  

 

 

     

 

 

       

 

 

    

 

 

       

 

 

    

 

 

  

Total

      45         (243 )         (165 )      (243 )         (13 )      (29 ) 
  

 

 

     

 

 

       

 

 

    

 

 

       

 

 

    

 

 

  

 

Derivatives Not Designated as

Hedging Instruments under

ASC Topic 815

    Location of Gain (Loss)
Recognized in Income
on Derivatives		      Amount of Gain (Loss)
Recognized in Income
on Derivatives		  
            Years Ended
December 31,		  
            2016      2015  

Foreign exchange contracts

      Other income (expense), net         (33 )       (97 ) 
     

 

 

     

 

 

  

Total

         (33 )       (97 ) 
     

 

 

     

 

 

  

 

(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 losses from the underlying transactions resulting in no impact to earnings or cash flow.
(b) The amount of gain (loss) recognized in income represents $(21) million and $(33) million related to the ineffective portion of the hedging relationships for the years ended December 31, 2016 and 2015, respectively, and $8 million and $4 million related to the amount excluded from the assessment of the hedge effectiveness for the years ended December 31, 2016 and 2015, respectively.