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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments |
10. | Derivative Financial Instruments
The Company uses derivative instruments to manage 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 non-functional-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 exposure to changes in interest rates on anticipated long-term debt issuances. At September 30, 2018, the Company has determined that the fair value of its derivative financial instruments representing assets of $18 million and liabilities of $16 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, 2018, the net fair value of the Company’s foreign currency forward contracts totaled a net asset of $2 million. At September 30, 2018, the Company did not have any interest rate contracts 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. The Company does 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 non-functional 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 (Loss) during the current period. For the nine months ended September 30, 2018, the Company recognized a gain of $2 million 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, 2018, there were $10 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 losses or gains due to the de-designation of existing hedge contracts. The Company had the following outstanding foreign currency forward contracts to hedge non-functional currency cash flows from forecasted revenues and expenses (in millions):
|  | Currency Denomination |
|  | September 30, |  |  | December 31, |
Foreign Currency |  | 2018 |  |  | 2017 |
Norwegian Krone |  |  | NOK 3,875 |  |  |  | NOK 4,013 |
Japanese Yen |  |  | JPY 326 |  |  |  | JPY 982 |
U.S. Dollar |  |  | USD 111 |  |  |  | USD 163 |
Euro |  |  | EUR 82 |  |  |  | EUR 120 |
Danish Krone |  |  | DKK 19 |  |  |  | DKK 30 |
British Pound Sterling |  |  | GBP 9 |  |  |  | GBP 11 |
Canadian Dollar |  |  | CAD 1 |  |  |  | CAD — |
Non-designated Hedging Strategy The Company enters into foreign currency forward contracts to hedge certain non-functional 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 non-functional 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., non-functional currency monetary accounts) is recognized in the Consolidated Statements of Income (Loss). The Company had the following outstanding foreign currency forward contracts that hedge the fair value of non-functional currency monetary accounts (in millions):
|  | Currency Denomination |
|  | September 30, |  |  | December 31, |
Foreign Currency |  | 2018 |  |  | 2017 |
Norwegian Krone |  |  | NOK 1,708 |  |  |  | NOK 1,734 |
Russian Ruble |  |  | RUB 1,329 |  |  |  | RUB 2,699 |
U.S. Dollar |  |  | USD 539 |  |  |  | USD 463 |
Mexican Peso |  |  | MXN 285 |  |  |  | MXN — |
South African Rand |  |  | ZAR 176 |  |  |  | ZAR 150 |
Euro |  |  | EUR 122 |  |  |  | EUR 99 |
Danish Krone |  |  | DKK 15 |  |  |  | DKK 15 |
British Pound Sterling |  |  | GBP 8 |  |  |  | GBP 3 |
Canadian Dollar |  |  | CAD 1 |  |  |  | CAD — |
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 |  | September 30, |  |  | December 31, |  |  | Balance Sheet |  | September 30, |  |  | December 31, |
|  | Location |  | 2018 |  |  | 2017 |  |  | Location |  | 2018 |  |  | 2017 |
Derivatives designated as hedging instruments under ASC Topic 815 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Prepaid and other current assets |  | $ | 8 |  |  | $ | 13 |  |  | Accrued liabilities |  | $ | 5 |  |  | $ | 3 |
Foreign exchange contracts |  | Other Assets |  |  | 3 |  |  |  | 8 |  |  | Other liabilities |  |  | 2 |  |  |  | 2 |
Total derivatives designated as hedging instruments under ASC Topic 815 |  |  |  | $ | 11 |  |  | $ | 21 |  |  |  |  | $ | 7 |  |  | $ | 5 |
Derivatives not designated as hedging instruments under ASC Topic 815 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Prepaid and other current assets |  | $ | 4 |  |  | $ | 10 |  |  | Accrued liabilities |  | $ | 8 |  |  | $ | 5 |
Foreign exchange contracts |  | Other Assets |  |  | 3 |  |  |  | 2 |  |  | Other Liabilities |  |  | 1 |  |  |  | 1 |
Total derivatives not designated as hedging instruments under ASC Topic 815 |  |  |  | $ | 7 |  |  | $ | 12 |  |  |  |  | $ | 9 |  |  | $ | 6 |
Total derivatives |  |  |  | $ | 18 |  |  | $ | 33 |  |  |  |  | $ | 16 |  |  | $ | 11 |
The Effect of Derivative Instruments on the Consolidated Statements of Income ($ in millions)
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Location of Gain (Loss) |  | Amount of Gain (Loss) |
|  |  |  |  |  |  |  |  |  | Location of Gain (Loss) |  | Amount of Gain (Loss) |  |  | Recognized in Income on |  | Recognized in Income on |
Derivatives in |  | Amount of Gain (Loss) |  |  | Reclassified from |  | Reclassified from |  |  | Derivative (Ineffective |  | Derivative (Ineffective |
ASC Topic 815 |  | Recognized in |  |  | Accumulated |  | Accumulated OCI |  |  | Portion and Amount |  | Portion and Amount |
Cash Flow Hedging |  | OCI on Derivative |  |  | OCI into Income |  | into Income |  |  | Excluded from |  | Excluded from |
Relationships |  | (Effective Portion) (a) |  |  | (Effective Portion) |  | (Effective Portion) |  |  | Effectiveness Testing) |  | Effectiveness Testing) (b) |
|  | Nine Months Ended |  |  |  |  |  |  | Nine Months Ended |  |  |  |  | Nine Months Ended |
|  | September 30, |  |  |  |  |  |  | September 30, |  |  |  |  | September 30, |
|  | 2018 |  |  | 2017 |  |  |  |  |  |  | 2018 |  |  | 2017 |  |  |  |  | 2018 |  |  | 2017 |
|  |  |  |  |  |  |  |  |  | Revenue |  |  | — |  |  |  | 6 |  |  | Cost of revenue |  |  | 1 |  |  |  | 10 |
Foreign exchange contracts |  |  | 4 |  |  |  | 67 |  |  | Cost of revenue |  |  | 2 |  |  |  | (18 | ) |  | Other income(expense), net |  |  | (5 | ) |  |  | 4 |
Total |  |  | 4 |  |  |  | 67 |  |  |  |  |  |  |  | 2 |  |  |  | (12 | ) |  |  |  |  | (4 | ) |  |  | 14 |
Derivatives Not Designated as |  | Location of Gain (Loss) |  | Amount of Gain (Loss) |
Hedging Instruments under |  | Recognized in Income |  | Recognized in Income on |
ASC Topic 815 |  | on Derivative |  | Derivative |
|  |  |  |  |  | Nine Months Ended |
|  |  |  |  |  | September 30, |
|  |  |  |  |  | 2018 |  |  | 2017 |
Foreign exchange contracts |  | Other income (expense), net |  |  | (11 | ) |  |  | 65 |
Total |  |  |  |  |  |  | (11 | ) |  |  | 65 |
(a) The Company expects that $8 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 includes $1 million and $10 million related to the ineffective portion of the hedging relationships for the nine months ended September 30, 2018 and 2017, respectively, and $(5) million and $4 million related to the amount excluded from the assessment of the hedge effectiveness for the nine months ended September 30, 2018 and 2017, respectively.

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- References No definition available. + Details
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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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