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Derivative Financial Instruments | 12 Months Ended
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Dec. 31, 2018
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, 2018, the Company has determined that the fair value of its derivative financial instruments representing assets of $6 million and liabilities of $36 million (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, 2018, the net fair value of the Company’s foreign currency forward contracts totaled a net liability of $30 million. At December 31, 2018, 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, 2018 |  |  | December 31, 2017 |
Norwegian Krone |  | NOK |  |  | 4,118 |  |  | NOK |  |  | 4,013 |
Japanese Yen |  | JPY |  |  | 121 |  |  | JPY |  |  | 982 |
U.S. Dollar |  | USD |  |  | 96 |  |  | USD |  |  | 163 |
Euro |  | EUR |  |  | 71 |  |  | EUR |  |  | 120 |
Danish Krone |  | DKK |  |  | 14 |  |  | DKK |  |  | 30 |
British Pound Sterling |  | GBP |  |  | 9 |  |  | GBP |  |  | 11 |
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, 2018 |  |  | December 31, 2017 |
Norwegian Krone |  | NOK |  |  | 1,111 |  |  | NOK |  |  | 1,734 |
U.S. Dollar |  | USD |  |  | 535 |  |  | USD |  |  | 463 |
Mexican Peso |  | MXN |  |  | 204 |  |  | MXN |  |  | — |
South African Rand |  | ZAR |  |  | 124 |  |  | ZAR |  |  | 150 |
Euro |  | EUR |  |  | 101 |  |  | EUR |  |  | 99 |
Danish Krone |  | DKK |  |  | 21 |  |  | DKK |  |  | 15 |
British Pound Sterling |  | GBP |  |  | 3 |  |  | GBP |  |  | 3 |
Russian Ruble |  | RUB |  |  | — |  |  | RUB |  |  | 2,699 |
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 |
|  |  |  | Fair Value |  |  |  |  | Fair Value |
|  | Balance Sheet |  | December 31, |  |  | Balance Sheet |  | 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 |  | $ | 2 |  |  | $ | 13 |  |  | Accrued liabilities |  | $ | 17 |  |  | $ | 3 |
Foreign exchange contracts |  | Other Assets |  |  | — |  |  |  | 8 |  |  | Other Liabilities |  |  | 11 |  |  |  | 2 |
Total derivatives designated as hedging instruments under ASC Topic 815 |  |  |  | $ | 2 |  |  | $ | 21 |  |  |  |  | $ | 28 |  |  | $ | 5 |
Derivatives not designated as hedging instruments under ASC Topic 815 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | Prepaid and other current assets |  | $ | 4 |  |  | $ | 10 |  |  | Accrued liabilities |  | $ | 6 |  |  | $ | 5 |
Foreign exchange contracts |  | Other Assets |  |  | — |  |  |  | 2 |  |  | Other Liabilities |  |  | 2 |  |  |  | 1 |
Total derivatives not designated as hedging instruments under ASC Topic 815 |  |  |  | $ | 4 |  |  | $ | 12 |  |  |  |  | $ | 8 |  |  | $ | 6 |
Total derivatives |  |  |  | $ | 6 |  |  | $ | 33 |  |  |  |  | $ | 36 |  |  | $ | 11 |
The Effect of Derivative Instruments on the Consolidated Statements of Income (Loss) ($ in millions)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Location of Gain (Loss) |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Recognized in Income on |  | Amount of Gain (Loss)
|  |  |  |  |  | Location of Gain (Loss) |  |  |  |  |  | Derivatives (Ineffective |  | Recognized in Income on
|  |  |  |  |  | Reclassified from |  | Amount of Gain (Loss) |  | Portion and Amount |  | Derivatives (Ineffective
Derivatives Designated as |  | Amount of Gain (Loss) |  | Accumulated OCI into |  | Reclassified from |  | Excluded from |  | Portion and Amount
Hedging Instruments under |  | Recognized in OCI on |  | Income |  | Accumulated OCI into |  | Effectiveness |  | Excluded from
ASC Topic 815 |  | Derivatives (Effective Portion) (a) |  | (Effective Portion) |  | Income (Effective Portion) |  | Testing) |  | Effectiveness Testing) (b)
|  | Years Ended December 31, |  |  |  |  |  | Years Ended December 31, |  |  |  | Years Ended December 31,
|  | 2018 |  | 2017 |  |  |  |  |  | 2018 |  | 2017 |  |  |  | 2018 |  | 2017
|  |  |  |  |  | Revenue |  | (2) |  | 8 |  | Cost of revenue |  | 2 |  | 7
Foreign exchange contracts |  | (25) |  | 56 |  | Cost of revenue |  | 4 |  | (19) |  | Other income (expense), net |  | (9) |  | 2
Total |  | (25) |  | 56 |  |  |  |  |  | 2 |  | (11) |  |  |  | (7) |  | 9
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 Derivatives |  | Derivatives
|  |  |  |  |  | Years Ended December 31,
|  |  |  |  |  | 2018 |  | 2017
Foreign exchange contracts |  | Other income (expense), net |  | (30) |  | 58
Total |  |  |  |  |  | (30) |  | 58

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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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