XML 22 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
Financial Instruments
 9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments
Financial Instruments
Foreign Exchange Risk Management
We are a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of our business. As a part of our foreign exchange risk management strategy, we use derivative instruments, primarily forward contracts, to hedge the following foreign currency exposures, thereby reducing volatility of earnings or protecting fair values of assets and liabilities:
 
•
Foreign currency-denominated assets and liabilities
•
Forecasted purchases and sales in foreign currency
Summary of Foreign Exchange Hedging Positions
At September 30, 2016, we had outstanding forward exchange contracts with gross notional values of $176, which is typical of the amounts that are normally outstanding at any point during the year. Approximately 68% of these contracts mature within three months, 12% in three to six months, 15% in six to 12 months and 5% in greater than 12 months.
Included in the $176 Gross Notional Value is $61 of derivatives where a Xerox related party is the counterparty. These related party derivatives are all entered into based on prevailing market terms and accounted for as if they were third-party derivatives. These derivatives had a net fair value of less than $1 at September 30, 2016.
Foreign Currency Cash Flow Hedges
We designate a portion of our foreign currency derivative contracts as cash flow hedges of our foreign currency-denominated expenses. The net liability fair value of these contracts were $1 and $3 as of September 30, 2016 and December 31, 2015, respectively.
 
Summary of Derivative Instruments Fair Value
The following table provides a summary of the fair value amounts of our derivative instruments:
Designation of Derivatives
 
Balance Sheet Location
 
September 30, 2016
 
December 31, 2015
Derivatives Designated as Hedging Instruments
 
 
 
 
Foreign exchange contracts – forwards
 
Other current assets
 
$
1

 
$
—

 
 
Other current liabilities
 
(2
)
 
(3
)
 
 
Net Designated Derivative Liability
 
$
(1
)
 
$
(3
)
 
 
 
 
 
 
 
Derivatives NOT Designated as Hedging Instruments
 
 
 
 
Foreign exchange contracts – forwards
 
Other current assets
 
$
1

 
$
—

 
 
Other current liabilities
 
(2
)
 
—

 
 
Net Undesignated Derivative Liability
 
$
(1
)
 
$
—

 
 
 
 
 
 
 
Summary of Derivatives
 
Total Derivative Assets
 
$
2

 
$
—

 
 
Total Derivative Liabilities
 
(4
)
 
(3
)
 
 
Net Derivative Liability
 
$
(2
)
 
$
(3
)

Summary of Derivative Instruments Gains (Losses)
Derivative gains (losses) affect the income statement based on whether such derivatives are designated as hedges of underlying exposures. The following is a summary of derivative gains (losses).
Designated Cash Flow Derivative Instruments Gains (Losses)
The following table provides a summary of gains (losses) on derivative instruments:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2016
 
2015
 
2016
 
2015
Cash Flow Hedges - Foreign Exchange Forward Contracts and Options
 
 
 
 
 
 
 
 
Derivative loss recognized in OCI (effective portion)
 
$
(1
)
 
$
(3
)
 
$
—

 
$
(3
)
Derivative loss reclassified from AOCI to income - Cost of outsourcing (effective portion)
 
(1
)
 
(1
)
 
(2
)
 
(3
)

During the nine months ended September 30, 2016 and 2015, no amount of ineffectiveness was recorded in earnings for these designated cash flow hedges and all components of each derivative’s gain (loss) was included in the assessment of hedge effectiveness. In addition, no amount was recorded for an underlying exposure that did not occur or was not expected to occur.
At September 30, 2016, net after-tax losses of $1 were recorded in accumulated other comprehensive loss associated with our cash flow hedging activity. The entire balance is expected to be reclassified into net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.
Non-Designated Derivative Instruments Gains (Losses)

Non-designated derivative instruments are primarily instruments used to hedge foreign currency-denominated assets and liabilities. They are not designated as hedges since there is a natural offset for the re-measurement of the underlying foreign currency-denominated asset or liability.
The following table provides a summary of losses on non-designated derivative instruments:
Derivatives NOT Designated as Hedging Instruments
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Location of Derivative Loss
 
2016
 
2015
 
2016
 
2015
Foreign exchange contracts – forwards
Other expense – Currency loss, net
 
$
(1
)
 
$
(2
)
 
$
(1
)
 
$
(3
)

Net currency gains and losses are included in Other expenses, net and include the mark-to-market adjustments of the derivatives not designated as hedging instruments and the related cost of those derivatives as well as the re-measurement of foreign currency-denominated assets and liabilities. For the three months ended September 30, 2016 and 2015, currency gains (losses), net were $1 and $(1), respectively, and for the nine months ended September 30, 2016 and 2015, currency gains (losses), net were $3, and $(3), respectively.