Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign exchange rate and interest rate movements. We do not use any of our derivative instruments for trading purposes.

We use foreign currency exchange contracts to reduce the volatility of cash flows related to forecasted revenues, expenses, assets and liabilities denominated in foreign currencies. These contracts are generally one month to one year in duration, but with maturities up to 18 months. The objective of the foreign exchange contracts is to better ensure that ultimately the U.S. dollar-equivalent cash flows are not adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. We evaluate the effectiveness of our foreign exchange contracts on a quarterly basis.

We use interest rate swaps to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024. These interest rate swaps had the economic effect of modifying the fixed interest obligations associated with $2.4 billion of these notes so that the interest payable on these senior notes effectively became variable based on London InterBank Offered Rate (“LIBOR”) plus a spread. The duration of these interest rate contracts matches the duration of the fixed rate notes due 2019, 2021 and 2024.

For derivative instruments that are designated as cash flow hedges, the effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”) and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. The ineffective portion of the unrealized gains and losses on these contracts, if any, is recorded immediately in earnings. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Unrealized gains and losses in AOCI associated with such derivative instruments are immediately reclassified into earnings. As of December 31, 2017, we have estimated that approximately $53 million of net derivative loss related to our cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.

The amounts recognized in earnings related to the ineffective portion of our derivative instruments designated as cash flow hedges were not material in 2017 and 2016. We did not exclude any component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness.

We have designated the interest rate swaps used to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024 as qualifying hedging instruments and are accounting for them as fair value hedges. These transactions are designated as fair value hedges for financial accounting purposes because they protect us against changes in the fair value of certain of our fixed rate borrowings due to benchmark interest rate movements. Changes in the fair values of these interest rate swap agreements are recognized in other assets or other liabilities with a corresponding increase or decrease in long-term debt. Each quarter we pay interest based on LIBOR plus a spread to the counterparty and on a semi-annual basis receive interest from the counterparty per the fixed rate of these senior notes. The net amount is recognized as interest expense in interest and other, net.

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets or liabilities, including intercompany balances denominated in non-functional currencies. The gains and losses on our derivatives not designated as hedging instruments are recorded in interest and other, net, partially offset by the foreign currency gains and losses on the related assets and liabilities that are also recorded in interest and other, net.



	Balance Sheet Location	December 31, 2017			December 31, 2016
Derivative Assets:
Foreign exchange contracts designated as cash flow hedges	Other Current Assets	$	16		$	67
Foreign exchange contracts not designated as hedging instruments	Other Current Assets	10			64
Interest rate contracts designated as fair value hedges	Other Assets	2			23
Total derivative assets		$	28		$	154

Derivative Liabilities:
Foreign exchange contracts designated as cash flow hedges	Other Current Liabilities	$	18		$	3
Foreign exchange contracts not designated as hedging instruments	Other Current Liabilities	11			45
Total derivative liabilities		$	29		$	48

Total fair value of derivative instruments		$	(1	)	$	106

Under the master netting agreements with the respective counterparties to our derivative contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other. However, we have elected to present the derivative assets and derivative liabilities on a gross basis on our consolidated balance sheet. As of December 31, 2017, the potential effect of rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities by $21 million, resulting in net derivative assets of $5 million and net derivative liabilities of $8 million.

The following tables present the activity of derivative contracts that qualify for hedge accounting as of December 31, 2017 and 2016, and the impact of these derivative contracts on AOCI for the years ended December 31, 2017 and 2016 (in millions):



	December 31, 2016		Amount of Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)		Amount of Gain (Loss) Reclassified From AOCI to Earnings (Effective Portion)	December 31, 2017
Foreign exchange contracts designated as cash flow hedges	$	54	(104	)	7	$	(57	)



	December 31, 2015		Amount of Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)	Amount of Gain (Loss) Reclassified From AOCI to Earnings (Effective Portion) ⁽¹⁾	December 31, 2016
Foreign exchange contracts designated as cash flow hedges	$	36	126	108	$	54



	Year Ended December 31,
	2017			2016		2015
Foreign exchange contracts designated as cash flow hedges recognized in net revenues	$	(28	)	$	—	$	—
Foreign exchange contracts designated as cash flow hedges recognized in cost of net revenues and operating expenses	11			7		71
Foreign exchange contracts designated as cash flow hedges recognized in interest and other, net	24			101		—
Foreign exchange contracts not designated as hedging instruments recognized in interest and other, net	(16		)	11		(1		)
Total	$	(9	)	$	119	$	70



	Year Ended December 31,
	2017			2016			2015
Gain (loss) from interest rate contracts designated as fair value hedges recognized in interest and other, net	$	(21	)	$	(18	)	$	19
Gain (loss) from hedged items attributable to hedged risk recognized in interest and other, net	21			18			(19		)
Total	$	—		$	—		$	—

Derivative transactions are measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged, but is used only as the basis on which the value of foreign exchange payments under these contracts are determined. The following table provides the notional amounts of our outstanding derivatives as of December 31, 2017 and 2016, (in millions):



	December 31,
	2017		2016
Foreign exchange contracts designated as cash flow hedges	$	1,990	$	1,200
Foreign exchange contracts not designated as hedging instruments	2,349		2,993
Interest rate contracts designated as fair value hedges	2,400		2,400
Total	$	6,739	$	6,593