Accounting for Derivative Instruments and Hedging Activities (Notes)

6 Months Ended

Jun. 30, 2017

Accounting for Derivative Instruments and Hedging Activities [Abstract]

Accounting for Derivative Instruments and Hedging Activities

Accounting for Derivative Instruments and Hedging Activities

The Company uses derivative instruments to manage interest rate risk on variable debt and foreign exchange risk on the Sterling Notes, and does not hold or issue derivative instruments for speculative trading purposes.

Interest rate derivative instruments are used to manage interest costs and to reduce the Company’s exposure to increases in floating interest rates. The Company manages its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt. Using interest rate derivative instruments, the Company agrees to exchange, at specified intervals through 2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. As of June 30, 2017 and December 31, 2016, the Company had $850 million in notional amounts of interest rate derivative instruments outstanding. The notional amounts of interest rate derivative instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged were determined by reference to the notional amount and the other terms of the contracts.

Cross-currency derivative instruments are used to effectively convert £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency swaps have maturities of June 2031 and July 2042. The Company is required to post collateral on the cross-currency derivative instruments when the derivative contracts are in a liability position. In May 2016, the Company entered into a collateral holiday agreement for 80% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years.

The effect of derivative instruments on the consolidated balance sheets is presented in the table below:

	June 30, 2017			December 31, 2016
Interest Rate Derivatives
Accrued interest	$	1		$	5
Accumulated other comprehensive loss	$	(2	)	$	(5	)
Cross-Currency Derivatives
Other long-term liabilities	$	193		$	251

The Company’s interest rate and cross-currency derivative instruments are not designated as hedges and are marked to fair value each period, with the impact recorded as a gain or loss on financial instruments, net in the consolidated statements of operations. While these derivative instruments are not designated as cash flow hedges for accounting purposes, management continues to believe such instruments are closely correlated with the respective debt, thus managing associated risk.

The effect of financial instruments on the consolidated statements of operations is presented in the table below.

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Loss on Financial Instruments, Net:
Change in fair value of interest rate derivative instruments	$	2		$	1		$	4		$	(2	)
Change in fair value of cross-currency derivative instruments	(7		)	(185		)	58			(185		)
Foreign currency remeasurement of Sterling Notes to U.S. dollars	(63		)	147			(91		)	147
Loss on termination of interest rate derivative instruments	—			(11		)	—			(11		)
Loss reclassified from accumulated other comprehensive loss due to discontinuance of hedge accounting	(2		)	(2		)	(3		)	(4		)
	$	(70	)	$	(50	)	$	(32	)	$	(55	)