Derivative Instruments

The Company is exposed to certain market risks, including the effect of changes in interest rates and foreign currency exchange rates, and the value of notional investments underlying the Company's non-qualified deferred compensation plan. Changes in benchmark interest rates can impact the fair value of the Company's term notes, whereas changes in foreign currency exchange rates can impact the Company's foreign currency denominated monetary assets and liabilities and forecasted transactions in foreign currency. Market volatility of the notional investments underlying the Company's non-qualified deferred compensation plan can impact the Company's obligations under the plan. The Company uses derivative instruments to mitigate the impact of these market risks and not for trading or any speculative purpose.

The Company designates certain derivative instruments as hedges, for purposes of hedge accounting. For such derivative instruments, the Company documents its risk management objectives and strategy for undertaking hedging transactions, as well as all relationships between hedging and hedged risks. The derivative instruments designated for hedge accounting consist mainly of interest rate swaps and foreign currency forward contracts. Changes in the fair value measurements of the cash flow hedge derivative instruments are reflected as adjustments to other comprehensive income (OCI), while changes in fair value measurements of interest rate swaps are recorded in current period earnings.

The derivative instruments not designated as hedges for purposes of hedge accounting include total return swaps and certain short-term foreign currency forward and option contracts. These instruments are recorded at their respective fair values and the change in their value is reported in current period earnings.

All cash flows associated with the Company's derivative instruments are classified as operating activities in the unaudited Consolidated Condensed Statement of Cash Flows.

The following table presents the fair values of derivative instruments included on the unaudited Consolidated Condensed Balance Sheets as of January 2, 2015 and March 28, 2014:



	Derivative Assets					Derivative Liabilities
(Amounts in millions)	Balance sheet line item	As of January 2, 2015		As of March 28, 2014		Balance sheet line item	As of January 2, 2015		As of March 28, 2014

Derivatives designated for hedge accounting:
Interest rate	Other assets	$	13	$	3	Other long-term liabilities	$	—	$	—
Foreign Currency forward contracts	Prepaid expense and other current assets	—		—		Accrued expenses and other current liabilities	8		—
Total fair value of derivatives designated for hedge accounting		$	13	$	3		$	8	$	—

Derivatives not designated for hedge accounting:
Foreign Currency forward contracts	Prepaid expense and other current assets	$	—	$	2	Accrued expenses and other current liabilities	$	4	$	4
Total fair value of derivatives not designated for hedge accounting		$	—	$	2		$	4	$	4

Derivative instruments designated as hedges

Fair value hedges

Pursuant to its interest rate and risk management strategy, during the second quarter of fiscal 2014, the Company entered into multiple interest rate swap transactions to hedge the fair value of $275 million of the Company’s 4.45% term notes, due 2022, which effectively converted the debt into floating interest rate debt. For accounting purposes, these interest rate swap transactions were designated as fair value hedges and qualified for the short-cut method of hedge accounting, as defined under ASC Topic 815, “Derivatives and Hedging.” Accordingly, changes in the fair values of the interest rate swaps are reported in earnings and fully offset changes in the fair value of the underlying debt (see Note 9); therefore, no net gain or loss is recognized in the unaudited Consolidated Condensed Statement of Operations.

The following table presents the pre-tax gains (losses) related to the fair value hedges and the related hedged items for the quarters ended January 2, 2015 and December 27, 2013, respectively:



	Derivative Instrument						Hedged Item
(Amounts in millions)	Statement of Operations line item	Gain (Loss) for the Quarter Ended					Balance Sheet line item	Gain (Loss) for the Quarter Ended
		January 2, 2015		December 27, 2013				January 2, 2015			December 27, 2013
Interest rate swaps	Other Income (Expense)	$	6	$	(6	)	Debt	$	(6	)	$	6

The following table presents the pre-tax gains (losses) related to the fair value hedges and the related hedged items, for the nine months ended January 2, 2015 and December 27, 2013, respectively:

Derivative Instrument

Hedged Item

(Amounts in millions)

Statement of Operations line item

Gain (Loss) for the Nine Months Ended

Balance Sheet line item

Gain (Loss) for the Nine Months Ended

January 2, 2015

December 27, 2013

January 2, 2015

December 27, 2013

Interest rate swaps

Other Income (Expense)

—

Debt

(10

)

—

Cash flow hedges

During the first quarter of fiscal 2015, the Company designated certain foreign currency forward contracts as cash flow hedges, to reduce risks related to certain Indian Rupee denominated intercompany obligations and forecasted transactions for a nine-month period through March 2015. As of January 2, 2015, the notional amount of foreign currency forward contracts designated as cash flow hedges was $339 million, and the related forecasted transactions extend through September 2016.

For the quarter ended January 2, 2015, the Company performed an assessment at the inception of the cash flow hedge transactions that determined all critical terms of the hedging instruments and hedged items match; therefore there is no ineffectiveness to be recorded and all changes in the hedging instruments’ fair value are recorded in accumulated OCI and subsequently reclassified into earnings in the period during which the hedged transactions are recognized in earnings. The Company performs an assessment of critical terms on an on-going basis throughout the hedging period. During the quarter ended January 2, 2015, the Company did not discontinue any cash flow hedge for which it was probable that the hedged transaction would not occur. As of January 2, 2015, $4 million of the existing amount of losses related to the cash flow hedge reported in accumulated OCI are expected to be reclassified into earnings within the next 12 months.

The following table presents the pre-tax gains (losses) associated with the cash flow hedges, recognized in accumulated OCI, for the quarters ended January 2, 2015 and December 27, 2013, respectively:



(Amounts in millions)	Gain (Loss) recognized in Accumulated OCI (effective portion) for the Quarter Ended					Gain (Loss) reclassified into cost of services from Accumulated OCI (effective portion) for the Quarter Ended				Gain (loss) recognized in Other Income (Expense) (ineffective portion) for the Quarter Ended
	January 2, 2015			December 27, 2013		January 2, 2015		December 27, 2013		January 2, 2015		December 27, 2013
Foreign currency forward and option contracts	$	(2	)	$	—	$	—	$	—	$	—	$	—

The following table presents the pre-tax gains (losses) associated with the cash flow hedges, recognized in accumulated OCI, for the nine months ended January 2, 2015 and December 27, 2013, respectively:



(Amounts in millions)	Gain (Loss) recognized in Accumulated OCI (effective portion) for the Nine Months Ended					Gain (Loss) reclassified into cost of services from Accumulated OCI (effective portion) for the Nine Months Ended				Gain (loss) recognized in Other Income (Expense) (ineffective portion) for the Nine Months Ended
	January 2, 2015			December 27, 2013		January 2, 2015		December 27, 2013		January 2, 2015		December 27, 2013
Foreign currency forward and option contracts	$	(8	)	$	—	$	—	$	—	$	—	$	—

Derivatives not designated for hedge accounting

Total return swaps

Beginning in the first quarter of fiscal 2015, the Company entered into total return swaps (TRS) derivative contracts to hedge market volatility of the notional investments underlying the Company's deferred compensation obligations. Changes in the fair value of these derivatives and changes in the associated hedged liabilities are recorded in cost of services and selling, general and administrative expenses. The TRS are entered into monthly and are settled on the last day of every fiscal month.

Foreign currency derivatives

The Company manages exposure to fluctuations in foreign currencies by using short-term foreign currency forward and option contracts to economically hedge certain foreign currency denominated assets and liabilities, including intercompany accounts and loans. For accounting purposes, these foreign currency option and forward contracts are not designated as hedges, as defined under ASC 815, “Derivatives and Hedging,” and all changes in their fair value are reported in current period earnings within the other income (expense) line of the unaudited Consolidated Statement of Operations. The notional amount of the foreign currency forward contracts outstanding as of January 2, 2015 and March 28, 2014 was $512 million and $816 million, respectively. The notional amount of option contracts outstanding as of January 2, 2015 and March 28, 2014 was $0 and $81 million, respectively.

The following table presents the pretax amounts affecting income related to derivatives not designated for hedge accounting for the quarters ended January 2, 2015 and December 27, 2013, respectively:



		Quarter Ended				Nine Months Ended
(Amounts in millions)	Statement of Operations line item	January 2, 2015		December 27, 2013		January 2, 2015			December 27, 2013
Total return swaps	Cost of services and Selling, general & administrative expenses	$	3	$	—	$	7		$	—
Foreign currency forwards and options	Other Income (Expense)	—		2		(5		)	(14		)
Total		$	3	$	2	$	2		$	(14	)

Other risks

As discussed further in Note 7, the Company is exposed to the risk of losses in the event of non-performance by the counterparties to its derivative contracts. To mitigate counterparty credit risk, the Company regularly reviews its credit exposure and the creditworthiness of the counterparties. The Company also enters into enforceable master netting arrangements with some of its counterparties. However for financial reporting purposes it is the Company’s policy to not offset derivative assets and liabilities despite the existence of enforceable master netting arrangements with some of its counterparties. As of January 2, 2015 and March 28, 2014, there were no amounts that the Company elected to not offset. The Company's derivative contracts do not require it to hold or post collateral.