Derivative Instruments

6 Months Ended

Oct. 02, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

The following table presents the fair values of derivative instruments included on the unaudited Consolidated Condensed Balance Sheets as of October 2, 2015 and April 3, 2015:

	Derivative Assets					Derivative Liabilities
		As of					As of
(Amounts in millions)	Balance sheet line item	October 2, 2015		April 3, 2015		Balance sheet line item	October 2, 2015		April 3, 2015
Derivatives designated for hedge accounting:
Interest rate swaps	Other assets	$	15	$	18	Other long-term liabilities	$	—	$	—
Foreign Currency forward contracts	Prepaid expense and other current assets	—		1		Accrued expenses and other current liabilities	14		3
Total fair value of derivatives designated for hedge accounting		$	15	$	19		$	14	$	3
Derivatives not designated for hedge accounting:
Foreign Currency forward contracts	Prepaid expense and other current assets	$	2	$	1	Accrued expenses and other current liabilities	$	3	$	2
Total fair value of derivatives not designated for hedge accounting		$	2	$	1		$	3	$	2

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 10); therefore, no net gain or loss is recognized in the unaudited Consolidated Condensed Statements of Operations.

During the second quarter of fiscal 2016, the Company terminated one of its interest rates swaps with a fair value of $4.5 million and derecognized the related derivative asset. The interest rate swap had a notional value of $75 million. The $4.5 million hedge gain will be amortized into interest income over the remaining life of the debt.

The following table presents the pre-tax gains (losses) related to the fair value hedges and the related hedged items for the quarters ended October 2, 2015 and October 3, 2014:

	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
		October 2, 2015		October 3, 2014				October 2, 2015			October 3, 2014
Interest rate swaps	Other Income (Expense)	$	7	$	(1	)	Debt	$	(7	)	$	1

The following table presents the pre-tax gains (losses) related to the fair value hedges and the related hedged items for the six months ended October 2, 2015 and October 3, 2014:

	Derivative Instrument					Hedged Item
(Amounts in millions)	Statement of Operations line item	Gain (Loss) for the Six Months Ended				Balance Sheet line item	Gain (Loss) for the Six Months Ended
		October 2, 2015		October 3, 2014			October 2, 2015			October 3, 2014
Interest rate swaps	Other Income (Expense)	$	1	$	4	Debt	$	(1	)	$	(4	)

Cash flow hedges

The Company has designated certain foreign currency forward contracts as cash flow hedges, to reduce risks related to certain Indian Rupee denominated intercompany obligations and forecasted transactions. The notional amount of foreign currency forward contracts designated as cash flow hedges as of October 2, 2015 and April 3, 2015 was $605 million and $383 million, respectively, and the related forecasted transactions extend through March 2018.

For the quarters ended October 2, 2015 and October 3, 2014, 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 other comprehensive income (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 quarters ended October 2, 2015 and October 3, 2014, the Company had no cash flow hedges for which it was probable that the hedged transaction would not occur. As of October 2, 2015, approximately $5 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 October 2, 2015 and October 3, 2014:

(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
	October 2, 2015			October 3, 2014			October 2, 2015		October 3, 2014		October 2, 2015		October 3, 2014
Foreign currency forward contracts	$	(14	)	$	(5	)	$	—	$	—	$	—	$	—

The following table presents the pre-tax gains (losses) associated with the cash flow hedges, recognized in accumulated OCI, for the six months ended October 2, 2015 and October 3, 2014:

(Amounts in millions)	Gain (Loss) recognized in Accumulated OCI (effective portion) for the Six Months Ended						Gain (Loss) reclassified into cost of services from Accumulated OCI (effective portion) for the Six Months Ended				Gain (loss) recognized in Other Income (Expense) (ineffective portion) for the Six Months Ended
	October 2, 2015			October 3, 2014			October 2, 2015		October 3, 2014		October 2, 2015		October 3, 2014
Foreign currency forward contracts	$	(12	)	$	(6	)	$	—	$	—	$	—	$	—

Derivatives not designated for hedge accounting

Total return swaps

Beginning in the first quarter of fiscal 2015, the Company entered into total return swaps derivative contracts (TRS) to manage exposure to market volatility of the notional investments underlying the Company's deferred compensation obligations. For accounting purposes, these TRS are not designated as hedges, as defined under ASC 815, “Derivatives and Hedging,” and all changes in their fair value and changes in the associated deferred compensation 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 Condensed Statements of Operations. The notional amount of the foreign currency forward contracts outstanding as of October 2, 2015 and April 3, 2015 was $773 million and $700 million, respectively.

The following table presents the pretax amounts affecting income related to derivatives not designated for hedge accounting for the quarters ended October 2, 2015 and October 3, 2014:

		Quarter Ended						Six Months Ended
(Amounts in millions)	Statement of Operations line item	October 2, 2015			October 3, 2014			October 2, 2015			October 3, 2014
Total return swaps	Cost of services and Selling, general & administrative expenses	$	(3	)	$	—		$	(3	)	$	4
Foreign currency forwards and options	Other Income (Expense)	(2		)	(5		)	1			(4		)
Total		$	(5	)	$	(5	)	$	(2	)	$	—

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 October 2, 2015 and April 3, 2015, there were $0 million and approximately $1 million, respectively, that the Company elected to not offset. The Company's derivative contracts do not require it to hold or post collateral.