Derivatives and Hedging

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

Derivatives and Hedging

The Company is exposed to market risks, including changes in foreign currency exchange rates and interest rates.  To manage the risk related to these exposures, the Company enters into various derivative instruments that reduce these risks by creating offsetting exposures.  The Company does not enter into derivative transactions for trading or speculative purposes.

Foreign Exchange Risk Management

The Company is exposed to foreign exchange risk when it earns revenues, pays expenses, enters into monetary intercompany transfers denominated in a currency that differs from its functional currency, or enters into other transactions that are denominated in a currency other than its functional currency.  The Company uses foreign exchange derivatives, typically forward contracts, options and cross currency swaps, to reduce its overall exposure to the effects of currency fluctuations on cash flows.  These exposures are hedged, on average, for less than two years. These derivatives are accounted for as hedges, and changes in fair value are recorded each period in Other comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive Income.

The Company also uses foreign exchange derivatives, typically forward contracts and options, to economically hedge the currency exposure of the Company's global liquidity profile, including monetary assets or liabilities that are denominated in a non-functional currency of an entity, typically on a rolling 30 day basis, but may be for up to one year in the future. These derivatives are not accounted for as hedges, and changes in fair value are recorded each period in Other income in the Condensed Consolidated Statements of Income.

The notional and fair values of derivative instruments are as follows (in millions):

	Notional Amount				Derivative Assets (1)				Derivative Liabilities (2)
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Foreign exchange contracts:
Accounted for as hedges	$	808	$	778	$	16	$	32	$	12	$	18
Not accounted for as hedges (3)	201		280		—		—		—		—
Total	$	1,009	$	1,058	$	16	$	32	$	12	$	18

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(1) Included within Other current assets ($5 million at June 30, 2016 and $15 million at December 31, 2015) or Other non-current assets ($11 million at June 30, 2016 and $17 million at December 31, 2015).

(2) Included within Other current liabilities ($8 million at June 30, 2016 and $13 million at December 31, 2015) or Other non-current liabilities ($4 million at June 30, 2016 and $5 million at December 31, 2015).

(3) These contracts typically are for 30 day durations are executed close to the last day of the most recent reporting month, thereby resulting in nominal fair values at the balance sheet date.

Offsetting of financial assets and derivatives assets are as follows (in millions):

	Gross Amounts of Recognized Assets				Gross Amounts Offset in the Statement of Financial Position						Net Amounts of Assets Presented in the Statement of Financial Position (1)
Derivatives accounted for as hedges:	June 30, 2016		December 31, 2015		June 30, 2016			December 31, 2015			June 30, 2016		December 31, 2015
Foreign exchange contracts	$	16	$	32	$	(5	)	$	(13	)	$	11	$	19

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(1) Included within Other current assets ($2 million at June 30, 2016 and $6 million at December 31, 2015) or Other non-current assets ($9 million at June 30, 2016 and $13 million at December 31, 2015).

Offsetting of financial liabilities and derivative liabilities are as follows (in millions):

	Gross Amounts of Recognized Liabilities				Gross Amounts Offset in the Statement of Financial Position						Net Amounts of Liabilities Presented in the Statement of Financial Position (1)
Derivatives accounted for as hedges:	June 30, 2016		December 31, 2015		June 30, 2016			December 31, 2015			June 30, 2016		December 31, 2015
Foreign exchange contracts	$	12	$	18	$	(5	)	$	(13	)	$	7	$	5

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(1) Included within Other current liabilities ($5 million at June 30, 2016 and $4 million at December 31, 2015) or Other non-current liabilities ($2 million at June 30, 2016 and $1 million at December 31, 2015).

The amounts of derivative gains (losses) recognized in the Condensed Consolidated Financial Statements for the three and six months ended June 30, 2016 and 2015 are as follows (in millions):

Cash Flow Hedge - Foreign Exchange Contracts	Location of future reclassification from Accumulated Other Comprehensive Loss										Gain (Loss) Recognized in Accumulated Other Comprehensive Loss:
Three months ended June 30,	Compensation and Benefits		Other General Expenses			Interest Expense		Other Income (Expense)			Total
2016	$	—	$	(2	)	$	—	$	(6	)	$	(8	)
2015	1		3			—		10			14

Cash Flow Hedge - Foreign Exchange Contracts	Location of future reclassification from Accumulated Other Comprehensive Loss											Gain (Loss) Recognized in Accumulated Other Comprehensive Loss:
Six months ended June 30,	Compensation and Benefits			Other General Expenses			Interest Expense		Other Income (Expense)			Total
2016	$	(2	)	$	(5	)	$	—	$	(11	)	$	(18	)
2015	6			1			—		6			13

Cash Flow Hedge - Foreign Exchange Contracts	Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion):
Three months ended June 30,	Compensation and Benefits		Other General Expenses			Interest Expense			Other Income			Total
2016	$	—	$	(1	)	$	(1	)	$	(2	)	$	(4	)
2015	1		(1		)	(2		)	5			3

Cash Flow Hedge - Foreign Exchange Contracts	Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion):
Six months ended June 30,	Compensation and Benefits		Other General Expenses			Interest Expense			Other Income			Total
2016	$	1	$	(1	)	$	(1	)	$	(3	)	$	(4	)
2015	1		(1		)	(4		)	(3		)	(7		)

The Company estimates that approximately $15 million of pretax losses currently included within Accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.

The amount of gain (loss) recognized in income on the ineffective portion of derivatives for the three and six months ended June 30, 2016 and 2015 was not material.

During the three and six months ended June 30, 2016, the Company recorded a loss of $2 million and $1 million, respectively, in Other income for foreign exchange derivatives not designated or qualifying as hedges. During the three and six months ended June 30, 2015, the Company recorded a gain of $2 million and $9 million, respectively, in Other income for foreign exchange derivatives not designated or qualifying as hedges.

Net Investments in Foreign Operations Risk Management

The Company uses non-derivative financial instruments to protect the value of its investments in a number of foreign subsidiaries. Beginning in June 2016, the Company designated its Euro-denominated commercial paper issuances as a non-derivative hedge of a net investment in its European operations. The change in the carrying value of the designated portion of the Euro-denominated commercial paper due to changes in foreign currency exchange rates is recorded in Foreign currency translation adjustment, a component of Accumulated other comprehensive income (loss), offsetting the foreign currency translation adjustment of the hedged net investments that is also recorded in Accumulated other comprehensive income (loss). Any ineffective portions of net investment hedges are reclassified from Accumulated other comprehensive income (loss) into earnings during the period of change.

As of June 30, 2016, the Company has €217 million ($241 million at June 30, 2016 exchange rates) of outstanding Euro-denominated commercial paper designated as a hedge of its net investment in its European operations. The weighted average commercial paper outstanding for June 2016 was €55 million. The associated gain recognized in Accumulated other comprehensive income (loss) related to the net investment hedge was $4 million.

The Company did not reclassify any deferred gains or losses related to net investment hedges from Accumulated other comprehensive income (loss) to earnings during the three or six months ended June 30, 2016. In addition, the Company did not have any ineffectiveness related to net investment hedges during the three or six months ended June 30, 2016.