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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
Risk Management Objective of Using Derivatives
We are exposed to certain risks arising from both our business operations and economic conditions and principally manage our exposures to these risks through management of our core business activities. Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates that may impact revenues, expenses, cash receipts and payments. We enter into derivative financial instruments to protect the value or fix the amount of certain cash flows in terms of the functional currency of the business unit with that exposure.
Cash Flow Hedges of Foreign Exchange Risk
We are exposed to fluctuations in various foreign currencies against our functional currencies. We use foreign currency derivatives including currency forward agreements to manage our exposure to fluctuations in the various exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date.
Beginning in 2012, certain business units within our segments with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk is recorded in other comprehensive income and is subsequently reclassified into either revenue or cost of revenue (hedge of sales classified into revenue and hedge of purchases classified into cost of revenue) in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of the change in fair value of the derivative is recognized directly in selling, general and administrative expenses. Our policy is to de–designate cash flow hedges at the time forecasted transactions are recognized as assets or liabilities on a business unit’s balance sheet and report subsequent changes in fair value through selling, general and administrative expenses where the gain or loss due to movements in currency rates on the underlying asset or liability is recorded. If it becomes probable that the originally forecasted transaction will not occur, the gain or loss related to the hedge recorded within other comprehensive income is recognized into net income.
Listed in the table below are the outstanding foreign currency derivatives that were used to hedge foreign exchange risks as of March 31, 2013.
 
(in millions; except number of instruments)
 
 
 
 
Foreign Currency Derivative
Number of
Instruments
 
Notional
Sold
 
Sell Notional Currency
 
Notional
Purchased
 
Buy Notional
Currency
Buy PLN/ Sell EUR forward
3

 
4.6

 
Euro (EUR)
 
19.4

 
Polish Zloty
(PLN)
Buy HUF/ Sell EUR forward
3

 
1.8

 
Euro (EUR)
 
546.2

 
Hungarian 
Forint (HUF)
Sell CAD/ Buy EUR forward
8

 
10.0

 
Canadian Dollar (CAD)
 
7.4

 
Euro (EUR)
Sell USD/ Buy EUR forward
8

 
40.5

 
United States 
Dollar (USD)
 
31.0

 
Euro (EUR)
Sell AUD/ Buy EUR forward
8

 
20.0

 
Australian Dollar (AUD)
 
15.5

 
Euro (EUR)
Sell GBP/ Buy EUR forward
8

 
9.0

 
British Pound Sterling (GBP)
 
10.4

 
Euro (EUR)


The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Income Statements and Statements of Comprehensive Income.
 
 
Three Months Ended
 
March 31,
(in millions)
2013
 
2012
Derivatives in Cash Flow Hedges
 
 
 
Foreign Exchange Contracts
 
 
 
Amount of (loss) gain recognized in OCI (a)
$
(2
)
 
$
4

Amount of (gain) loss reclassified from OCI into revenue (a)
(1
)
 
—

Amount of (gain) loss reclassified from OCI into cost of revenue (a)
—

 
—

(a)
Effective portion
As of March 31, 2013, $2 million of the net unrealized losses on cash flow hedges is expected to be reclassified into earnings in the next 12 months. The ineffective portion of the change in fair value of a cash flow hedge is excluded from effectiveness testing and is recognized immediately in selling, general and administrative expenses in the Condensed Consolidated Income Statements. For the three months ended March 31, 2013 and 2012, the amount was not material.


The fair values of our foreign exchange contracts currently included in our hedging program were as follows:
 
(in millions)
March 31, 2013
 
December 31, 2012
Derivatives designated as hedging instruments
 
 
 
Liabilities
 
 
 
Other current liabilities
$
2

 
$
—

Total fair value
$
2

 
$
—