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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2013
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

3. Derivative Financial Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency exchange rate risk. Forward contracts against various foreign currencies are entered into to manage the foreign currency exchange rate risk on forecasted revenues and expenses denominated in currencies other than the functional currency of the operating unit (cash flow hedge). Other forward exchange contracts against various foreign currencies are entered into to manage the foreign currency exchange rate risk associated with certain firm commitments denominated in currencies other than the functional currency of the operating unit (fair value hedge). In addition, the Company will enter into non-designated forward contracts against various foreign currencies to manage the foreign currency exchange rate risk on recognized nonfunctional currency monetary accounts (non-designated hedge).

At December 31, 2013, the Company has determined that the fair value of its derivative financial instruments representing assets of $59 million and liabilities of $40 million (primarily currency related derivatives) are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available foreign exchange and interest rates at each financial reporting date. At December 31, 2013, the net fair value of the Company’s foreign currency forward contracts totaled a net asset of $19 million.

At December 31, 2013, the Company’s financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when the Company’s financial instruments are in net liability positions. We do not use derivative financial instruments for trading or speculative purposes.

Cash Flow Hedging Strategy

To protect against the volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company has instituted a cash flow hedging program. The Company hedges portions of its forecasted revenues and expenses denominated in nonfunctional currencies with forward contracts. When the U.S. dollar strengthens against the foreign currencies, the decrease in present value of future foreign currency revenues and expenses is offset by gains in the fair value of the forward contracts designated as hedges. Conversely, when the U.S. dollar weakens, the increase in the present value of future foreign currency cash flows is offset by losses in the fair value of the forward contracts.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is subject to a particular currency risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of Other Comprehensive Income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “revenues” when the hedged transactions are cash flows associated with forecasted revenues). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), or hedge components excluded from the assessment of effectiveness, is recognized in the Consolidated Statements of Income during the current period.

 

At December 31, 2013 and 2012, the Company had the following outstanding foreign currency forward contracts that were entered into to hedge nonfunctional currency cash flows from forecasted revenues and expenses (in millions):

 

      Currency Domination  

Foreign Currency

    December 31,
2013		      December 31,
2012		  

Norwegian Krone

    NOK      10,503       NOK      6,281   

Euro

    €      406       €      389   

U.S. Dollar

    $      357       $      331   

Danish Krone

    DKK      278       DKK      134   

British Pound Sterling

    £      23       £      6   

Singapore Dollar

    SGD      17       SGD      14   

Canadian Dollar

    CAD      16       CAD      —     

Non-designated Hedging Strategy

The Company enters into forward exchange contracts to hedge certain nonfunctional currency monetary accounts. The purpose of the Company’s foreign currency hedging activities is to protect the Company from risk that the eventual U.S. dollar equivalent cash flows from the nonfunctional currency monetary accounts will be adversely affected by changes in the exchange rates.

For derivative instruments that are non-designated, the gain or loss on the derivative instrument subject to the hedged risk (i.e., nonfunctional currency monetary accounts) is recognized in other income (expense), net in current earnings.

The Company had the following outstanding foreign currency forward contracts that hedge the fair value of nonfunctional currency monetary accounts (in millions):

 

     Currency Denomination  

Foreign Currency

    December 31,
2013		      December 31,
2012		  

Norwegian Krone

    NOK      3,257       NOK      1,684   

Russian Ruble

    RUB      2,149       RUB      1,467   

U.S. Dollar

    $      715       $      967   

Euro

    €      310       €      225   

Danish Krone

    DKK      177       DKK      177   

British Pound Sterling

    £      14       £      9   

Swedish Krone

    SEK      4       SEK      5   

Singapore Dollar

    SGD      3       SGD      24   

Canadian Dollar

    CAD      3       CAD      2   

Brazilian Real

    BRL      —         BRL      135   

 

The Company has the following fair values of its derivative instruments and their balance sheet classifications (in millions):

 

     Asset Derivatives      Liability Derivatives  
          Fair Value           Fair Value  
     Balance Sheet    December 31,      Balance Sheet    December 31,  
     Location    2013      2012      Location    2013      2012  

Derivatives designated as hedging instruments under ASC Topic 815

                  

Foreign exchange contracts

    Prepaid and other current assets    $ 35       $ 57       Accrued liabilities    $ 18       $ 5   

Foreign exchange contracts

    Other Assets      5         24       Other Liabilities      9         1   
     

 

 

     

 

 

        

 

 

     

 

 

  

Total derivatives designated as hedging instruments under ASC Topic 815

       $ 40       $ 81          $ 27       $ 6   
     

 

 

     

 

 

        

 

 

     

 

 

  

Derivatives not designated as hedging instruments under ASC Topic 815

                  

Foreign exchange contracts

    Prepaid and other current assets    $ 19       $ 24       Accrued liabilities    $ 13       $ 13   
     

 

 

     

 

 

        

 

 

     

 

 

  

Total derivatives not designated as hedging instruments under ASC Topic 815

       $ 19       $ 24          $ 13       $ 13   
     

 

 

     

 

 

        

 

 

     

 

 

  

Total derivatives

       $ 59       $ 105          $ 40       $ 19   
     

 

 

     

 

 

        

 

 

     

 

 

  

The Effect of Derivative Instruments on the Consolidated Statements of Income

($ in millions)

 

Derivatives Designated as
Hedging Instruments under
ASC Topic 815

   Amount of Gain (Loss)
Recognized in OCI on
Derivatives (Effective
Portion) (a)		    

Location of Gain (Loss)
Reclassified from
Accumulated OCI into
Income
(Effective Portion)

   Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)		    

Location of Gain (Loss)
Recognized in Income on
Derivatives (Ineffective
Portion  and Amount
Excluded from
Effectiveness Testing)

   Amount of Gain (Loss)
Recognized in Income
on Derivatives
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing) (b)		  
    Years Ended
December 31,		         Years Ended
December 31,		         Years Ended
December 31,		  
    2013     2012         2013     2012         2013     2012  
      Revenue     16        (6 )       

Foreign exchange contracts

     (42 )      105      Cost of revenue     (6 )      (26 )    Other income (expense), net     12        8   
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

  

Total

     (42 )      105          10        (32 )        12        8   
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

  

 

Derivatives Not Designated as Hedging Instruments
under ASC Topic 815

   

Location of Gain (Loss) Recognized in Income on
Derivatives

    Amount of Gain (Loss)
Recognized in Income
on Derivatives		  
          Years Ended
December 31,		  
          2013      2012  

Foreign exchange contracts

    Other income (expense), net      18         19   
     

 

 

     

 

 

  

Total

         18         19   
     

 

 

     

 

 

  

 

(a) The Company expects that $(16) million of the Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings within the next twelve months with an offset by gains from the underlying transactions resulting in no impact to earnings or cash flow.
(b) The amount of gain (loss) recognized in income represents nil related to the ineffective portion of the hedging relationships for the each of the years ended December 31, 2013 and 2012, and $12 million and $8 million related to the amount excluded from the assessment of the hedge effectiveness for the years ended December 31, 2013 and 2012, respectively.