v2.4.0.8
Derivatives and Hedging
 12 Months Ended
Dec. 31, 2013
Derivatives and Hedging  
Derivatives and Hedging

Note 13—Derivatives and Hedging

 

Derivatives designated as hedging instruments—We had interest rate swaps, which were designated and qualified as fair value hedges, to reduce our exposure to changes in the fair values of the 5% Notes due February 2013, the 5.25% Senior Notes due March 2013 and the 4.95% Senior Notes due November 2015.  In February and March 2013, the interest rate swaps designated as hedges of the 5% Notes and the 5.25% Senior Notes, respectively, expired.  In June 2012, we terminated the interest rate swaps designated as hedges of the 4.95% Senior Notes due November 2015 and, in the year ended December 31, 2012, we received an aggregate net cash payment of $23 million.

 

We also had interest rate swaps, which were designated and qualified as a cash flow hedge, to reduce the variability of cash interest payments associated with the variable-rate borrowings under the TPDI Credit Facilities.  In June 2013, we repaid the borrowings under the TPDI Credit Facilities, and we terminated these interest rate swaps.  In connection with the termination, we made a net cash payment of $22 million, and we reclassified $9 million from accumulated other comprehensive loss to other expense, net.

 

Additionally, we had cross-currency interest rate swaps, which were designated and qualified as a cash flow hedge, to reduce the variability of cash interest payments and the final cash principal payment associated with the 11% Callable Bonds resulting from the changes in the U.S. dollar to Norwegian krone exchange rate.  In March 2013, in connection with our redemption of the 11% Callable Bonds, we terminated these cross-currency interest rate swaps and the related security agreement with respect to the Harsh Environment Ultra-Deepwater Floaters Transocean Spitsbergen and Transocean Barents.  As a result of the termination, we made a cash payment of $128 million and received a cash payment of NOK 705 million, which we applied to the redemption of the 11% Callable Bonds, and we reclassified $5 million from accumulated other comprehensive loss to other expense, net.

 

The effect on our consolidated statements of operations resulting from changes in the fair values of derivatives designated as cash flow hedges was as follows (in millions):

 

 

 

 

 

Years ended December 31,

 

 

 

Statement of operations classification

 

2013

 

2012

 

2011

 

Loss associated with effective portion

 

Interest expense, net of amounts capitalized

 

$

(4

)

$

(5

)

$

(11

)

Gain associated with effective portion

 

Other, net

 

—

 

6

 

—

 

Loss associated with terminations

 

Other, net

 

(14

)

—

 

—

 

 

The balance sheet classification and aggregate carrying amount of our derivatives designated as hedging instruments, measured at fair value, were as follows (in millions):

 

 

 

 

 

December 31,

 

 

 

Balance sheet classification

 

2013

 

2012

 

Interest rate swaps, fair value hedges

 

Other current assets

 

$

—

 

$

6

 

Interest rate swaps, cash flow hedges

 

Other long-term liabilities

 

—

 

13

 

Cross-currency swaps, cash flow hedges

 

Other current assets

 

—

 

1

 

Cross-currency swaps, cash flow hedges

 

Other assets

 

—

 

1

 

 

Derivatives not designated as hedging instruments—In connection with our acquisition of Aker Drilling, we assumed certain derivatives not designated as hedging instruments.  In the years ended December 31, 2012 and 2011, we terminated these interest rate swaps not designated as hedging instruments and made aggregate cash payments of $14 million and $15 million, respectively.

 

Additionally, in August 2011, in connection with our acquisition of Aker Drilling, we entered into a forward exchange contract, which was not designated and did not qualify as a hedging instrument for accounting purposes, in order to offset the variability in the cash flows resulting from fluctuations in the U.S. dollar to Norwegian krone exchange rate.  The forward exchange contract had aggregate notional amounts requiring us to pay $1.1 billion in exchange for receiving NOK 6.1 billion, representing an exchange rate of $1.00 to NOK 5.40.  On September 28, 2011, we settled the full amount of the forward exchange contract and made a net cash payment of $78 million.

 

In connection with our sale transactions with Shelf Drilling, we received non-cash proceeds in the form of preference shares with a stated value of $195 million.  The preference shares contain two embedded derivatives, which were not designated and did not qualify as hedging instruments for accounting purposes.  At December 31, 2012, the embedded derivatives not designated as hedging instruments had an aggregate carrying amount of $2 million, recorded in other long-term liabilities.  In June 2013, we completed the sale of the preference shares with the embedded derivatives.  See Note 7—Discontinued Operations.

 

The effect on our consolidated statements of operations resulting from changes in the fair values of derivatives not designated as hedging instruments was as follows (in millions):

 

 

 

 

 

Years ended December 31,

 

 

 

Statement of operations classification

 

2013

 

2012

 

2011

 

Loss associated with undesignated interest rate swaps

 

Interest expense, net of amounts capitalized

 

$

—

 

$

(1

)

$

—

 

Loss associated with undesignated forward exchange contract

 

Other, net

 

—

 

—

 

(78

)