Derivative Instruments and Hedging Strategies

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments And Hedging Strategies

DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

Our international activities expose us to the risks related to the effects of changes in foreign currency exchange rates. We use operational and economic hedges as well as foreign currency exchange forward contracts to manage the impact of currency exchange on earnings and cash flow. At the inception of the forward contract, the derivative is designated as either a freestanding derivative or a cash flow hedge. We do not enter into currency exchange derivative instruments for speculative purposes.

The gross notional amount of all currency exchange rate derivative instruments outstanding were $2,344 and $1,352 at December 31, 2013 and 2012, respectively. The aggregate currency exchange rate gains (losses) were $3, ($7) and ($3) for the years ended December 31, 2013, 2012 and 2011. These gains (losses) represent the net impact to the consolidated statement of earnings for the derivative instruments discussed below.

We are exposed to credit loss in the event of nonperformance by counterparties on our outstanding forward currency exchange contracts but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum exposure to loss is the asset balance of the instrument. The maximum term of the forward currency exchange contracts at December 31, 2013 and 2012 were 546 days and 183 days.

Derivative Instruments Not Designated as Hedges

Derivative forward contracts are used to offset our exposure to the change in value of specific foreign currency denominated assets and liabilities. These derivatives are not designated as hedges, and therefore, changes in the value of these forward contracts are recognized in earnings, thereby offsetting the current earnings effect of the related changes in value of foreign currency denominated assets and liabilities. The estimated fair value of our forward currency exchange contracts represents the measurement of the contracts at month-end spot rates as adjusted by current forward points.

The gross notional amount of all non-designated currency exchange rate derivative instruments outstanding were $2,000 and $1,352 at December 31, 2013 and 2012, respectively. For the years ended December 31, 2013, 2012 and 2011, recognized foreign currency transaction gains (losses) included in other income (expense) in earnings were ($6), ($7), and ($3) , respectively.

Derivative Instruments Designated as Hedges

In 2013 we implemented a layered hedging program to hedge select anticipated foreign currency cash flows to reduce volatility in both cash flows and reported earnings. These foreign exchange contracts generally have maturities up to eighteen months. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of AOCI and reclassified into other income (expense) or cost of sales within earnings in the same period during which the hedged transaction affects earnings. In 2013 a gain of $9 was reclassified from AOCI to earnings relating to the discontinuance of certain cash flow hedges, as we now consider it probable that the original forecasted transactions will not occur. The gross notional amount of designated currency exchange rate derivative instruments outstanding were $344 at December 31, 2013. Cash flows associated with these instruments are included in cash from operations in the same category as the cash flows from the items being hedged.

The fair value amounts are presented on a gross basis in the balance sheet and are segregated between derivatives that are designated and qualify as hedging instruments and those that are not for the years ended December 31, 2013 and 2012, as follows:

	December 31, 2013								December 31, 2012
	Prepaid expenses and other current assets		Other Assets- Noncurrent		Accrued expenses and other current liabilities		Other Liabilities – Noncurrent		Prepaid expenses and other current assets		Other Assets- Noncurrent		Accrued expenses and other current liabilities		Other Liabilities – Noncurrent
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	$	11	$	1	$	1	$	—	$	—	$	—	$	—	$	—
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	10		3		1		—		3		—		1		—
Total derivative instruments	$	21	$	4	$	2	$	—	$	3	$	—	$	1	$	—

The amount and location of gains in the consolidated statements of earnings and amounts recorded in AOCI related to the derivative instruments designated as hedges for the year ended December 31, 2013 were:

	Amount of gain reported as a component of AOCI on derivatives, net of tax (effective portion)		Amount of pre-tax gain reclassified from AOCI into income (effective portion)		Amount of pre-tax gain recognized in other income (expense) (ineffective portion and amount excluded from effectiveness testing)
Foreign exchange contracts	$	8	$	—	$	9

At December 31, 2013, deferred pretax gains on derivatives designated as hedges of $12, which are recorded in AOCI, are expected to be reclassified to current earnings during the next twelve months. This reclassification is primarily due to the sale of inventory that includes previously hedged purchases.