Derivative Financial Instruments and Cash Flow Hedging Strategy Financial Derivatives and Risk Management (Notes)

3 Months Ended

Jun. 30, 2013

Financial Derivatives and Risk Management [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Financial Derivatives and Risk Management

The Company transacts business in many parts of the world and is subject to risks associated with changing foreign currency exchange rates. Accordingly, the Company uses both derivative instruments designated as cash flow hedges as well as derivative instruments that are not designated as hedging instruments to mitigate this risk. These derivative instruments are comprised of foreign currency forward exchange contracts, and are classified within Level 2 of the fair value hierarchy for which fair value is determined by using foreign currency market spot rates and forward points observable at commonly quoted intervals. The Company does not enter into foreign currency contracts for speculative trading purposes.

Cash Flow Hedges

A significant portion of the Company's cost of products and services sold is denominated in the U.S. Dollar, while over 60 percent of the Company's sales are denominated in other currencies. Intercompany inventory purchases, which are sourced primarily from subsidiaries with U.S. Dollar functional currencies, are sold to customers by international subsidiaries in other local currencies. In the third quarter of 2012, the Company implemented a program to use foreign currency forward exchange contracts to mitigate the foreign currency risk associated with these forecasted intercompany inventory purchases.

These derivatives have been designated as cash flow hedges, which qualify for hedge accounting treatment, whereby changes in fair value of the derivative are deferred in AOCI within stockholders' equity until the underlying hedged items are recognized in net income. Accordingly, the Company records cash flow hedge gains or losses within cost of products and services sold when the related inventory is sold to a customer. To the extent any portion of the hedge contract is determined to be ineffective, the increase or decrease in value of the contract prior to maturity will be recognized in income immediately. The cash flow impact from these derivatives is classified in the operating activities section of the Company's consolidated statements of cash flows, which is the same category as the underlying items being hedged. Gains or losses related to the ineffective portion of these hedging instruments were not material for the three and six months ended June 30, 2013. At June 30, 2013 and December 31, 2012, the Company had a notional principal amount of $298 and $254, respectively, in foreign currency forward contracts outstanding.

The following table summarizes the fair values of the forward foreign currency exchange contracts designated as cash flow hedges at June 30, 2013 and December 31, 2012.

Item	Reporting Location	June 30, 2013	December 31, 2012
Forward exchange contracts asset derivative	Other current assets	$11	$6
Forward exchange contracts liability derivative	Other current liabilities	1	3
Gain recognized in AOCI, net	AOCI	13	3

The following table summarizes the effect of the forward foreign currency exchange contracts designated as cash flow hedges on the Company's consolidated statements of comprehensive income during the three and six months ended June 30, 2013 and June 30, 2012, net of immaterial tax effects.

		Three Months Ended	Three Months Ended
Item	Reporting Location	June 30, 2013	June 30, 2012
Loss recognized in OCI, net	OCI	$(1)	—
Gain reclassified from AOCI into net income	Costs of products and services sold	2	—

		Six Months Ended	Six Months Ended
Item	Reporting Location	June 30, 2013	June 30, 2012
Gain recognized in OCI, net	OCI	$10	—
Gain reclassified from AOCI into net income	Costs of products and services sold	2	—

As of June 30, 2013, the majority of these contracts are in established currencies including the Euro, Japanese Yen and British Pound. During the next 12 months, we expect that approximately $12 of derivative gains included in AOCI, based on their valuation as of June 30, 2013, will be reclassified into income. The Company generally does not hedge its exposure to the exchange rate variability of future cash flows beyond the next ensuing twenty-four months.

Derivatives Not Designated As Hedging Instruments

The Company also uses foreign currency forward exchange contracts, which are not designated as hedging instruments, to hedge the value of certain intercompany receivables and payables denominated in foreign currencies. The Company's objective is to minimize the impact of foreign currency exchange rate changes during the period of time between the original transaction date and its cash settlement. Gains and losses on these contracts are recorded in SG&A, based on the difference in the contract rate and the spot rate at the end of each month for all contracts still in force, and are typically offset either partially or completely by transaction gains and losses. The duration of the contracts typically does not exceed six months. As of June 30, 2013, the majority of these contracts are in established currencies including the Euro, British Pound and Japanese Yen. The impact of these contracts was not material to the consolidated financial statements as of and for the periods ended June 30, 2013 and December 31, 2012. The notional amount of open foreign currency forward exchange contracts at June 30, 2013 and December 31, 2012 was $155 and $116, respectively.