Derivative Financial Instruments

12 Months Ended

Dec. 31, 2014

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 revenue, 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. Our principal currency exposures relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty, Australian Dollar and Hungarian Forint . We held forward foreign exchange contracts with purchase notional amounts totaling $355 million and $275 million as of December 31, 2014 and 2013, respectively. In 2014, our most significant foreign currency derivatives include contracts to purchase Swedish Krona and sell Euro, sell US Dollar and purchase Euro, and to sell British Pound and purchase Euro. The purchased notional amounts associated with these currency derivatives are $140 million, $85 million and $51 million, respectively. In 2013, our most significant foreign currency derivatives include contracts to purchase Swedish Krona and sell Euro, purchase Polish Zloty and sell Euro, and to sell British Pound and purchase Euro. The purchase notional amounts associated with these currency derivatives were $190 million, $34 million and $37 million, respectively.

The table below presents the effect of our derivative financial instruments on the Consolidated Income Statements and Statements of Comprehensive Income.

	Year Ended December 31,
(in millions)	2014			2013			2012
Derivatives in Cash Flow Hedges
Foreign Exchange Contracts
Amount of (loss) gain recognized in OCI (a)	$	(22	)	$	1		$	4
Amount of loss (gain) reclassified from OCI into revenue (a)	5			(2		)	(2		)
Amount of loss (gain) reclassified from OCI into cost of revenue (a)	1			2			(1		)

(a) Effective portion

As of December 31, 2014, $14 million of the net unrealized losses on cash flow hedges is expected to be reclassified into earnings in the next 12 months. Any ineffective portion of the change in fair value of a cash flow hedge is recognized immediately in selling, general and administrative expenses in the Consolidated Income Statements and, for the twelve months ended December 31, 2014, 2013, and 2012, was not material.

The fair values of our foreign exchange contracts currently included in our hedging program were as follows:

	December 31,
(in millions)	2014			2013
Derivatives designated as hedging instruments
Assets
Other current assets	$	1		$	1
Liabilities
Other current liabilities	(13		)	—
Total fair value	$	(12	)	$	1