Derivatives and Hedging

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

Derivatives and Hedging

The Company is exposed to market risks, including changes in foreign currency exchange rates and interest rates.  To manage the risk related to these exposures, the Company enters into various derivative instruments that reduce these risks by creating offsetting exposures.  The Company does not enter into derivative transactions for trading or speculative purposes.

Foreign Exchange Risk Management

The Company is exposed to foreign exchange risk when it receives revenues, pays expenses, or enters into intercompany loans denominated in a currency that differs from its functional currency, or other transactions that are denominated in a currency other than its functional currency.  The Company uses foreign exchange derivatives, typically forward contracts, options and cross currency swaps, to reduce its overall exposure to the effects of currency fluctuations on cash flows.  These exposures are hedged, on average, for less than two years; however, in limited instances, the Company has hedged certain exposures up to five years in the future.

The Company also uses foreign exchange derivatives, typically forward contracts and options, to hedge its net investments in foreign operations for up to two years in the future.

The Company also uses foreign exchange derivatives, typically forward contracts and options, to manage the currency exposure of the Company’s global liquidity profile, including monetary assets or liabilities that are denominated in a non-functional currency of an entity, for up to one year in the future. These derivatives are not accounted for as hedges, and changes in fair value are recorded each period in Other income in the Condensed Consolidated Statements of Income.

Interest Rate Risk Management

The Company holds variable-rate short-term brokerage and other operating deposits. The Company uses interest rate derivatives, typically swaps, to reduce its exposure to the effects of interest rate fluctuations on the forecasted interest receipts from these deposits for up to two years in the future.

Certain derivatives also give rise to credit risks from the possible non-performance by counterparties.  The credit risk is generally limited to the fair value of those contracts that are favorable to the Company.  The Company has limited its credit risk by using International Swaps and Derivatives Association (“ISDA”) master agreements, collateral and credit support arrangements, entering into non-exchange-traded derivatives with highly-rated major financial institutions and by using exchange-traded instruments.  The Company monitors the creditworthiness of, and exposure to, its counterparties.  As of March 31, 2013, all net derivative positions were free of credit risk contingent features.  The Company has not received or pledged any collateral as of March 31, 2013.

The notional and fair values of derivative instruments are as follows (in millions):

	Notional Amount				Derivative Assets				Derivative Liabilities
	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Derivatives accounted for as hedges:
Interest rate contracts	$	322	$	336	$	16	$	17	$	—	$	—
Foreign exchange contracts	1,098		1,208		50		191		131		250
Total	1,420		1,544		66		208		131		250
Derivatives not accounted for as hedges:
Foreign exchange contracts	253		305		2		2		1		1
Total	$	1,673	$	1,849	$	68	$	210	$	132	$	251

Offsetting of financial assets and derivatives assets are as follows (in millions):

	Gross Amounts of Recognized Assets				Gross Amounts Offset in the Statement of Financial Position						Net Amounts of Assets Presented in the Statement of Financial Position (1)
	March 31, 2013		December 31, 2012		March 31, 2013			December 31, 2012			March 31, 2013		December 31, 2012
Derivatives accounted for as hedges:
Interest rate contracts	$	16	$	17	$	—		$	—		$	16	$	17
Foreign exchange contracts	50		191		(32		)	(160		)	18		31
Total	66		208		(32		)	(160		)	34		48
Derivatives not accounted for as hedges:
Foreign exchange contracts	2		2		(1		)	—			1		2
Total	$	68	$	210	$	(33	)	$	(160	)	$	35	$	50

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(1) Included within Other current assets or Other non-current assets

Offsetting of financial liabilities and derivative liabilities are as follows (in millions):

	Gross Amounts of Recognized Liabilities						Gross Amounts Offset in the Statement of Financial Position				Net Amounts of Liabilities Presented in the Statement of Financial Position (2)
	March 31, 2013			December 31, 2012			March 31, 2013		December 31, 2012		March 31, 2013			December 31, 2012
Derivatives accounted for as hedges:
Interest rate contracts	$	—		$	—		$	—	$	—	$	—		$	—
Foreign exchange contracts	(131		)	(250		)	32		160		(99		)	(90		)
Total	(131		)	(250		)	32		160		(99		)	(90		)
Derivatives not accounted for as hedges:
Foreign exchange contracts	(1		)	(1		)	1		—		—			(1		)
Total	$	(132	)	$	(251	)	$	33	$	160	$	(99	)	$	(91	)

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(2) Included within Other current liabilities or Other non-current liabilities

The amounts of derivative gains (losses) recognized in the Condensed Consolidated Financial Statements for the three months endedMarch 31, 2013 and 2012 are as follows (in millions):

	Three months ended March 31,
	2013			2012
Gain (Loss) recognized in Accumulated Other Comprehensive Loss:
Cash Flow Hedges:
Interest rate contracts	$	—		$	—
Foreign exchange contracts	(29		)	2
Total	$	(29	)	$	2
Foreign Net Investment Hedges:
Foreign exchange contracts	$	—		$	(10	)
Gain (Loss) reclassified from Accumulated Other Comprehensive     Loss into Income (Effective Portion):
Cash Flow Hedges:
Interest rate contracts (1)	$	—		$	—
Foreign exchange contracts (2)	(11		)	(8		)
Total	(11		)	(8		)
Foreign Net Investment Hedges:
Foreign exchange contracts	$	—		$	—

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(1) Included within Fiduciary investment income and Interest expense

(2) Included within Other income and Interest expense

	Three months ended March 31,
	Amount of Gain (Loss) Recognized in Income on Derivative (1) (2)			Amount of Gain (Loss) Recognized in Income on Related Hedge Item (2)
	2013		2012	2013	2012
Fair value hedges:
Interest rate contracts	(1	)	2	1	(2	)

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(1) Relates to fixed rate debt

(2) Included in Interest expense

The Company estimates that approximately $28 million of pretax losses currently included within Accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.

The amount of gain (loss) recognized in income on the ineffective portion of derivatives for the three months endedMarch 31, 2013 and 2012 was not material.

During the three months endedMarch 31, 2013 and 2012, the Company recorded a loss of $9 million and a gain of $5 million, respectively, in Other income for foreign exchange derivatives not designated or qualifying as hedges.