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Financial Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments and Hedging Activities
Financial Instruments and Hedging Activities
The Company is exposed to global market risks, including the effect of changes in foreign currency exchange rates, interest rates, equity prices, and commodity prices. The Company uses foreign currency denominated debt and derivative instruments to mitigate the impact of these changes. The Company does not hold or issue derivatives for trading purposes.
The following table presents the fair values of derivative instruments included on the Consolidated balance sheet:
  
Derivative Assets
 
Derivative Liabilities
In millions
September 30,
2013
 
December 31,
2012
 
September 30,
2013
 
December 31,
2012
Total derivatives designated as hedging instruments
 
$
70.1

 
 
$
85.1

 
 
$
(135.1
)
 
 
$
(35.8
)
Total derivatives not designated as hedging instruments
 
141.7

 
 
133.3

 
 
(23.0
)
 
 
(6.8
)
Total derivatives
 
$
211.8

 
 
$
218.4

 
 
$
(158.1
)
 
 
$
(42.6
)


The following table presents the pretax amounts affecting income and other comprehensive income ("OCI") for the nine months ended September 30, 2013 and 2012, respectively:
 
Gain (Loss)
Recognized in
Accumulated OCI
 
Gain (Loss) Reclassified
into Income from
Accumulated OCI
 
Gain (Loss) Recognized in
Income on Derivative(1)
 
 
 
 
 
 
In millions
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Cash Flow Hedges
 
$
(62.3
)
 
 
$
13.9

 
 
$
(28.8
)
 
 
$
(7.2
)
 

$
(7.7
)
 

$
(10.8
)
Net Investment Hedges
 
$
(229.8
)
 
 
$
25.3

 
 
$
—

 
 
$
—

 
 
 
 
 
 
Undesignated derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(31.7
)

 
$
(20.5
)
(1)
Includes amounts excluded from effectiveness testing, ineffectiveness, and undesignated gains (losses).

•
Fair Value Hedges
The Company enters into fair value hedges which convert a portion of its fixed-rate debt into floating-rate debt by use of interest rate swaps. At September 30, 2013, $2.2 billion of the Company's outstanding fixed-rate debt was effectively converted. For the nine months ended September 30, 2013, the Company recognized a $22.8 million loss on fair value interest rate swaps, which was exactly offset by a corresponding gain in the fair value of the hedged debt instruments.
 
•
Cash Flow Hedges
The Company enters into cash flow hedges to reduce the exposure to variability in certain expected future cash flows.
To protect against the reduction in value of forecasted foreign currency cash flows (such as royalties denominated in foreign currencies), the Company uses foreign currency forwards and foreign currency options to hedge a portion of anticipated exposures. The hedges cover the next 19 months for certain exposures and are denominated in various currencies. As of September 30, 2013, the Company had derivatives outstanding with an equivalent notional amount of $713.2 million that hedged a portion of forecasted foreign currency denominated royalties.

The Company uses cross-currency swaps to hedge the risk of cash flows associated with certain foreign currency denominated debt, including forecasted interest payments, and has elected cash flow hedge accounting. The hedges cover periods up to 50 months and have an equivalent notional amount of $338.9 million.

The Company manages its exposure to energy-related transactions in certain markets by entering into commodity forwards and has elected cash flow hedge accounting. The hedges cover periods up to 22 years and have an equivalent gross notional amount of $961.3 million, comprised of offsetting purchases and sales of energy.

Based on market conditions at September 30, 2013, the $8.0 million in cumulative cash flow hedging gains, after tax, is not expected to have a significant effect on earnings over the next 12 months.
•
Net Investment Hedges
The Company primarily uses foreign currency denominated debt (third party and intercompany) to hedge its investments in certain foreign subsidiaries and affiliates. Realized and unrealized translation adjustments from these hedges are included in shareholders' equity in the foreign currency translation component of OCI and offset translation adjustments on the underlying net assets of foreign subsidiaries and affiliates, which also are recorded in OCI. As of September 30, 2013, $8.1 billion of intercompany foreign currency denominated debt, $4.5 billion of the Company's third party foreign currency denominated debt and $785.3 million of derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates.

•
Credit Risk
The Company is exposed to credit-related losses in the event of non-performance by its derivative counterparties. The Company did not have significant exposure to any individual counterparty at September 30, 2013 and has master agreements that contain netting arrangements. For financial reporting purposes, the Company presents gross derivative balances in the financial statements and supplementary data, including for counterparties subject to netting arrangements.