Derivative Financial Instruments | 6 Months Ended |
Jun. 30, 2014 |
Derivative Instruments and Hedges, Assets [Abstract] | ' |
Derivative Financial Instruments | ' |
DERIVATIVE FINANCIAL INSTRUMENTS |
We hold derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. The types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates. We hold the following types of derivative instruments: |
Foreign exchange rate forward contracts—The purpose of these instruments is to hedge the risk of changes in future cash flows of anticipated purchase or sale commitments denominated in foreign currencies. At June 30, 2014, we held the following material positions: |
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| Notional Amount | | | | | | | | | | | | | | | | | | |
Bought (Sold) | | | | | | | | | | | | | | | | | | |
(In millions) | | | USD Equivalent | | | | | | | | | | | | | | | | | | |
Australian dollar | 26.8 | | | 25.2 | | | | | | | | | | | | | | | | | | | |
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Brazilian real | (104.6 | ) | | (47.6 | ) | | | | | | | | | | | | | | | | | | |
British pound | 196.6 | | | 335.2 | | | | | | | | | | | | | | | | | | | |
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Canadian dollar | (136.5 | ) | | (127.9 | ) | | | | | | | | | | | | | | | | | | |
Euro | 181 | | | 247.3 | | | | | | | | | | | | | | | | | | | |
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Kuwaiti dinar | (6.1 | ) | | (21.5 | ) | | | | | | | | | | | | | | | | | | |
Norwegian krone | 2,154.20 | | | 350.2 | | | | | | | | | | | | | | | | | | | |
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Russian ruble | (819.7 | ) | | (24.4 | ) | | | | | | | | | | | | | | | | | | |
Singapore dollar | 119.1 | | | 95.4 | | | | | | | | | | | | | | | | | | | |
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Swedish krona | 149 | | | 22.2 | | | | | | | | | | | | | | | | | | | |
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U.S. dollar | (856.5 | ) | | (856.5 | ) | | | | | | | | | | | | | | | | | | |
Foreign exchange rate instruments embedded in purchase and sale contracts—The purpose of these instruments is to match offsetting currency payments and receipts for particular projects, or comply with government restrictions on the currency used to purchase goods in certain countries. At June 30, 2014, our portfolio of these instruments included the following material positions: |
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| Notional Amount | | | | | | | | | | | | | | | | | | |
Bought (Sold) | | | | | | | | | | | | | | | | | | |
(In millions) | | | USD Equivalent | | | | | | | | | | | | | | | | | | |
Brazilian real | (92.1 | ) | | (41.9 | ) | | | | | | | | | | | | | | | | | | |
British pound | 6.6 | | | 11.2 | | | | | | | | | | | | | | | | | | | |
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Euro | (11.4 | ) | | (15.6 | ) | | | | | | | | | | | | | | | | | | |
U.S. dollar | 31 | | | 31 | | | | | | | | | | | | | | | | | | | |
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The purpose of our foreign currency hedging activities is to manage the volatility associated with anticipated foreign currency purchases and sales created in the normal course of business. We primarily utilize forward exchange contracts with maturities of less than three years. |
Our policy is to hold derivatives only for the purpose of hedging risks and not for trading purposes where the objective is solely to generate profit. Generally, we enter into hedging relationships such that changes in the fair values or cash flows of the transactions being hedged are expected to be offset by corresponding changes in the fair value of the derivatives. For derivative instruments that qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative, which does not include the time value component of a forward currency rate, is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. |
The following table of all outstanding derivative instruments is based on estimated fair value amounts that have been determined using available market information and commonly accepted valuation methodologies. Refer to Note 13 for further disclosures related to the fair value measurement process. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a current market exchange and may not be indicative of the gains or losses we may ultimately incur when these contracts settle or mature. |
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| June 30, 2014 | | December 31, 2013 | | | | | | | | |
(In millions) | Assets | | Liabilities | | Assets | | Liabilities | | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
Foreign exchange contracts: | | | | | | | | | | | | | | | |
Current – Derivative financial instruments | $ | 96.3 | | | $ | 88.1 | | | $ | 149.3 | | | $ | 152.5 | | | | | | | | | |
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Long-term – Derivative financial instruments | 49.3 | | | 36 | | | 65.4 | | | 44.1 | | | | | | | | | |
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Total derivatives designated as hedging instruments | 145.6 | | | 124.1 | | | 214.7 | | | 196.6 | | | | | | | | | |
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Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | |
Foreign exchange contracts: | | | | | | | | | | | | | | | |
Current – Derivative financial instruments | 20.5 | | | 20 | | | 16.6 | | | 18.8 | | | | | | | | | |
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Long-term – Derivative financial instruments | 2.4 | | | 1.7 | | | 3.1 | | | 3 | | | | | | | | | |
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Total derivatives not designated as hedging instruments | 22.9 | | | 21.7 | | | 19.7 | | | 21.8 | | | | | | | | | |
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Total derivatives | $ | 168.5 | | | $ | 145.8 | | | $ | 234.4 | | | $ | 218.4 | | | | | | | | | |
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We recognized losses of $0.5 million and $0.3 million on cash flow hedges for the three months ended June 30, 2014 and 2013, respectively, and losses of $0.5 million and nil for the six months ended June 30, 2014 and 2013, respectively, due to hedge ineffectiveness as it was probable that the original forecasted transaction would not occur. Cash flow hedges of forecasted transactions, net of tax, resulted in accumulated other comprehensive gains of $16.6 million and $31.9 million at June 30, 2014, and December 31, 2013, respectively. We expect to transfer an approximate $7.3 million gain from accumulated OCI to earnings during the next 12 months when the anticipated transactions actually occur. All anticipated transactions currently being hedged are expected to occur by the end of 2016. |
The following tables present the impact of derivative instruments in cash flow hedging relationships and their location within the accompanying condensed consolidated statements of income. |
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| Gain (Loss) Recognized in | | | | | | | | | | |
OCI (Effective Portion) | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | | | | | | | | | |
(In millions) | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | | | |
Foreign exchange contracts | $ | (10.8 | ) | | $ | 6.3 | | | (8.9 | ) | | (19.7 | ) | | | | | | | | | | |
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Location of Gain (Loss) Reclassified from Accumulated OCI into Income | Gain (Loss) Reclassified from Accumulated | | | | | | | | |
OCI into Income (Effective Portion) | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | | | | | | | |
(In millions) | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | |
Foreign exchange contracts: | | | | | | | | | | | | | | | |
Revenue | $ | (4.3 | ) | | $ | (3.8 | ) | | $ | (14.8 | ) | | $ | (1.5 | ) | | | | | | | | |
Cost of sales | 9 | | | 1.5 | | | 20.3 | | | 3 | | | | | | | | | |
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Selling, general and administrative expense | 0.1 | | | — | | | — | | | 0.1 | | | | | | | | | |
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Total | $ | 4.8 | | | $ | (2.3 | ) | | $ | 5.5 | | | $ | 1.6 | | | | | | | | | |
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Location of Gain (Loss) Recognized in Income | Gain (Loss) Recognized in Income (Ineffective Portion | | | | | | | | |
and Amount Excluded from Effectiveness Testing) | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | | | | | | | |
(In millions) | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | |
Foreign exchange contracts: | | | | | | | | | | | | | | | |
Revenue | $ | 4.1 | | | $ | (4.4 | ) | | $ | 8.7 | | | $ | 0.5 | | | | | | | | | |
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Cost of sales | (9.4 | ) | | (1.3 | ) | | (13.1 | ) | | (4.2 | ) | | | | | | | | |
Total | $ | (5.3 | ) | | $ | (5.7 | ) | | $ | (4.4 | ) | | $ | (3.7 | ) | | | | | | | | |
Instruments that are not designated as hedging instruments are executed to hedge the effect of exposures in the condensed consolidated balance sheets, and occasionally, forward foreign currency contracts or currency options are executed to hedge exposures which do not meet all of the criteria to qualify for hedge accounting. |
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Location of Gain (Loss) Recognized in Income | Gain (Loss) Recognized in Income on Derivatives | | | | | | | | |
(Instruments Not Designated as Hedging Instruments) | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | | | | | | | |
(In millions) | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | |
Foreign exchange contracts: | | | | | | | | | | | | | | | |
Revenue | $ | (1.0 | ) | | $ | 0.1 | | | $ | (2.0 | ) | | $ | 1.1 | | | | | | | | | |
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Cost of sales | (0.2 | ) | | (0.2 | ) | | 0.3 | | | (0.6 | ) | | | | | | | | |
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Other income (expense), net | (5.9 | ) | | (7.0 | ) | | (2.3 | ) | | 0.3 | | | | | | | | | |
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Total | $ | (7.1 | ) | | $ | (7.1 | ) | | $ | (4.0 | ) | | $ | 0.8 | | | | | | | | | |
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Balance Sheet Offsetting—We execute derivative contracts only with counterparties that consent to a master netting agreement which permits net settlement of the gross derivative assets against gross derivative liabilities. Each instrument is accounted for individually and assets and liabilities are not offset. As of June 30, 2014, and December 31, 2013, we had no collateralized derivative contracts. The following tables present both gross information and net information of recognized derivative instruments: |
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| June 30, 2014 | | December 31, 2013 |
(In millions) | Gross Amount Recognized | | Gross Amounts Not Offset Permitted Under Master Netting Agreements | | Net Amount | | Gross Amount Recognized | | Gross Amounts Not Offset Permitted Under Master Netting Agreements | | Net Amount |
Derivative assets | $ | 168.5 | | | $ | (125.8 | ) | | $ | 42.7 | | | $ | 234.4 | | | $ | (198.5 | ) | | $ | 35.9 | |
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| June 30, 2014 | | December 31, 2013 |
(In millions) | Gross Amount Recognized | | Gross Amounts Not Offset Permitted Under Master Netting Agreements | | Net Amount | | Gross Amount Recognized | | Gross Amounts Not Offset Permitted Under Master Netting Agreements | | Net Amount |
Derivative liabilities | $ | 145.8 | | | $ | (125.8 | ) | | $ | 20 | | | $ | 218.4 | | | $ | (198.5 | ) | | $ | 19.9 | |
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