Hedging Activities
In the normal course of business, we are exposed to interest rate changes and foreign currency fluctuations. At times we limit these risks through the use of derivatives such as interest rate swaps and forward foreign exchange contracts. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.
Foreign currency rate risk
The majority of our operations are conducted in US dollars however, certain assets and liabilities, revenues and expense and purchasing activities are incurred in and exposed to other currencies. We have established certain foreign currency rate risk programs that manage the impact of foreign currency fluctuation. These programs are utilized on a transactional basis when we consider there to be a risk in fair value or volatility in cash flows. These programs reduce but do not entirely eliminate foreign currency rate risk.
In 2012, we entered into a number of forward contracts to hedge Canadian dollar denominated cash flows with gross notional value of $528 million. These contracts mature over a period of eight years and have been designated for hedge accounting. Accordingly, changes in the fair values of these contracts are recorded to accumulated other comprehensive income and reclassified into earnings in the same period in which the hedged transaction affects earnings. In the fourth quarter of 2013, one forward contract to hedge Canadian dollar cash flow with gross notional value of $25 million matured, accordingly, the realized gain related to this contract was reclassified during the quarter into operating expenses from accumulated other comprehensive income. At March 31, 2013 and 2012, the notional values of these contracts, designated for hedge accounting, were $503 million and $528 million. Amounts reclassified to earnings were not material for 2013 and 2012.
In 2012, we also entered into a number of forward contracts to hedge British pound denominated cash flows with a gross notional value of $151 million. These contracts matured in 2013. In 2013, we entered into an additional forward contract to hedge a separately identifiable Canadian dollar denominated cash flow with a gross notional value of $177 million. This contract matures in less than one year. Neither of these contracts were designated for hedge accounting and accordingly, changes in the fair values of these contracts are recorded directly in earnings. At March 31, 2013 and 2012, the notional values of these contracts, not designated for hedge accounting, were $172 million and $151 million. Amounts recorded to earnings were not material for 2013 and 2012.
Refer to Financial Note 19, "Fair Value Measurements," for more information on these recurring fair value measurements.
