Derivative Financial Instruments
Cash Flow Hedges
Our cash flow hedges include foreign currency forward contracts, foreign currency option contracts, commodity swaps, and commodity purchase contracts. We use foreign currency forward and option contracts to manage currency risk associated with certain transactions, specifically forecasted sales and purchases made in foreign currencies. Our foreign currency contracts hedge forecasted transactions principally occurring within five years in the future, with certain contracts hedging transactions through 2023. We use commodity derivatives, such as swaps and fixed-price purchase commitments to hedge against potentially unfavorable price changes for items used in production. Our commodity contracts hedge forecasted transactions through 2017.
Fair Value Hedges
Interest rate swaps under which we agree to pay variable rates of interest are designated as fair value hedges of fixed-rate debt. The net change in fair value of the derivatives and the hedged items is reported in Boeing Capital interest expense.
Derivative Instruments Not Receiving Hedge Accounting Treatment
We also hold certain derivative instruments, primarily foreign currency forward contracts, for risk management purposes that are not receiving hedge accounting treatment.
Notional Amounts and Fair Values
The notional amounts and fair values of derivative instruments in the Consolidated Statements of Financial Position as of December 31 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Notional amounts(1) | Other assets | Accrued liabilities |
| 2013 |
| | 2012 |
| 2013 |
| | 2012 |
| 2013 |
| | 2012 |
|
Derivatives designated as hedging instruments: | | | | | | | | | |
Foreign exchange contracts |
| $2,524 |
| |
| $2,310 |
|
| $122 |
| |
| $202 |
|
| ($64 | ) | |
| ($16 | ) |
Interest rate contracts | 313 |
| | 388 |
| 13 |
| | 26 |
| | | |
Commodity contracts | 72 |
| | 99 |
| 2 |
| | | (39 | ) | | (71 | ) |
Derivatives not receiving hedge accounting treatment: | | | | | | | | | |
Foreign exchange contracts | 259 |
| | 412 |
| 12 |
| | 3 |
| (35 | ) | | (42 | ) |
Commodity contracts | 9 |
| | 15 |
| | | | (4 | ) | | (8 | ) |
Total derivatives |
| $3,177 |
| |
| $3,224 |
| 149 |
| | 231 |
| (142 | ) | | (137 | ) |
Netting arrangements | | | | (63 | ) | | (53 | ) | 63 |
| | 53 |
|
Net recorded balance | | | |
| $86 |
| |
| $178 |
|
| ($79 | ) |
|
| ($84 | ) |
| |
(1) | Notional amounts represent the gross contract/notional amount of the derivatives outstanding. |
Gains/(losses) associated with our cash flow and undesignated hedging transactions and their effect on Other comprehensive income/(loss) and Net earnings were as follows:
|
| | | | | | | |
Years ended December 31, | 2013 |
| | 2012 |
|
Effective portion recognized in Other comprehensive income/(loss), net of taxes: | | | |
Foreign exchange contracts |
| ($76 | ) | |
| $35 |
|
Commodity contracts | 1 |
| | (10 | ) |
Effective portion reclassified out of Accumulated other comprehensive loss into earnings, net of taxes: | | | |
Foreign exchange contracts | 37 |
| | 35 |
|
Commodity contracts | (20 | ) | | (30 | ) |
Forward points recognized in Other income, net: | | | |
Foreign exchange contracts | 34 |
| | 22 |
|
Undesignated derivatives recognized in Other income, net: | | | |
Foreign exchange contracts | 17 |
| | (16 | ) |
Based on our portfolio of cash flow hedges, we expect to reclassify losses of $6 (pre-tax) out of Accumulated other comprehensive loss into earnings during the next 12 months. Ineffectiveness related to our hedges recognized in Other income was insignificant for the years ended December 31, 2013 and 2012.
We have derivative instruments with credit-risk-related contingent features. For foreign exchange contracts with original maturities of at least five years, our derivative counterparties could require settlement if we default on our five-year credit facility. For commodity contracts, our counterparties could require collateral posted in an amount determined by our credit ratings. The fair value of foreign exchange and commodity contracts that have credit-risk-related contingent features that are in a net liability position at December 31, 2013 was $7. At December 31, 2013, there was no collateral posted related to our derivatives.
