DERIVATIVE INSTRUMENTS

Foreign Currency Hedges

We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges (both derivative and non-derivative financial instruments) and interest rate derivative instruments to manage the impact of currency exchange and interest rate fluctuations on earnings, cash flow and equity. We do not enter into derivative instruments for speculative purposes. We are exposed to potential credit loss in the event of nonperformance by counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum exposure to loss is the asset balance of the instrument.



2018	Designated			Non-Designated			Total
Gross notional amount	$	870		$	5,466		$	6,336
Maximum term in days							586
Fair value:
Other current assets	$	15		$	28		$	43
Other noncurrent assets	1			33			34
Other current liabilities	(5		)	(15		)	(20		)
Other noncurrent liabilities	—			—			—
Total fair value	$	11		$	46		$	57
2017
Gross notional amount	$	1,104		$	4,767		$	5,871
Maximum term in days							548
Fair value:
Other current assets	$	11		$	4		$	15
Other noncurrent assets	1			—			1
Other current liabilities	(7		)	(29		)	(36		)
Other noncurrent liabilities	(1		)	—			(1		)
Total fair value	$	4		$	(25	)	$	(21	)

In November 2018 we designated the issuance of €2,250 of senior unsecured notes as a net investment hedge to selectively hedge portions of our investment in certain international subsidiaries. The currency effects of our euro-denominated senior unsecured notes are reflected in AOCI within shareholders' equity where they offset gains and losses recorded on our net investment in international subsidiaries.

On December 31, 2018 the total after-tax loss in AOCI related to our designated net investment hedges was $19. We evaluate the effectiveness of our net investment hedges quarterly. We have not recognized any ineffectiveness in 2018.



Net Currency Exchange Rate Gains (Losses)
Recorded in:	2018			2017			2016
Cost of sales	$	7		$	(6	)	$	—
Other income (expense), net	(6		)	(9		)	(19		)
Total	$	1		$	(15	)	$	(19	)

On December 31, 2018 pretax gains recorded in AOCI on derivatives designated as hedges that are expected to be reclassified to earnings within 12 months of the balance sheet date were $13 compared with $7 on December 31, 2017. This reclassification is primarily due to the sale of inventory that includes previously hedged purchases. There was a $1 gain in 2018 due to ineffective portions of derivatives, which is included in the table above.

Interest Rate Hedges

In conjunction with our offering of senior unsecured notes in March 2018 we terminated cash flow hedges with gross notional amounts of $600 designated as hedges of our interest rates, the impact of which will be recognized over time as a benefit within interest expense.

We also elected to terminate interest rate swaps with gross notional amounts of $500 designated as fair value hedges of underlying fixed rate obligations representing a portion of our $600 unsecured notes due in 2024. The remaining fair value is presented in long-term debt and will be reclassified to interest expense over the term of the debt.

There was no hedge ineffectiveness recorded as a result of these fair value hedges in 2018.

At December 31, 2018 there are no open cash flow or fair value interest rate hedges.