Derivative Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTSWe 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 our counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum loss exposure is the asset balance of the instrument. We have not changed our hedging

strategies, accounting practices or objectives from those disclosed in our Annual Report on Form 10-K for 2019.

Foreign Currency Hedges


September 2020	Cash Flow		Net Investment		Non-Designated		Total
Gross notional amount	$	824	$	1,169	$	5,619	$	7,612
Maximum term in days							1372
Fair value:
Other current assets	$	10	$	—	$	13	$	23
Other noncurrent assets	1		43		—		44
Other current liabilities	(6)		—		(97)		(103)
Other noncurrent liabilities	(2)		—		—		(2)
Total fair value	$	3	$	43	$	(84)	$	(38)


December 2019	Cash Flow		Net Investment		Non-Designated		Total
Gross notional amount	$	801	$	1,113	$	6,174	$	8,088
Maximum term in days							1646
Fair value:
Other current assets	$	5	$	—	$	180	$	185
Other noncurrent assets	1		40		—		41
Other current liabilities	(10)		—		(11)		(21)
Other noncurrent liabilities	(2)		—		—		(2)
Total fair value	$	(6)	$	40	$	169	$	203

In December 2019 and November 2018 we designated the issuance of €2,400 and €2,250 of senior unsecured notes as net investment hedges 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 September 30, 2020 the total after tax gain (loss) amount in AOCI related to these designated net investment hedges was ($179).

In July 2019 we entered into €1.0 billion in certain forward currency contracts and designated these as net investment hedges to hedge a portion of our investments in certain of our entities with functional currencies denominated in Euros.

Net Currency Exchange Rate Gains (Losses)


		Three Months				Nine Months
Derivative instrument	Recorded in:	2020		2019		2020		2019
Cash Flow	Cost of sales	$	3	$	2	$	3	$	4
Net Investment	Other income (expense), net	7		7		20		7
Non-Designated	Other income (expense), net	(3)		(6)		(12)		(10)
	Total	$	7	$	3	$	11	$	1

Pretax gains (losses) on derivatives designated as cash flow of $6 and net investment hedges of $27 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense) in earnings within 12 months as of September 30, 2020. This cash flow hedge reclassification is primarily due to the sale of inventory that includes previously hedged purchases. A component of the AOCI amounts related to net investment hedges is reclassified over the life of the hedge instruments as we elected to exclude the initial value of the component related to the spot-forward difference from the effectiveness assessment.

Interest Rate Hedges

In conjunction with our offerings of senior unsecured notes in December 2019 and June 2020 we terminated cash flow hedges with gross notional amounts of €600 and $500 designated as

forward starting interest rate swaps of our interest rates, the impact of which will be recognized over time within interest expense. Pretax gains recorded in AOCI related to closed interest rate hedges of $6 are expected to be reclassified to other income (expense) in earnings within 12 months of September 30, 2020.

On September 30, 2020 we had interest rate swap agreements with notional amounts of $750 designated as forward starting interest rate swaps in anticipation of future debt issuances. Pretax losses of $66 were recorded in AOCI as of September 30, 2020. Upon the probable issuance of the debt, these amounts will be released to interest expense over the term of the debt. The cash flow effect of these hedges is recorded in cash flow from operations.