Derivative Instruments

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

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 loss exposure is the asset balance of the instrument.

Foreign Currency Hedges


2020	Cash Flow		Net Investment		Non-Designated		Total
Gross notional amount	$	949	$	1,828	$	5,382	$	8,159
Maximum term in days							1793
Fair value:
Other current assets	$	9	$	—	$	7	$	16
Other noncurrent assets	—		4		—		4
Other current liabilities	(12)		—		(121)		(133)
Other noncurrent liabilities	(1)		(26)		—		(27)
Total fair value	$	(4)	$	(22)	$	(114)	$	(140)
2019
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. In November 2020 a €300 debt maturity was paid off and de-designated as a net investment hedge. 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.

In July 2019 and November 2020 we entered into €1.0 billion and €500 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.

On December 31, 2020 the total after-tax gain (loss) in AOCI related to designated net investment hedges was ($386).


Net Currency Exchange Rate Gains (Losses)
Derivative Instrument	Recorded in:	2020		2019		2018
Cash Flow	Cost of sales	$	5	$	2	$	7
Net Investment	Other income (expense), net	28		14		—
Non-Designated	Other income (expense), net	(13)		(7)		(6)
	Total	$	20	$	9	$	1

Pretax gains (losses) on derivatives designated as cash flow hedges of ($2) and net investment hedges of $33 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense) in earnings within 12 months as of December 31, 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 certain interest rate derivative contracts with gross notional amounts of €600 and $500 designated as cash flow hedges, the impact of which will be recognized over the life of the underlying issued debt 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 December 31, 2020.

On December 31, 2020 we had forward starting interest rate swap agreements with notional amounts of $750 designated as cash flow hedges in anticipation of future debt issuances. Pretax losses of $53 were recorded in AOCI as of December 31, 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.