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Derivative Financial Instruments | 6 Months Ended
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Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments Risk Management Objective of Using Derivatives We are exposed to certain risks arising from both our business operations and economic conditions, and we principally manage our exposures to these risks through management of our core business activities. Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates that may impact revenue, expenses, cash receipts, cash payments, and the value of our stockholders' equity. We enter into derivative financial instruments to protect the value or fix the amount of certain cash flows in terms of the functional currency of the business unit with that exposure and also reduce the volatility in stockholders' equity. Cash Flow Hedges of Foreign Exchange Risk We are exposed to fluctuations in various foreign currencies against our functional currencies. We use foreign currency derivatives, including currency forward agreements, to manage our exposure to fluctuations in the various exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty and Australian Dollar. We had foreign exchange contracts with purchased notional amounts totaling $278 million and $301 million as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022, our most significant foreign currency derivatives included contracts to sell U.S. Dollar and purchase Euro, purchase Swedish Krona and sell Euro, sell British Pound and purchase Euro, purchase U.S. Dollar and sell Canadian Dollar, sell Canadian Dollar and purchase Euro, sell Australian Dollar and purchase Euro, and to purchase Polish Zloty and sell Euro. The purchased notional amounts associated with these currency derivatives are $112 million, $83 million, $30 million, $15 million, $14 million, $13 million and $11 million, respectively. As of December 31, 2021 the purchased notional amounts associated with these currency derivatives are $130 million, $88 million, $31 million, $14 million, $14 million, $13 million and $11 million, respectively. Hedges of Net Investments in Foreign Operations We are exposed to changes in foreign currencies impacting our net investments held in foreign subsidiaries. Cross-Currency Swaps Beginning in 2015, we entered into cross-currency swaps to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. During the second quarter of 2019, third quarter of 2020, and second quarter of 2022 we entered into additional cross-currency swaps. The total notional amount of derivative instruments designated as net investment hedges was $1,587 million and $1,151 million as of June 30, 2022 and December 31, 2021, respectively. Foreign Currency Denominated Debt On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023. On June 2, 2022, we de-designated the entirety of the outstanding balance of the €500 million 2.250% Senior Notes, or $533 million from the net investment hedge relationship. Previously, the entirety of the outstanding balance, or $563 million as of December 31, 2021, net of unamortized discount, was designated as a hedge of a net investment in certain foreign subsidiaries. Fair Value Hedges of Foreign Exchange Risk The de-designation of our 2.250% Senior Notes of €500 million resulted in exposure to fluctuations in the Euro-U.S. Dollar exchange rate. We use currency forward agreements to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. On June 2, 2022, we entered into a currency forward agreement with a total notional amount of €500 million, designating the agreement as a fair value hedge of our Euro denominated notes. As of June 30, 2022, the total notional amount of the fair value hedge was $522 million. Effectiveness of derivatives designated as fair value hedges is assessed using the spot method. The changes in the fair value of these derivatives due to movements in spot exchange rates are recorded in Selling, general and administrative Expenses. Changes in the fair value of the 2.250% Senior Notes of €500 million related to spot exchange rates are also recorded in Selling, general and administrative expenses. Changes in the spot-forward differential and counterparty non-performance risk of the derivatives are excluded from the assessment of hedge effectiveness and will be recognized in Accumulated other comprehensive loss (AOCL). Amounts in AOCL are recognized in earnings, specifically Interest expense, using a systematic and rational method over the life of the hedging instrument. The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Income Statements and Statements of Comprehensive Income:
| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Cash Flow Hedges |  |  |  |  |  |  |
Foreign Exchange Contracts |  |  |  |  |  |  |
Amount of gain (loss) recognized in OCI | $ | (13) |  |  | $ | 4 |  |  | $ | (19) |  |  | $ | (7) |
Amount of (gain) loss reclassified from OCI into Revenue | 2 |  |  | 1 |  |  | 4 |  |  | (1) |
Amount of (gain) loss reclassified from OCI into Cost of revenue | 1 |  |  | — |  |  | 1 |  |  | (1) |
Net Investment Hedges |  |  |  |  |  |  |
Cross-Currency Swaps |  |  |  |  |  |  |
Amount of gain recognized in OCI | $ | 93 |  |  | $ | 2 |  |  | $ | 94 |  |  | $ | 32 |
Amount of income recognized in Interest expense | 7 |  |  | 5 |  |  | 13 |  |  | 10 |
Foreign Currency Denominated Debt |  |  |  |  |  |  |
Amount of gain (loss) recognized in OCI | $ | 23 |  |  | $ | (6) |  |  | $ | 31 |  |  | $ | 20 |
Fair Value Hedges |  |  |  |  |  |  |
Foreign Exchange Contracts |  |  |  |  |  |  |
Amount of gain recognized in OCI | $ | 4 |  |  | $ | — |  |  | $ | 4 |  |  | $ | — |
Amount of (loss) recognized in Selling, general and administrative expenses | $ | (11) |  |  | $ | — |  |  | $ | (11) |  |  | $ | — |
Amount recognized in Interest expense | $ | (1) |  |  | $ | — |  |  | $ | (1) |  |  | $ | — |
As of June 30, 2022, $17 million of net losses on cash flow hedges are expected to be reclassified into earnings in the next 12 months. As of June 30, 2022, no gains or losses on the net investment hedges are expected to be reclassified into earnings over their duration. As of June 30, 2022, $4 million of net losses on the fair value hedges are expected to be reclassified into earnings in the next 12 months. The fair values of our derivative assets and liabilities are measured on a recurring basis using Level 2 inputs and are determined through the use of models that consider various assumptions including yield curves, time value and other measurements. The fair values of our derivative contracts currently included in our hedging program were as follows:
(in millions) | June 30, 2022 |  | December 31, 2021
Derivatives designated as hedging instruments |  |  |
Assets |  |  |
Cash Flow Hedges |  |  |
Prepaid and other current assets | $ | 1 |  |  | $ | — |
Net Investment Hedges |  |  |
Other non-current assets | $ | 77 |  |  | $ | 8 |
Liabilities |  |  |
Cash Flow Hedges |  |  |
Accrued and other current liabilities | $ | (14) |  |  | $ | (1) |
Net Investment Hedges |  |  |
Other non-current accrued liabilities | $ | (1) |  |  | $ | (26) |
Fair Value Hedges |  |  |
Accrued and other current liabilities | $ | (8) |  |  | $ | — |
Our long-term debt, due in 2023, was de-designated from the hedging relationship in June 2022. The fair value of the long-term debt designated as a net investment hedge was $577 million as of December 31, 2021.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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