XML 35 R23.htm IDEA: XBRL DOCUMENT
v3.21.2

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 6 Months Ended
--- | ---
Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. Our hedging policy attempts to manage these risks to an acceptable level based on our judgment of the appropriate trade-off between risk, opportunity and costs. We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, British Pound, Chinese Renminbi, Korean Won, Australian Dollar, Canadian Dollar, Japanese Yen, Colombian Peso, Brazilian Real, Mexican Peso, Indian Rupee and Swedish Krona. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative instruments to further reduce the net exposure to foreign exchange risk. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures. We are also exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. Our policy is to manage interest costs using the mix of fixed- and floating-rate debt that we believe is appropriate at that time. To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount. We do not hold any instruments for trading purposes and none of our outstanding derivative instruments contain credit-risk-related contingent features. All derivative instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are generally classified as short-term or long-term based on the scheduled maturity of the instrument. We designate certain of our derivatives and foreign-currency denominated debt as hedging instruments in cash flow, fair value, or net investment hedges. Cash Flow Hed g es We may use options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities. We periodically use treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt. For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in AOCI and then recognized in earnings consistent with the underlying hedged item. Option premiums or net premiums paid are initially recorded as assets and reclassified to other comprehensive income (OCI) over the life of the option, and then recognized in earnings consistent with the underlying hedged item. Cash flow hedges are classified in cost of sales and interest expense, net, and are primarily related to forecasted third-party sales denominated in foreign currencies, forecasted intra-company sales denominated in foreign currencies, and forecasted interest payments on anticipated issuances of debt, respectively. The notional amounts of foreign exchange contracts designated as cash flow hedges were $357 million and $345 million as of June 30, 2021 and December 31, 2020, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at June 30, 2021 is 12 months for foreign exchange contracts. There were no outstanding interest rate contracts designated as cash flow hedges as of June 30, 2021 and December 31, 2020. Fair Value Hed g es We periodically use interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. These instruments hedge our earnings from changes in the fair value of debt due to fluctuations in the designated benchmark interest rate. For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets changes in fair value attributable to a particular risk, such as changes in interest rates, of the hedged item, which are also recognized in earnings. Changes in the fair value of hedge instruments designated as fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt. There were no outstanding interest rate contracts designated as fair value hedges as of June 30, 2021 and December 31, 2020. Net Investment Hed g es In May 2017, we issued €600 million of senior notes due May 2025. In May 2019, we issued €750 million of senior notes due May 2024 and €750 million of senior notes due May 2029. We have designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments on the outstanding debt balances are recorded as a component of AOCI. As of June 30, 2021, we had an accumulated pre-tax unrealized translation loss in AOCI of $162 million related to the Euro-denominated senior notes. Dedesignations If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged items. However, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings. There were no hedge dedesignations in the first six months of 2021 or 2020 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur. If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. There were no fair value hedges terminated during the first six months of 2021 or 2020. If we remove a net investment hedge designation, any gain or loss recognized in AOCI is not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged. There were no net investment hedges terminated during the first six months of 2021 or 2020. Undesignated Derivative Instruments We use forward contracts to hedge earnings from the effects of foreign exchange relating to certain of our intra-company and third-party receivables and payables denominated in a foreign currency. These derivative instruments are generally not formally designated as hedges and the terms of these instruments generally do not exceed one month. The total notional amount of undesignated derivative instruments was $904 million as of June 30, 2021 and $1.0 billion as of December 31, 2020. Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the three months ended June 30, 2021 and 2020.
| Gain (loss) recognized in OCI |  | Location of gain (loss) in income statement | Gain (loss) reclassified from AOCI into income
(in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Cash flow hedges |  |  |  |  |  |  |  |
Interest rate contracts | $ | — |  |  | $ | 9 |  |  | Interest expense, net | $ | (2) |  |  | $ | — |
Foreign exchange contracts | (3) |  |  | (7) |  |  | Cost of sales | (8) |  |  | 5 |
Net investment hedges | (31) |  |  | (50) |  |  | Other (income) expense, net | — |  |  | — |
Total | $ | (34) |  |  | $ | (48) |  |  |  | $ | (10) |  |  | $ | 5 |
| Location of gain (loss) in income statement | Gain (loss) recognized in income
(in millions) | 2021 |  | 2020
Undesignated derivative instruments |  |  |  |
Foreign exchange contracts | Other (income) expense, net | $ | 3 |  |  | $ | 13 |
The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the six months ended June 30, 2021 and 2020.
| Gain (loss) recognized in OCI | Location of gain (loss) in income statement | Gain (loss) reclassified from AOCI into income
(in millions) | 2021 | 2020 | 2021 | 2020
Cash flow hedges |  |  |  |  |
Interest rate contracts | $ | — |  | $ | (175) |  | Interest expense, net | $ | (3) |  | $ | — |
Foreign exchange contracts | 1 |  | 7 |  | Cost of sales | (18) |  | 4 |
Net investment hedges | 83 |  | (1) |  | Other (income) expense, net | — |  | — |
Total | $ | 84 |  | $ | (169) |  |  | $ | (21) |  | $ | 4 |
| Location of gain (loss) in income statement | Gain (loss) recognized in income
(in millions) | 2021 | 2020
Undesignated derivative instruments |  |  |
Foreign exchange contracts | Other (income) expense, net | $ | (19) |  | $ | 15 |
As of June 30, 2021, $9 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings. Derivative Assets and Liabilities The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of June 30, 2021.
| Derivatives in asset positions |  | Derivatives in liability positions
(in millions) | Balance sheet location | Fair value |  | Balance sheet location | Fair value
Derivative instruments designated as hedges |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets | 3 |  |  | Accrued expenses and other current liabilities | 6 |
Total derivative instruments designated as hedges |  | 3 |  |  |  | 6 |
Undesignated derivative instruments |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets | 2 |  |  | Accrued expenses and other current liabilities | 9 |
Total derivative instruments |  | $ | 5 |  |  |  | $ | 15 |
The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2020.
| Derivatives in asset positions |  | Derivatives in liability positions
(in millions) | Balance sheet location | Fair value |  | Balance sheet location | Fair value
Derivative instruments designated as hedges |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets | — |  |  | Accrued expenses and other current liabilities | 17 |
Total derivative instruments designated as hedges |  | — |  |  |  | 17 |
Undesignated derivative instruments |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets | 11 |  |  | Accrued expenses and other current liabilities | 2 |
Total derivative instruments |  | $ | 11 |  |  |  | $ | 19 |
While some of our derivatives are subject to master netting arrangements, we present our assets and liabilities related to derivative instruments on a gross basis within the condensed consolidated balance sheets. Additionally, we are not required to post collateral for any of our outstanding derivatives. The following table provides information on our derivative positions as if they were presented on a net basis, allowing for the right of offset by counterparty.
| June 30, 2021 |  | December 31, 2020
(in millions) | Asset | Liability |  | Asset | Liability
Gross amounts recognized in the consolidated balance sheet | $ | 5 |  | $ | 15 |  |  | $ | 11 |  | $ | 19 |
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet | (3) |  | (3) |  |  | (6) |  | (6) |
Total | $ | 2 |  | $ | 12 |  |  | $ | 5 |  | $ | 13 |
The following table presents the amounts recorded on the condensed consolidated balance sheet related to fair value hedges:
| Carrying amount of hedged item |  | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item (a)
(in millions) | Balance as of June 30, 2021 | Balance as of December 31, 2020 |  | Balance as of June 30, 2021 | Balance as of December 31, 2020
Long-term debt | $ | 102 |  | $ | 102 |  |  | $ | 5 |  | $ | 5 |
(a) These fair value hedges were terminated in 2018 and earlier periods.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration