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FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
FINANCIAL INSTRUMENTS | FINANCIAL INSTRUMENTS The Company’s financial instruments include cash and cash equivalents, marketable securities and accounts receivable. Due to the short-term nature of these instruments, their book value approximates their fair value. The Company’s financial instruments may also include long-term debt, investments in equity securities, interest rate and cross-currency swaps, commodity derivative contracts and foreign currency derivative contracts. All derivative contracts are placed with counterparties that have an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. An adjustment for non-performance risk is considered in the estimate of fair value in derivative assets based on the counterparty credit default swap (“CDS”) rate. When the Company is in a net derivative liability position, the non-performance risk adjustment is based on its CDS rate. At September 30, 2023 and December 31, 2022, the Company had no derivative contracts that contained credit-risk-related contingent features. The Company, at times, uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and component purchases. At September 30, 2023 and December 31, 2022, the Company had no material commodity derivative contracts. The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to optimize its interest costs. The Company, at times, selectively uses interest rate swaps and options to reduce market value risk associated with changes in interest rates (fair value hedges and cash flow hedges). At September 30, 2023 and December 31, 2022, the Company had no outstanding interest rate swaps or options. The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. In addition, the Company uses foreign currency forward contracts to hedge exposure associated with its net investment in certain foreign operations (net investment hedges). Foreign currency derivative contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency. At September 30, 2023 and December 31, 2022, the following foreign currency derivative contracts were outstanding and mature through the ending duration noted below:
Foreign currency derivatives (in millions)*
Functional Currency |  | Traded Currency |  | Notional in traded currency September 30, 2023 |  | Notional in traded currency December 31, 2022 |  | Ending Duration
British Pound |  | Euro |  | 47 |  |  | 10 |  |  | Dec - 24
Chinese Renminbi |  | US Dollar |  | 225 |  |  | 276 |  |  | Dec - 24
Euro |  | Hungarian Forint |  | 7,033 |  |  | — |  |  | Dec - 24
Euro |  | Korean Won |  | 20,225 |  |  | 9,138 |  |  | Mar - 24
Euro |  | Polish Zloty |  | 456 |  |  | 440 |  |  | Dec - 24
Euro |  | US Dollar |  | 136 |  |  | 120 |  |  | Dec - 24
US Dollar |  | Chinese Renminbi |  | 582 |  |  | 1,402 |  |  | Dec - 23
US Dollar |  | Euro |  | 42 |  |  | 45 |  |  | Oct - 23
US Dollar |  | Korean Won |  | 67,200 |  |  | 51,786 |  |  | Nov - 24
US Dollar |  | Mexican Peso |  | 2,295 |  |  | 2,474 |  |  | Dec - 24
US Dollar |  | Thailand Baht |  | 1,550 |  |  | — |  |  | Jun - 24
*Table above excludes non-significant traded currency pairings with total notional amounts less than $10 million U.S. dollar equivalent as of September 30, 2023 and December 31, 2022.
The Company selectively uses cross-currency swaps to hedge the foreign currency exposure associated with its net investment in certain foreign operations (net investment hedges). At September 30, 2023 and December 31, 2022, the following cross-currency swap contracts were outstanding:
| Cross-currency swaps
(in millions) | September 30, 2023 |  | December 31, 2022 |  | Ending duration
US dollar to Euro: |  |  |  |  |
Fixed receiving notional | $ | 1,100 |  |  | $ | 1,100 |  |  | Jul - 27
Fixed paying notional | € | 976 |  |  | € | 976 |  |  | Jul - 27
US dollar to Euro: |  |  |  |  |
Fixed receiving notional | $ | 500 |  |  | $ | 500 |  |  | Mar - 25
Fixed paying notional | € | 450 |  |  | € | 450 |  |  | Mar - 25
US dollar to Japanese yen: |  |  |  |  |
Fixed receiving notional | $ | 100 |  |  | $ | 100 |  |  | Feb - 29
Fixed paying notional | ¥ | 12,724 |  |  | ¥ | 12,724 |  |  | Feb - 29
At September 30, 2023 and December 31, 2022, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815, “Derivatives and Hedging”:
(in millions) |  | Assets |  | Liabilities
Derivatives designated as hedging instruments Under 815: |  | Location |  | September 30, 2023 |  | December 31, 2022 |  | Location |  | September 30, 2023 |  | December 31, 2022
Foreign currency |  | Prepayments and other current assets |  | $ | 31 |  |  | $ | 9 |  |  | Other current liabilities |  | $ | 1 |  |  | $ | 8 |
Foreign currency |  | Other non-current assets |  | $ | 5 |  |  | $ | — |  |  | Other non-current liabilities |  | $ | — |  |  | $ | 1 |
Net investment hedges |  | Other non-current assets |  | $ | 78 |  |  | $ | 68 |  |  | Other non-current liabilities |  | $ | — |  |  | $ | 1 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency |  | Prepayments and other current assets |  | $ | 3 |  |  | $ | 3 |  |  | Other current liabilities |  | $ | 1 |  |  | $ | — |
Effectiveness for cash flow hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into accumulated other comprehensive income (loss) (“AOCI”) and reclassified into income as the underlying operating transactions are recognized. These realized gains or losses offset the hedged transaction and are recorded on the same line in the statement of operations. The initial value of any component excluded from the assessment of effectiveness is recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method is recognized in AOCI. Effectiveness for net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into foreign currency translation adjustments and only released when the subsidiary being hedged is sold or substantially liquidated. The initial value of any component excluded from the assessment of effectiveness is recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method is recognized in AOCI. The table below shows deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less for designated net investment hedges. The amount expected to be reclassified to income in one year or less assumes no change in the current relationship of the hedged item at September 30, 2023 market rates.
(in millions) |  | Deferred gain (loss) in AOCI at |  | Gain (loss) expected to be reclassified to income in one year or less
Contract Type |  | September 30, 2023 |  | December 31, 2022 |
Net investment hedges: |  |  |  |  |  |
Foreign currency |  | $ | — |  |  | $ | (4) |  |  | $ | — |
Cross-currency swaps |  | 78 |  |  | 67 |  |  | — |
Foreign currency-denominated debt |  | 146 |  |  | 133 |  |  | — |
Total |  | $ | 224 |  |  | $ | 196 |  |  | $ | — |
Derivative instruments designated as hedging instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:
|  | Three Months Ended September 30, 2023
(in millions) |  | Net sales |  | Cost of sales |  | Selling, general and administrative expenses |  | Other comprehensive income (loss)
Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded |  | $ | 3,622 |  |  | $ | 2,970 |  |  | $ | 330 |  |  | $ | (17) |
Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |
Foreign currency: |  |  |  |  |  |  |  |
Gain (loss) recognized in other comprehensive income |  |  |  |  |  |  |  | $ | (11) |
|  | Nine Months Ended September 30, 2023
(in millions) |  | Net sales |  | Cost of sales |  | Selling, general and administrative expenses |  | Other comprehensive income (loss)
Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded |  | $ | 10,676 |  |  | $ | 8,767 |  |  | $ | 963 |  |  | $ | (39) |
Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |
Foreign currency: |  |  |  |  |  |  |  |
Gain (loss) recognized in other comprehensive income |  |  |  |  |  |  |  | $ | 27 |
|  | Three Months Ended September 30, 2022
(in millions) |  | Net sales |  | Cost of sales |  | Selling, general and administrative expenses |  | Other comprehensive income (loss)
Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded |  | $ | 3,226 |  |  | $ | 2,619 |  |  | $ | 325 |  |  | $ | (262) |
Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |
Foreign currency: |  |  |  |  |  |  |  |
Gain (loss) recognized in other comprehensive income |  |  |  |  |  |  |  | $ | 8 |
|  | Nine Months Ended September 30, 2022
(in millions) |  | Net sales |  | Cost of sales |  | Selling, general and administrative expenses |  | Other comprehensive income (loss)
Total amounts of earnings and other comprehensive income (loss) line items in which the effects of cash flow hedges are recorded |  | $ | 9,318 |  |  | $ | 7,588 |  |  | $ | 951 |  |  | $ | (527) |
Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |
Foreign currency: |  |  |  |  |  |  |  |
Gain (loss) recognized in other comprehensive income |  |  |  |  |  |  |  | $ | 12 |
Gain (loss) reclassified from AOCI to income |  | $ | — |  |  | $ | (1) |  |  | $ | — |  |  |
The gains or losses recorded in income related to components excluded from the assessment of effectiveness for derivative instruments designated as cash flow hedges were immaterial for the periods presented. Gains and losses on derivative instruments designated as net investment hedges were recognized in other comprehensive income (loss) during the periods presented below.
(in millions) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Net investment hedges |  | 2023 |  | 2022 |  | 2023 |  | 2022
Foreign currency |  | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | 6 |
Cross-currency swaps |  | $ | 40 |  |  | $ | 94 |  |  | $ | 11 |  |  | $ | 229 |
Foreign currency-denominated debt |  | $ | 34 |  |  | $ | 67 |  |  | $ | 13 |  |  | $ | 156 |
Derivatives designated as net investment hedge instruments, as defined by ASC Topic 815, held during the period resulted in the following gains recorded in Interest expense on components excluded from the assessment of effectiveness:
(in millions) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Net investment hedges |  | 2023 |  | 2022 |  | 2023 |  | 2022
Cross-currency swaps |  | $ | 6 |  |  | $ | 7 |  |  | $ | 19 |  |  | $ | 20 |
There were no gains or losses recorded in income related to components excluded from the assessment of effectiveness for foreign currency-denominated debt designated as net investment hedges. There were no gains and losses reclassified from AOCI for net investment hedges during the periods presented. Derivatives not designated as hedging instruments are used to hedge remeasurement exposures of monetary assets and liabilities denominated in currencies other than the operating units’ functional currency. These derivatives resulted in the following gains (losses) recorded in income:
(in millions) |  |  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Contract Type |  | Location |  | 2023 |  | 2022 |  | 2023 |  | 2022
Foreign Currency |  | Selling, general and administrative expenses |  | $ | 16 |  |  | $ | 13 |  |  | $ | 8 |  |  | $ | 22 |

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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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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