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Note 12 - Fair Value Measurements and Derivatives | 6 Months Ended
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Jun. 30, 2020
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | Note 12. Fair Value Measurements and Derivatives In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs. Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as follows:
|  |  |  |  |  |  | Fair Value |
Category |  | Balance Sheet Location |  | Fair Value Level |  |  | June 30, 2020 |  |  | December 31, 2019 |
Certificates of deposit |  | Marketable securities |  | 2 |  |  | $ | 19 |  |  | $ | 19 |
Currency forward contracts |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  | Accounts receivable - Other |  | 2 |  |  |  | 3 |  |  |  | 14 |
Cash flow hedges |  | Other accrued liabilities |  | 2 |  |  |  | 15 |  |  |  | 2 |
Undesignated |  | Accounts receivable - Other |  | 2 |  |  |  | 1 |  |  |  | 1 |
Undesignated |  | Other accrued liabilities |  | 2 |  |  |  | 2 |  |  |  | 1 |
Interest rate collars |  | Other accrued liabilities |  | 2 |  |  |  | 11 |  |  |  | 3 |
Currency swaps |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  | Other noncurrent liabilities |  | 2 |  |  |  | 5 |  |  |  | 71 |
Fair Value Level 1 assets and liabilities reflect quoted prices in active markets. Fair Value Level 2 assets and liabilities reflect the use of significant other observable inputs. Fair value of financial instruments — The financial instruments that are not carried in our balance sheet at fair value are as follows:
|  |  |  |  |  | June 30, 2020 |  |  | December 31, 2019 |
|  | Fair Value Level |  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Senior notes |  |  | 2 |  |  | $ | 2,000 |  |  | $ | 2,024 |  |  | $ | 1,500 |  |  | $ | 1,570 |
Term Facility |  |  | 2 |  |  |  | 823 |  |  |  | 817 |  |  |  | 823 |  |  |  | 823 |
Other indebtedness* |  |  | 2 |  |  |  | 14 |  |  |  | 10 |  |  |  | 61 |  |  |  | 57 |
Total |  |  |  |  |  | $ | 2,837 |  |  | $ | 2,851 |  |  | $ | 2,384 |  |  | $ | 2,450 |
* | The carrying value includes the unamortized portion of a fair value adjustment related to a terminated interest rate swap at both dates.
Interest rate derivatives — Our portfolio of derivative financial instruments periodically includes interest rate swaps and interest rate collars designed to mitigate our interest rate risk. As of June 30, 2020, no fixed-to-floating interest rate swaps remain outstanding. However, a $4 fair value adjustment to the carrying amount of our December 2024 Notes, associated with a fixed-to-floating interest rate swap that had been executed but was subsequently terminated during 2015, remains deferred at June 30, 2020. This amount is being amortized as a reduction of interest expense through the period ending December 2024, the scheduled maturity date of the December 2024 Notes. The amount amortized as a reduction of interest expense was not material during the three months and six months ended June 30, 2020. We have outstanding interest rate collars with a notional value of $425 that will mature in December 2021. For interest rate collars, no payments or receipts are exchanged unless interest rates rise or fall in excess of a predetermined ceiling or floor rate. Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions, primarily involving the purchases and sales of inventory through the next fifteen months, as well as currency swaps associated with certain recorded external notes payable and intercompany loans receivable and payable. Periodically, our foreign currency derivatives also include net investment hedges of certain of our investments in foreign operations. We have executed fixed-to-fixed cross-currency swaps in conjunction with the issuance of certain notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in exchange rates associated with the forecasted principal and interest payments. All of the underlying designated financial instruments, and any subsequent replacement debt, have been designated as the hedged items in each respective cash flow hedge relationship, as shown in the table below. Designated as cash flow hedges of the forecasted principal and interest payments of the underlying designated financial instruments, or subsequent replacement debt, all of the swaps economically convert the underlying designated financial instruments into the functional currency of each respective holder. The impact of the interest rate differential between the inflow and outflow rates on all fixed-to-fixed cross-currency swaps is recognized during each period as a component of interest expense. The following fixed-to-fixed cross-currency swaps were outstanding at June 30, 2020:
Underlying Financial Instrument |  |  | Derivative Financial Instrument |
Description |  | Type |  | Face Amount |  |  | Rate |  |  | Designated Notional Amount |  |  | Traded Amount |  |  | Inflow Rate |  |  | Outflow Rate |
June 2026 Notes |  | Payable |  | $ | 375 |  |  |  | 6.50 | % |  | $ | 375 |  |  | € | 338 |  |  |  | 6.50 | % |  |  | 5.14 | %
April 2025 Notes |  | Payable |  | $ | 400 |  |  |  | 5.75 | % |  | $ | 400 |  |  | € | 371 |  |  |  | 5.75 | % |  |  | 3.85 | %
Luxembourg Intercompany Notes |  | Receivable |  | € | 278 |  |  |  | 3.70 | % |  | € | 278 |  |  | $ | 300 |  |  |  | 5.38 | % |  |  | 3.70 | %
All of the swaps are expected to be highly effective in offsetting the corresponding currency-based changes in cash outflows related to the underlying designated financial instruments. Based on our qualitative assessment that the critical terms of all of the underlying designated financial instruments and all of the associated swaps match and that all other required criteria have been met, we do not expect to incur any ineffectiveness. As effective cash flow hedges, changes in the fair value of the swaps will be recorded in OCI during each period. Additionally, to the extent the swaps remain effective, the appropriate portion of AOCI will be reclassified to earnings each period as an offset to the foreign exchange gain or loss resulting from the remeasurement of the underlying designated financial instruments. See Note 11 for additional information about the June 2026 Notes and the April 2025 Notes. To the extent the swaps are no longer effective, changes in their fair values will be recorded in earnings. The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $263 at June 30, 2020 and $508 at December 31, 2019. The total notional amount of outstanding foreign currency swaps, including the fixed-to-fixed cross-currency swaps, was $1,091 at June 30, 2020 and $1,090 at December 31, 2019. The following currency derivatives were outstanding at June 30, 2020:
|  |  |  | Notional Amount (U.S. Dollar Equivalent) |  |  |
Functional Currency |  | Traded Currency |  | Designated |  |  | Undesignated |  |  | Total |  |  | Maturity
U.S. dollar |  | Mexican peso, euro, Thai baht |  | $ | 59 |  |  | $ | 43 |  |  | $ | 102 |  |  | Jun-2021
Euro |  | U.S. dollar, Canadian dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Russian ruble, Mexican peso, Australian dollar, Singapore dollar |  |  | 60 |  |  |  | 8 |  |  |  | 68 |  |  | Jan-2024
British pound |  | U.S. dollar, euro |  |  | 1 |  |  |  | 3 |  |  |  | 4 |  |  | Nov-2020
South African rand |  | Thai baht |  |  |  |  |  |  | 2 |  |  |  | 2 |  |  | Dec-2020
Thai baht |  | U.S. dollar, euro |  |  | 3 |  |  |  | 13 |  |  |  | 16 |  |  | Sep-2020
Canadian dollar |  | U.S. dollar |  |  | 2 |  |  |  |  |  |  |  | 2 |  |  | Feb-2021
Brazilian real |  | U.S. dollar, euro |  |  | 24 |  |  |  | 9 |  |  |  | 33 |  |  | Apr-2021
Indian rupee |  | U.S. dollar, British pound, euro |  |  |  |  |  |  | 31 |  |  |  | 31 |  |  | Jun-2021
Chinese renminbi |  | Canadian dollar, euro |  |  |  |  |  |  | 5 |  |  |  | 5 |  |  | Jul-2020
Total forward contracts |  |  |  |  | 149 |  |  |  | 114 |  |  |  | 263 |  |  |
U.S. dollar |  | euro |  |  | 316 |  |  |  |  |  |  |  | 316 |  |  | Nov-2027
Euro |  | U.S. dollar |  |  | 775 |  |  |  |  |  |  |  | 775 |  |  | Jun-2026
Total currency swaps |  |  |  |  | 1,091 |  |  |  | — |  |  |  | 1,091 |  |  |
Total currency derivatives |  |  |  | $ | 1,240 |  |  | $ | 114 |  |  | $ | 1,354 |  |  |
Designated cash flow hedges — With respect to contracts designated as cash flow hedges, changes in fair value during the period in which the contracts remain outstanding are reported in OCI to the extent such contracts remain effective. Effectiveness is measured by using regression analysis to determine the degree of correlation between the change in the fair value of the derivative instrument and the change in the associated foreign currency exchange rates. Changes in fair value of contracts not designated as cash flow hedges or as net investment hedges are recognized in other income (expense), net in the period in which the changes occur. Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments, including those that have been designated as cash flow hedges and those that have not been designated, are recognized in the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. Accordingly, amounts are potentially recorded in sales, cost of sales or, in certain circumstances, other income (expense), net. The following table provides a summary of deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less:
|  | Deferred Gain (Loss) in AOCI |
|  | June 30, 2020 |  |  | December 31, 2019 |  |  | Gain (loss) expected to be reclassified into income in one year or less |
Forward Contracts |  | $ | (13 | ) |  | $ | 6 |  |  | $ | (13 | )
Collar |  |  | (11 | ) |  |  | (3 | ) |  |  |  |
Cross-Currency Swaps |  |  | 29 |  |  |  | (36 | ) |  |  |  |
Total |  | $ | 5 |  |  | $ | (33 | ) |  | $ | (13 | )
The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with cash flow hedging relationships:
|  | Three Months Ended June 30, 2020 |
Derivatives Designated as Cash Flow Hedges |  | Net sales |  |  | Cost of sales |  |  | Other income (expense), net |
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded |  | $ | 1,078 |  |  | $ | 1,088 |  |  | $ | (1 | )
(Gain) or loss on cash flow hedging relationships |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards |  |  |  |  |  |  |  |  |  |  |  |
Amount of (gain) loss reclassified from AOCI into income |  |  | 1 |  |  |  | 5 |  |  |  | 1 |
Cross-currency swaps |  |  |  |  |  |  |  |  |  |  |  |
Amount of (gain) loss reclassified from AOCI into income |  |  |  |  |  |  |  |  |  |  | 21 |
|  | Six Months Ended June 30, 2020 |
Derivatives Designated as Cash Flow Hedges |  | Net sales |  |  | Cost of sales |  |  | Other income (expense), net |
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded |  | $ | 3,004 |  |  | $ | 2,808 |  |  | $ | 3 |
(Gain) or loss on cash flow hedging relationships |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards |  |  |  |  |  |  |  |  |  |  |  |
Amount of (gain) loss reclassified from AOCI into income |  |  | 1 |  |  |  | 12 |  |  |  | 1 |
Cross-currency swaps |  |  |  |  |  |  |  |  |  |  |  |
Amount of (gain) loss reclassified from AOCI into income |  |  |  |  |  |  |  |  |  |  | 2 |
|  | Three Months Ended June 30, 2019 |
Derivatives Designated as Cash Flow Hedges |  | Net sales |  |  | Cost of sales |  |  | Other income (expense), net |
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded |  | $ | 2,306 |  |  | $ | 1,980 |  |  | $ | (10 | )
(Gain) or loss on cash flow hedging relationships |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards |  |  |  |  |  |  |  |  |  |  |  |
Amount of (gain) loss reclassified from AOCI into income |  |  |  |  |  |  | (3 | ) |  |  |  |
Cross-currency swaps |  |  |  |  |  |  |  |  |  |  |  |
Amount of (gain) loss reclassified from AOCI into income |  |  |  |  |  |  |  |  |  |  | 15 |
|  | Six Months Ended June 30, 2019 |
Derivatives Designated as Cash Flow Hedges |  | Net sales |  |  | Cost of sales |  |  | Other income (expense), net |
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded |  | $ | 4,469 |  |  | $ | 3,843 |  |  | $ | (23 | )
(Gain) or loss on cash flow hedging relationships |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forwards |  |  |  |  |  |  |  |  |  |  |  |
Amount of (gain) loss reclassified from AOCI into income |  |  |  |  |  |  | (5 | ) |  |  |  |
Cross-currency swaps |  |  |  |  |  |  |  |  |  |  |  |
Amount of (gain) loss reclassified from AOCI into income |  |  |  |  |  |  |  |  |  |  | (8 | )
The amounts reclassified from AOCI into income for the cross-currency swaps represent an offset to a foreign exchange loss on our foreign currency-denominated intercompany and external debt instruments. Certain of our hedges of forecasted transactions have not formally been designated as cash flow hedges. As undesignated forward contracts, the changes in the fair value of such contracts are included in earnings for the duration of the outstanding forward contract. Any realized gain or loss on the settlement of such contracts is recognized in the same period and in the same line item in the consolidated statement of operations as the underlying transaction. The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with undesignated hedging relationships.
|  | Amount of Gain (Loss) Recognized in Income |  |  |
Derivatives Not Designated as Hedging Instruments |  | Three Months Ended June 30, 2020 |  |  | Three Months Ended June 30, 2019 |  |  | Location of Gain or (Loss) Recognized in Income
Foreign currency forward contracts |  |  | $ (5) |  |  |  | $ (2) |  |  | Cost of sales
Foreign currency forward contracts |  |  | 3 |  |  |  | 1 |  |  | Other income (expense), net
|  | Amount of Gain (Loss) Recognized in Income |  |  |
Derivatives Not Designated as Hedging Instruments |  | Six Months Ended June 30, 2020 |  |  | Six Months Ended June 30, 2019 |  |  | Location of Gain or (Loss) Recognized in Income
Foreign currency forward contracts |  | $ | — |  |  | $ | — |  |  | Cost of sales
Foreign currency forward contracts |  |  | (6 | ) |  |  | (12 | ) |  | Other income (expense), net
During the first quarter of 2019 we settled the outstanding undesignated Swiss franc notional deal contingent forward related to the ODS acquisition for $21, resulting in a realized loss of $13 included in other income (expense), net in the first quarter of 2019. Net investment hedges — We periodically designate derivative contracts or underlying non-derivative financial instruments as net investment hedges. With respect to contracts designated as net investment hedges, we apply the forward method, but for non-derivative financial instruments designated as net investment hedges, we apply the spot method. Under both methods, we report changes in fair value in the cumulative translation adjustment (CTA) component of OCI during the period in which the contracts remain outstanding to the extent such contracts and non-derivative financial instruments remain effective.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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