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Derivatives and Foreign Currency Operations | 12 Months Ended
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Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Foreign Currency Operations | Derivatives and Foreign Currency Operations Derivatives Derivative financial instruments are generally used to manage certain commodity, interest rate and foreign currency risks. These instruments primarily include interest rate swaps, forward starting interest rate swaps, forward exchange contracts and options. The Company’s forward exchange contracts and options do not subject the Company to exchange rate risk because gains and losses on these instruments generally offset gains and losses on the assets, liabilities and other transactions being hedged. However, these instruments, when settled, impact the Company’s cash flows from operations to the extent the underlying transaction being hedged is not simultaneously settled due to an extension, a renewal or otherwise. On the date when the Company enters into a derivative, the derivative is designated as a hedge of the identified exposure. The Company measures effectiveness of its hedging relationships both at hedge inception and on an ongoing basis. Interest Rate Contracts The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company may use fixed and floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps would be used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Fixed rate swaps would be used to reduce the Company’s risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense. Fair Value Hedges At December 31, 2020, the Company had approximately $100 million notional amount of interest rate swaps that exchange a fixed rate of interest for variable rate (LIBOR) of interest plus a weighted average spread. These floating rate swaps are designated as fair value hedges against $100 million of principal on the 4.00% senior notes due 2024 for the remaining life of the note. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt. A $277 million notional interest rate swap matured concurrently with the maturity of the 4.70% senior notes which were repaid during the third quarter of 2020. During 2019, the Company also terminated approximately $150 million notional amount of these floating rate swaps and received consideration of $6 million, which is included in net cash provided by operating activities in the Consolidated Statement of Cash Flows for 2019. These floating rate swaps that were designated as fair value hedges, were terminated in connection with the extinguishment of a portion of the principal balance of the 2024 Notes pursuant to the Tender Offers (See Footnote 9). The termination of these floating rate swaps resulted in a total gain of $6 million, which is included in loss on extinguishment for 2019 in the Consolidated Statements of Operations. Cross-Currency Contracts The Company uses cross-currency swaps to hedge foreign currency risk on certain financing arrangements. During the first quarter of 2020, the Company entered into two cross-currency swaps with an aggregate notional amount of $900 million, which were designated as net investment hedges of the Company's foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets. With these cross-currency swaps, which mature in January and February 2025, the Company pays a fixed rate of Euro-based interest and receives a fixed rate of U.S. dollar interest. The Company has elected the spot method for assessing the effectiveness of these contracts. During the twelve months ended December 31, 2020, the Company recognized income of $14 million in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing. The Company had no cross-currency swaps used as hedging instruments in 2019. Foreign Currency Contracts The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales and have maturity dates through December 2021. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a component of AOCL and is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption in the statements of operations as the underlying hedged item. At December 31, 2020, the Company had approximately $509 million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales. The Company also uses foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At December 31, 2020, the Company had approximately $994 million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through December 2021. Fair market value gains or losses are included in the results of operations and are classified in other (income) expense, net in the Company’s Consolidated Statement of Operations. Commodity Contracts From time to time the Company may enter into commodity-based derivatives in order to mitigate the risk that the rising price of these commodities could have on the cost of certain of the Company’s raw materials. These commodity-based derivatives provide the Company with cost certainty. At December 31, 2020, the Company had no notional amount outstanding of commodity-based derivatives. Fair market value gains or losses are included in the results of operations and are classified in cost of products sold. The following table presents the fair value of derivative financial instruments at December 31, (in millions):
|  |  | 2020 |  | 2019
| Balance Sheet Location |  | Assets/(Liabilities)
Derivatives designated as effective hedges: |  |  |  |  |
Cash Flow Hedges: |  |  |  |  |
Foreign currency contracts | Prepaid expenses and other current assets |  | $ | 1 |  |  | $ | 1 |
Foreign currency contracts | Other accrued liabilities |  | (19) |  |  | (13) |
Fair Value Hedges: |  |  |  |  |
Interest rate swaps | Other assets |  | 7 |  |  | 2 |
Interest rate swaps | Other accrued liabilities |  | — |  |  | (1) |
Net Investment Hedges: |  |  |  |  |
Cross-currency swaps | Prepaid expenses and other current assets |  | 10 |  |  | — |
Cross-currency swaps | Other noncurrent liabilities |  | (102) |  |  | — |
Derivatives not designated as effective hedges: |  |  |  |  |
Foreign currency contracts | Prepaid expenses and other current assets |  | 10 |  |  | 10 |
Foreign currency contracts | Other accrued liabilities |  | (17) |  |  | (4) |
Total |  |  | $ | (110) |  |  | $ | (5) |
The Company recognized expense of $9 million, $11 million and $2 million in other (income) expense, net, during 2020 and 2019 and 2018, respectively, related to derivatives that are not designated as hedging instruments. The Company is not a party to any derivatives that require collateral to be posted prior to settlement. The following table presents pre-tax gain and loss activity for 2020, 2019 and 2018 related to derivative financial instruments designated as effective hedges:
| 2020 |  | 2019 |  | 2018
| Gain/(Loss) |  | Gain/(Loss) |  | Gain/(Loss)
(in millions) | Recognized in OCL (1) |  | Reclassified from AOCL to Income |  | Recognized in OCL (1) |  | Reclassified from AOCL to Income |  | Recognized in OCL (1) |  | Reclassified from AOCL to Income
Interest rate swaps (2) | $ | — |  |  | $ | (7) |  |  | $ | — |  |  | $ | (8) |  |  | $ | — |  |  | $ | (27) |
Foreign currency contracts (3) | 4 |  |  | 13 |  |  | (16) |  |  | 15 |  |  | 24 |  |  | (13) |
Cross-currency swaps (4) | (92) |  |  | — |  |  | — |  |  | — |  |  | (2) |  |  | (3) |
Total | $ | (88) |  |  | $ | 6 |  |  | $ | (16) |  |  | $ | 7 |  |  | $ | 22 |  |  | $ | (43) |
(1)Represents effective portion recognized in Other Comprehensive Loss (“OCL”). (2)Portion reclassified from AOCL to income recognized in interest expense, net. (3)Portion reclassified from AOCL to income recognized in net sales and cost of products sold. (4)Portion reclassified from AOCL to income recognized in other expense, net. At December 31, 2020, deferred net losses of approximately $18 million within AOCL are expected to be reclassified to earnings over the next twelve months. Foreign Currency Operations Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect at year-end. The related translation adjustments are made directly to accumulated other comprehensive income (loss). Income and expenses are translated at the average monthly rates of exchange in effect during the year. Foreign currency transaction gains and losses are included in the results of operations and are generally classified in other (income) expense, net, in the Consolidated Statements of Operations. Foreign currency transaction net losses for 2020, 2019 and 2018 were $14 million, $6 million and $8 million, respectively. The Company designates certain foreign currency denominated, long-term intercompany financing transactions as being of a long-term investment nature and records gains and losses on the transactions arising from changes in exchange rates as translation adjustments.

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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 + Details
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