XML 30 R18.htm IDEA: XBRL DOCUMENT
v3.22.2.2

Derivatives | 9 Months Ended
--- | ---
Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes. 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. The cash paid and received from the settlement of interest rate swaps is included in interest expense. Fair Value Hedges At September 30, 2022, the Company had approximately $1.1 billion notional amount of interest rate swaps that exchange a fixed rate of interest for a variable rate of interest plus a weighted average spread. These floating rate swaps are designated as fair value hedges against $500 million of principal on the 6.375% senior notes due 2027, $500 million of principal on the 6.625% senior notes due 2029 and $100 million of principal on the 4.00% senior notes due 2024 for the remaining life of the notes. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt. Cross-Currency Contracts The Company uses cross-currency swaps to hedge foreign currency risk on certain financing arrangements. The Company previously entered into three cross-currency swaps, maturing in January 2025, February 2025 and September 2027, respectively, with an aggregate notional amount of $1.3 billion. Each of these cross-currency swaps 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, and the Company pays a fixed rate of Euro-based interest and receives a fixed rate of U.S. dollar interest. During the third quarter of 2022, the Company entered into two cross-currency swaps with notional amounts of $500 million each, one maturing in September 2027 and the other in September 2029. These swaps were also 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, and the Company pays a floating rate of Euro-based interest and receives a floating rate of U.S. dollar interest. The Company has elected the spot method for assessing the effectiveness of these contracts. During the three months ended September 30, 2022 and 2021, the Company recognized income of $8 million and $4 million, respectively, and income of $19 million and $11 million for the nine months ended September 30, 2022 and 2021, respectively, in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing. 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 with maturity dates through September 2023. 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 until it 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 September 30, 2022, the Company had approximately $370 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 September 30, 2022, the Company had approximately $1.57 billion notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through August 2023. 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 Condensed Consolidated Statement of Operations. The following table presents the fair value of derivative financial instruments at the dates indicated (in millions):
|  |  | Fair Value of Derivatives
|  |  | Assets (Liabilities)
| Balance Sheet Location |  | September 30, 2022 |  | December 31, 2021
Derivatives designated as effective hedges: |  |  |  |
Cash Flow Hedges |  |  |  |  |
Foreign currency contracts | Prepaid expenses and other current assets |  | $ | 20 |  |  | $ | 12 |
Foreign currency contracts | Other accrued liabilities |  | (2) |  |  | (2) |
Fair Value Hedges |  |  |  |  |
Interest rate swaps | Other assets |  | — |  |  | 3 |
Interest rate swaps | Other accrued liabilities |  | (11) |  |  | — |
Interest rate swaps | Other noncurrent liabilities |  | (23) |  |  | — |
Net Investment Hedges |  |  |  |  |
Cross-currency swaps | Prepaid expenses and other current assets |  | 37 |  |  | 18 |
Cross-currency swaps | Other assets |  | 130 |  |  | — |
Cross-currency swaps | Other noncurrent liabilities |  | — |  |  | (41) |
Derivatives not designated as effective hedges: |  |  |  |
Foreign currency contracts | Prepaid expenses and other current assets |  | 50 |  |  | 7 |
Foreign currency contracts | Other accrued liabilities |  | (28) |  |  | (14) |
Total |  |  | $ | 173 |  |  | $ | (17) |
The following table presents gain and (loss) activity (on a pretax basis) related to derivative financial instruments designated or previously designated, as effective hedges (in millions):
|  |  | Three Months Ended September 30, 2022 |  | Three Months Ended September 30, 2021
|  |  | Gain/(Loss) |  | Gain/(Loss)
| Location of gain/(loss) recognized in income |  | Recognized in OCI (effective portion) |  | Reclassified from AOCL to Income |  | Recognized in OCI (effective portion) |  | Reclassified from AOCL to Income
Interest rate swaps | Interest expense, net |  | $ | — |  |  | $ | (2) |  |  | $ | — |  |  | $ | (1) |
Foreign currency contracts | Net sales and cost of products sold |  | 20 |  |  | 9 |  |  | 11 |  |  | (7) |
Cross-currency swaps | Other (income) expense, net |  | 108 |  |  | — |  |  | 25 |  |  | — |
Total |  |  | $ | 128 |  |  | $ | 7 |  |  | $ | 36 |  |  | $ | (8) |
|  |  | Nine Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2021
|  |  | Gain/(Loss) |  | Gain/(Loss)
| Location of gain/(loss) recognized in income |  | Recognized in OCI (effective portion) |  | Reclassified from AOCL to Income |  | Recognized in OCI (effective portion) |  | Reclassified from AOCL to Income
Interest rate swaps | Interest expense, net |  | $ | — |  |  | $ | (5) |  |  | $ | — |  |  | $ | (4) |
Foreign currency contracts | Net sales and cost of products sold |  | 39 |  |  | 15 |  |  | 11 |  |  | (15) |
Cross-currency swaps | Other (income) expense, net |  | 190 |  |  | — |  |  | 53 |  |  | — |
Total |  |  | $ | 229 |  |  | $ | 10 |  |  | $ | 64 |  |  | $ | (19) |
At September 30, 2022, net deferred gains of approximately $31 million within AOCL are expected to be reclassified to earnings over the next twelve months. During the three and nine months ended September 30, 2022, the Company recognized expense of $6 million and $7 million respectively, and income of $7 million and $11 million, during the three and nine months ended September 30, 2021, respectively, in other (income) expense, net, related to derivatives that are not designated as hedging instruments. Gains and losses on these derivatives are mostly offset by foreign currency movement in the underlying exposure. The Company is not a party to any derivatives that require collateral to be posted prior to settlement.

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 https://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 https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration