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Derivative Instruments | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments |
Derivative Instruments | 5. Derivative Instruments The Company has certain derivative assets and liabilities, which consist of foreign exchange option and forward contracts, interest rate swaps and cross-currency swaps. The valuation of these instruments is determined primarily using the income approach, including discounted cash flow analysis on the expected cash flows of each derivative. Foreign exchange rates and interest rates are the significant inputs into the valuation models. The Company also evaluates counterparty risk in determining fair values. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These inputs are observable in active markets over the terms of the instruments the Company holds, and, accordingly, the Company classifies its derivative assets and liabilities as Level 2 in the hierarchy. Cash Flow Hedges of Foreign Exchange Risk The Company has variable-interest rate borrowings denominated in currencies other than the functional currency of the borrowing subsidiaries. As a result, the Company is exposed to fluctuations in the currency of the borrowing against the subsidiaries’ functional currency. The Company uses derivatives to manage these exposures and designates these derivatives as cash flow hedges of foreign exchange risk. An unrecognized gain of $9 million at September 30, 2021, an unrecognized gain of $9 million at December 31, 2020 and an unrecognized gain of $9 million at September 30, 2020, related to these cross-currency swaps, were included in Accumulated OCI, and will be reclassified into earnings within the next 12 months. Interest Rate Swaps Designated as Fair Value Hedges The Company enters into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. The Company’s fixed-to-variable interest rate swaps are accounted for as fair value hedges. The relevant terms of the swap agreements match the corresponding terms of the notes, and therefore there is no hedge ineffectiveness. The Company recorded the net of the fair market values of the swaps as a long-term liability and short-term asset, along with a corresponding net decrease in the carrying value of the hedged debt. Cash Flow Hedges of Interest Rate Risk The Company enters into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments. These interest rate swap agreements were used to hedge the variable cash flows associated with variable-rate debt. An unrecognized loss of $0 at September 30, 2021, an unrecognized loss of less than $1 million at December 31, 2020 and an unrecognized loss of less than $1 million at September 30, 2020 related to these interest rate swaps were included in Accumulated OCI and will be reclassified into earnings within the next 12 months. Net Investment Hedges The Company is exposed to fluctuations in foreign exchange rates on investments it holds in non-U.S. subsidiaries and uses cross-currency swaps to partially hedge this exposure. Foreign Exchange Derivative Contracts Not Designated as Hedging Instruments The Company uses short-term forward exchange or option agreements to purchase foreign currencies at set rates in the future. These agreements are used to limit exposure to fluctuations in foreign currency exchange rates for significant planned purchases of fixed assets or commodities that are denominated in currencies other than the subsidiaries’ functional currency. The Company also uses foreign exchange agreements to offset the foreign currency risk for receivables and payables, including intercompany receivables, payables, and loans, not denominated in, or indexed to, their functional currencies. ​ Balance Sheet Classification The following table shows the amount and classification (as noted above) of the Company’s derivatives at September 30, 2021, December 31, 2020 and September 30, 2020: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value of | ​ | Fair Value of
​ | ​ | Hedge Assets | ​ | Hedge Liabilities
​ | ​ | September 30, | ​ | December 31, | ​ | September 30, | ​ | September 30, | ​ | December 31, | ​ | September 30,
​ |  | 2021 |  | 2020 |  | 2020 |  | 2021 |  | 2020 |  | 2020
Derivatives designated as hedging instruments: | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |
Interest rate swaps - fair value hedges (a) | ​ | $ | 9 | ​ | $ | 17 | ​ | $ | 16 | ​ | $ | 1 | ​ | $ | — | ​ | $ | —
Cash flow hedges of foreign exchange risk (b) | ​ | ​ | 9 | ​ | ​ | 6 | ​ | ​ | 9 | ​ | ​ | 54 | ​ | ​ | 115 | ​ | ​ | 67
Net investment hedges (c) | ​ | ​ | 2 | ​ | ​ | 1 | ​ | ​ | 2 | ​ | ​ | 28 | ​ | ​ | 52 | ​ | ​ | 27
Total derivatives accounted for as hedges | ​ | $ | 20 | ​ | $ | 24 | ​ | $ | 27 | ​ | $ | 83 | ​ | $ | 167 | ​ | $ | 94
Derivatives not designated as hedges: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Foreign exchange derivative contracts (d) | ​ | ​ | 1 | ​ | ​ | 1 | ​ | ​ | 3 | ​ | ​ | 4 | ​ | ​ | 3 | ​ | ​ | 6
Total derivatives | ​ | $ | 21 | ​ | $ | 25 | ​ | $ | 30 | ​ | $ | 87 | ​ | $ | 170 | ​ | $ | 100
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Current | ​ | $ | 15 | ​ | $ | 13 | ​ | $ | 16 | ​ | $ | 4 | ​ | $ | 15 | ​ | $ | 13
Noncurrent | ​ | ​ | 6 | ​ | ​ | 12 | ​ | ​ | 14 | ​ | ​ | 83 | ​ | ​ | 155 | ​ | ​ | 87
Total derivatives | ​ | $ | 21 | ​ | $ | 25 | ​ | $ | 30 | ​ | $ | 87 | ​ | $ | 170 | ​ | $ | 100
​ (a) The notional amounts of the interest rate swaps designated as fair value hedges were €725 million at September 30, 2021, December 31, 2020 and September 30, 2020. The maximum maturity dates were in 2024 for all three periods. (b) The notional amounts of the cash flow hedges of foreign exchange risk were $878 million at September 30, 2021, $978 million at December 31, 2020 and $1.1 billion at September 30, 2020. The maximum maturity dates were in 2023 for all three periods. (c) The notional amounts of the net investment hedges were €311 million at September 30, 2021, €311 million at December 31, 2020 and €311 million at September 30, 2020. The maximum maturity dates were in 2027 for September 30, 2021 and December 31, 2020 and in 2020 for September 30, 2020. (d) The notional amounts of the foreign exchange derivative contracts were $291 million, $247 million and $247 million at September 30, 2021, December 31, 2020 and September 30, 2020, respectively. The maximum maturity dates were in 2021 for all three periods. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Gain (Loss) Recognized in OCI (Effective Portion) | ​ | ​ | Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (1) | ​
​ | ​ | Three months ended September 30, | ​ | ​ | Three months ended September 30, | ​
Derivatives designated as hedging instruments: |  | 2021 | ​ | 2020 | ​ | ​ | 2021 | ​ | 2020 | ​
Cash Flow Hedges |  | ​ | ​ |  | ​ | ​ |  |  | ​ | ​ |  | ​ | ​ |
Cash flow hedges of foreign exchange risk (a) | ​ | $ | 24 | ​ | $ | (61) | ​ | ​ | $ | 24 | ​ | $ | (80) | ​
Cash flow hedges of interest rate risk (b) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net Investment Hedges | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net Investment Hedges (b) | ​ | ​ | 13 | ​ | ​ | (26) | ​ | ​ | ​ | 1 | ​ | ​ | 1 | ​
​ | ​ | $ | 37 | ​ | $ | (87) | ​ | ​ | $ | 25 | ​ | $ | (79) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Gain (Loss) Recognized in OCI (Effective Portion) | ​ | ​ | Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (1) | ​
​ | ​ | Nine months ended September 30, | ​ | ​ | Nine months ended September 30, | ​
Derivatives designated as hedging instruments: |  | 2021 | ​ | 2020 | ​ | ​ | 2021 | ​ | 2020 | ​
Cash Flow Hedges |  | ​ | ​ |  | ​ | ​ |  |  | ​ | ​ |  | ​ | ​ |
Cash flow hedges of foreign exchange risk (a) | ​ | $ | 56 | ​ | $ | (51) | ​ | ​ | $ | 57 | ​ | $ | (71) | ​
Cash flow hedges of interest rate risk (b) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (1) | ​
Net Investment Hedges | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net Investment Hedges (b) | ​ | ​ | 27 | ​ | ​ | (29) | ​ | ​ | ​ | 2 | ​ | ​ | 4 | ​
​ | ​ | $ | 83 | ​ | $ | (80) | ​ | ​ | $ | 59 | ​ | $ | (68) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount of Gain (Loss) Recognized in Other income (expense), net | ​ | ​ | Amount of Gain (Loss) Recognized in Other income (expense), net | ​
​ | ​ | Three months ended September 30, | ​ | ​ | Nine months ended September 30, | ​
Derivatives not designated as hedges: |  | 2021 | ​ | 2020 | ​ | ​ | 2021 | ​ | 2020 | ​
Foreign exchange derivative contracts |  | $ | 2 |  | $ | 3 |  | ​ | $ | 9 | ​ | $ | 13 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(1) Gains and losses reclassified from accumulated OCI and recognized in income are recorded to (a) other income (expense), net or (b) interest expense, net.
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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 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
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