Derivative Financial Instruments

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial InstrumentsDerivatives recorded on the Condensed Consolidated Balance Sheet:

The following table is a summary of the fair value of derivatives outstanding at March 31, 2021 and December 31, 2020:


	Fair Value
	March 31, 2021				December 31, 2020
	Assets(a)		Accrued Liabilities		Assets(a)		Accrued Liabilities
Derivatives Designated as Cash Flow Hedges
Currency Contracts	$	32	$	—	$	58	$	—
Interest Rate Swaps	$	—	$	43	$	—	$	57
Total Hedges	$	32	$	43	$	58	$	57
Derivatives Not Designated as Cash Flow Hedges
Currency Contracts	$	10	$	—	$	7	$	—
Total Derivatives	$	42	$	43	$	65	$	57

(a) At March 31, 2021 and December 31, 2020, current assets of $42 million and $65 million, respectively, are recorded in prepaid and other current assets on the Condensed Consolidated Balance Sheets.

Derivatives' Impact on the Condensed Consolidated Statement of Income:

The following table summarizes the impact of the Company's derivatives on the unaudited Condensed Consolidated Statement of Income:


	Amount of Pre-Tax Gain (Loss) Recognized in Earnings						Amount of Pre-Tax Gain (Loss) Recognized in Earnings
	Revenue		Cost of Goods Sold		Other Income (Expense), net		Revenue		Cost of Goods Sold		Other Income (Expense), net
	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020

Derivatives Not Designated as Hedging Instruments
Currency Contracts	$	—	$	—	$	1	$	—	$	—	$	(16)
Derivatives Designated as Hedging Instruments
Currency Contracts	$	—	$	3	$	—	$	(1)	$	(4)	$	—
Total Derivatives	$	—	$	3	$	1	$	(1)	$	(4)	$	(16)

Interest Rate Risk

During the second quarter of 2019, we entered into interest-rate swap agreements with an aggregate notional value of $750 million, representing a portion of our Prior Term Loan Facility, which effectively converts the variable rate to a fixed rate for that portion of the loan. The agreements expire in September 2024. The Company’s objectives in using the interest-rate swap agreements are to add stability to interest expense and to manage its exposure to interest rate movements. These interest rate swaps have been designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. There was no impact associated with the New Term Loan Facility as the hedge remained highly effective.

Fair value gains or losses on these cash flow hedges are recorded in other comprehensive (loss) income and are subsequently reclassified into interest expense in the same periods during which the hedged transactions affect earnings. At March 31, 2021 and December 31, 2020, the net unrealized loss of $43 million and $57 million, respectively, was recorded in "Accumulated other comprehensive loss" on the unaudited Condensed Consolidated Balance Sheet. For the three months ended March 31, 2021 and 2020, the amounts recorded in interest expense related to the interest-rate swap agreements were $4 million and $1 million, respectively.

Foreign Currency Risk

During the third quarter of 2019 and the first quarter of 2020, we entered into foreign currency contracts used to hedge forecasted third party non-functional currency sales for our South African subsidiaries and forecasted non-functional currency cost of goods sold for our Australian subsidiaries. These foreign currency contracts are designated as cash flow hedges. Changes to the fair value of these foreign currency contracts are recorded as a component of other comprehensive (loss) income, if these contracts remain highly effective, and are recognized in net sales or costs of goods sold in the period in which the forecasted transaction affects earnings or are recognized in other income (expense) when the transactions are no longer probable of occurring.

As of March 31, 2021, we had notional amounts of 246 million Australian dollars (or approximately $187 million at March 31, 2021 exchange rate) that expire between April 30, 2021 and December 30, 2021 to reduce the exposure of our Australian subsidiaries’ cost of sales to fluctuations in currency rates. At March 31, 2021 and December 31, 2020, there was an unrealized net gain of $53 million and an unrealized net gain of $58 million, respectively, recorded in "Accumulated other comprehensive loss" on the unaudited Condensed Consolidated Balance Sheet, of which $45 million is expected to be recognized in earnings over the next twelve months in line with the underlying sales of inventory. Of the $45 million, $34 million will be recognized in earnings during the remainder of 2021.

We enter into foreign currency contracts for the South African Rand and Australian Dollar to reduce exposure of our subsidiaries’ balance sheet accounts not denominated in our subsidiaries’ functional currency to fluctuations in foreign currency exchange rates. Historically, we have used a combination of zero-cost collars or forward contracts to reduce the exposure. For accounting purposes, these foreign currency contracts are not considered hedges. The change in fair value associated with these contracts is recorded in “Other expense, net” within the unaudited Condensed Consolidated Statement of Income and partially offsets the change in value of third party and intercompany-related receivables not denominated in the functional currency of the subsidiary. At March 31, 2021, there was (i) 540 million South African Rand (or approximately $37 million at March 31, 2021 exchange rate) and (ii) 58 million Australian dollars (or approximately $44 million at March 31, 2021) of notional amount outstanding foreign currency contracts. At December 31, 2020, there was (i) 354 million South African Rand (or approximately $24 million at March 31, 2021 exchange rate) and (ii) 54 million Australian dollars (or approximately $41 million at March 31, 2021 exchange rate) of notional amounts outstanding foreign currency contracts.