Financial Instruments

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments [Text Block]

Financial Instruments

We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, interest rate and commodity price exposures.

The aggregate notional amount of our outstanding foreign currency hedges was $9.0 billion and $11.6 billion at September 30, 2021 and December 31, 2020, respectively.

The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheet for derivative instruments as of September 30, 2021 and December 31, 2020:

(dollars in millions)	Balance Sheet Location	September 30, 2021		December 31, 2020
Derivatives designated as hedging instruments:
Foreign exchange contracts	Other assets, current	$	91	$	197
	Other accrued liabilities	111		66
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other assets, current	$	12	$	44
	Other accrued liabilities	22		32

The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) and on the Condensed Consolidated Statement of Operations for the quarters and nine months ended September 30, 2021 and 2020 are presented in the table below. The amounts of gain or loss are attributable to foreign exchange contract activity and are primarily recorded as a component of Products sales when reclassified from Accumulated other comprehensive income (loss).

	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2021		2020		2021		2020
Gain (loss) recorded in Accumulated other comprehensive loss	$	(175)	$	117	$	(113)	$	(98)
(Gain) loss reclassified from Accumulated other comprehensive loss	8		37		(26)		93

The Company utilizes the critical terms match method in assessing derivatives for hedge effectiveness. Accordingly, the hedged items and derivatives designated as hedging instruments are highly effective.

As of September 30, 2021, we have €500 million of euro-denominated long-term debt outstanding, which qualifies as a net investment hedge against our investments in European businesses, which is deemed to be effective.

Assuming current market conditions continue, $3 million of pre-tax losses are expected to be reclassified from Accumulated other comprehensive loss to reflect the fixed prices obtained from foreign exchange hedging within the next 12 months. At September 30, 2021, all derivative contracts accounted for as cash flow hedges will mature by January 2028.

The effect of derivatives not designated as hedging instruments within Other income, net, on the Condensed Consolidated Statement of Operations was as follows:

	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2021		2020		2021		2020
Gain (loss) on non-designated foreign exchange contracts	$	(1)	$	(4)	$	(9)	$	(33)