The Company is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices, equity price risk associated with share-based compensation awards, and changes in interest rates, which may result in cash flow risks. For exposures not offset within its operations, the Company may enter into various derivative or other financial instrument transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes. In certain cases, the Company may or may not designate certain derivatives instruments as hedges for accounting purposes. Designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.

The Company manufactures and sells its products globally. As a result, the Company’s financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which the Company manufactures and sells its products. The Company generally tries to use natural hedges within its foreign currency activities to minimize foreign currency risk. Where natural hedges are not in place, the Company considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts.

Financial instruments, including cash equivalents and derivative contracts, expose the Company to counterparty credit risk for non-performance. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s concentration of credit risk related to derivative contracts at June 30, 2021 and December 31, 2020 is not considered material to the condensed consolidated financial statements.

The Company has deferred compensation liabilities and certain cash-settled share-based incentive compensation liabilities that are dependent upon the Company’s stock price. These liabilities increase as the stock price increases and decrease as the stock price decreases. The Company has entered into certain financial instruments that move in the opposite direction of these liabilities. The market risk related to the deferred compensation liability and vested portion of the cash-settled share-based incentive compensation awards have been substantially mitigated. Significant market risk still exists with respect to the unvested cash-settled share-based incentive compensation grant awards which have not yet been accrued. Refer to “Other Financial Instruments” section below for additional details on these liabilities and the related financial instruments used to reduce the Company's equity price risk.

A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy definition prioritizes the inputs used in measuring fair value into the following levels:


Level 1	—	Quoted prices in active markets for identical assets or liabilities.
Level 2	—	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3	—	Unobservable inputs based on the Company's own assumptions.

The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis. Derivative gains and losses associated with undesignated hedges are recognized in “Cost of sales (exclusive of depreciation and amortization)” in the condensed consolidated statements of income (loss).

The Company enters into foreign currency forward purchase and sale contracts to mitigate its exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables. The Company calculates the fair value of its foreign currency contracts using currency forward rates (level 2), to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on bank deposit rates. The fair value of these derivative instruments at June 30, 2021 and December 31, 2020 is not considered material to the condensed consolidated financial statements.

The Company has certain employee compensation arrangements, including deferred compensation and cash-settled share-based units granted under its long-term incentive plan, that are valued based on the Company's stock price. As of June 30, 2021 and December 31, 2020, the share equivalents outstanding related to cash-settled share-based awards are as follows:

The Company has entered into financial instruments to mitigate the risk associated with the deferred compensation liability and vested portion of the cash-settled share-based incentive compensation awards. In the second quarter of 2021, the Company entered into an additional agreement to increase the number of common share equivalents from 1,700,000 at December 31, 2020 to 3,200,000 at June 30, 2021 to mitigate additional market risk. These financial instruments use the Company’s stock price as an observable input (level 2) in determining fair value. The estimated fair value of these financial instruments at June 30, 2021 and December 31, 2020 is as follows:


	Balance sheet classification	June 30, 2021		December 31, 2020
Other financial instruments in asset positions	Prepayments and other current assets	$	29	$	1
Other financial instruments in liability positions (a)	Accrued expenses and other current liabilities	$	3	$	—

The Company’s production processes are dependent upon the supply of certain raw materials that are exposed to price fluctuations on the open market. Commodity rate price forward contracts are executed to offset a portion of the exposure to potential change in prices for raw materials. The Company monitors its commodity price risk exposures regularly to maximize the overall effectiveness of its commodity forward contracts.

The Company has designated these contracts as cash flow hedging instruments. The Company records unrecognized gains and losses in other comprehensive income (loss) (“OCI” or “OCL”) and makes reclassifying adjustments into “Cost of sales (exclusive of depreciation and amortization)” within the condensed consolidated statements of income (loss) when the underlying hedged transaction is recognized in earnings. The Company had commodity derivatives outstanding with an equivalent notional amount of $40 million and $10 million at June 30, 2021 and December 31, 2020. Substantially all of the commodity price hedge contracts mature within one year.

The Company calculates the fair value of its commodity contracts using commodity forward rates (level 2), to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on bank deposit rates. The fair value of these derivative instruments at June 30, 2021 and December 31, 2020 is not considered material to the condensed consolidated financial statements.

At December 31, 2020, the Company had foreign currency denominated debt, of which €344 million or $420 million, was designated as a net investment hedge in certain foreign subsidiaries and affiliates of the Company and was included in “Long-term debt” in the condensed consolidated balance sheets. Changes to its carrying value were included in the condensed consolidated statements of changes in shareholders’ equity in the foreign currency translation component of OCL and offset against the translation adjustments on the underlying net assets of those foreign subsidiaries and affiliates, which are also recorded in OCL. All of the outstanding foreign currency borrowings related to the net investment hedge were discharged on March 17, 2021, as a result, there are no outstanding foreign currency borrowings designated as a net investment hedge at June 30, 2021. The Company’s debt instruments are discussed further in Note 9, “Debt and Other Financing Arrangements”.

The following table represents the amount of gain (loss) recognized in accumulated other comprehensive income (loss) before any reclassifications into net income (loss) for derivative and non-derivative instruments designated as hedges for the three and six months ended June 30, 2021 and 2020:

The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the value of these long-lived asset groups are not recoverable. During the first quarter of 2020, the Company concluded certain impairment triggers had occurred for certain long-lived asset groups as a result of the effects of the COVID-19 global pandemic on the Company’s projected financial information. After failing the undiscounted cash flow recoverability test, the Company estimated the fair values of these long-lived asset groups and compared them to their net carrying values. The fair value measurements related to these long-lived asset groups rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets, as observable inputs are not available (level 3). To determine the fair value of the long-lived asset groups, the Company utilized an asset-based approach. The Company believes the assumptions and estimates used to determine the estimated fair values of the long-lived asset groups are reasonable; however, these estimates and assumptions are subject to a high degree of uncertainty. Due to the many variables inherent in estimating fair value, differences in assumptions could have a material effect on the results of the analyses.

As the net carrying values of the long-lived asset groups exceeded their fair values, the Company recorded long-lived asset impairment charges consisting of $65 million of definite-lived intangible assets and $455 million of property, plant, and equipment, during the six months ended June 30, 2020. Refer to Note 4, “Restructuring Charges, Net and Asset Impairments” for additional information on asset impairments and refer to Note 6, “Goodwill and Other Intangible Assets”, for additional information on the definite-lived intangible asset impairments.

During the first quarter of 2020, the Company concluded it was more likely than not that the fair values of certain of its reporting units and trade names and trademarks had declined below their carrying values as a result of the effects of the COVID-19 global pandemic on the Company’s projected financial information. The Company completed analyses to estimate the fair values of these reporting units and trade names and trademarks. The Company believes the assumptions and estimates used to determine the estimated fair values are reasonable; however, these estimates and assumptions are subject to a high degree of uncertainty. Due to the many variables inherent in estimating fair value, differences in assumptions could have a material effect on the results of the analyses.

The basis of the goodwill impairment and indefinite-lived intangible asset analyses is the Company's current forecast of its annual budget and three-year strategic plan. This includes a projection of future cash flows, which requires the Company to make significant assumptions and estimates about the extent and timing of future cash flows and revenue growth rates. These represent Company-specific inputs and assumptions about the use of the assets, as observable inputs are not available (level 3). Due to the many variables inherent in estimating fair value and the relative size of the goodwill and indefinite-lived intangible assets, differences in assumptions could have a material effect on the results of the analyses.

In the goodwill impairment analysis, for reporting units with goodwill, fair values are estimated using a combination of the income approach and market approach. The Company applies a 75% weighting to the income approach and a 25% weighting to the market approach. The most significant inputs in estimating the fair value of the Company's reporting units under the income approach are (i) projected operating margins, (ii) the revenue growth rate, and (iii) the discount rate, which is risk-adjusted based on the aforementioned inputs.

For the indefinite-lived asset impairment analysis, the fair value is based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets. The primary, and most sensitive, inputs utilized in determining fair values of trade names and trademarks are (i) projected branded product sales, (ii) the revenue growth rate, (iii) the royalty rate, and (iv) the discount rate, which is risk-adjusted based on the projected branded sales.