Financial Instruments

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We are exposed to market risk from changes in foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. These derivative financial instruments are utilized to hedge economic exposures, as well as to reduce earnings and cash flow volatility resulting from shifts in market rates. We enter into limited types of derivative contracts, including interest rate swap agreements, interest rate caps, foreign currency spot, forward and swap contracts and net purchased foreign currency options to manage interest rate and foreign currency exposures. Our primary foreign currency market exposures include the Japanese Yen, Euro and U.K. Pound Sterling. The fair market values of all our derivative contracts change with fluctuations in interest rates and/or currency exchange rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures. Derivative financial instruments are held solely as risk management tools and not for trading or speculative purposes. The related cash flow impacts of all of our derivative activities are reflected as cash flows from operating activities.

We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with our derivative instruments because these transactions are executed with a diversified group of major financial institutions. Further, our policy is to deal only with counterparties having a minimum investment grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

Interest Rate Risk Management

We use interest rate swap and interest rate cap agreements to manage our interest rate exposure and to achieve a desired proportion of variable and fixed rate debt. These derivatives may be designated as fair value hedges or cash flow hedges depending on the nature of the risk being hedged.

Fair Value Hedges

In 2020 we terminated our remaining pay variable/receive fixed interest rate swaps with the notional amount of $200 and net asset fair value of $4 prior to termination. In 2019, we terminated an interest rate swap with a notional amount of $100 and an immaterial net asset fair value. In both instances, the swaps had been designated and accounted for as fair value hedges prior to termination. The swaps were structured to hedge the fair value of related debt by converting them from fixed rate instruments to variable rate instruments. Prior to termination no ineffective portion was recorded to earnings for the years ended December 31, 2020, 2019 and 2018. The corresponding net fair value adjustment to the hedged debt of $(4) will be recognized in earnings concurrently with the remaining term of the related debt, which may include early extinguishment. During the period from 2004 to 2011, we also early terminated several interest rate swaps that were designated as fair value hedges of certain debt instruments. The associated net fair value adjustments to the debt instruments for these terminated swaps were likewise recognized in earnings concurrently with the remaining term of the related debt, which may include early extinguishment.

The remaining unamortized debt fair value adjustment associated with all terminated swaps was $1 and $1 at December 31, 2020 and 2019, respectively. In 2020, 2019 and 2018, the amortization of these fair value adjustments reduced interest expense by $2, $1 and $3, respectively, and the loss on early extinguishment of debt in 2020 by $2.

Foreign Exchange Risk Management

We are a global company and we are exposed to foreign currency exchange rate fluctuations in the normal course of our business. As a part of our foreign exchange risk management strategy, we use derivative instruments, primarily forward contracts and purchased option contracts, to hedge the following foreign currency exposures, thereby reducing volatility of earnings or protecting fair values of assets and liabilities:

•Foreign currency-denominated assets and liabilities

•Forecasted purchases, and sales in foreign currency

At December 31, 2020, we had outstanding forward exchange and purchased option contracts with gross notional values of $1,161, with terms of less than 12 months. At December 31, 2020, approximately 81% of these contracts mature within three months, 9% in three to six months and 10% in six to twelve months. The associated exposures being hedged at December 31, 2020 were higher by 6.4%, as compared to December 31, 2019. There has not been any material changes in our hedging strategy during 2020.

The following is a summary of the primary hedging positions and corresponding fair values as of December 31, 2020:


Currencies Hedged (Buy/Sell)	Gross Notional Value		Fair Value Asset(1)
Japanese Yen/U.S. Dollar	$	398	$	6
Euro/U.K. Pound Sterling	237		—
Japanese Yen/Euro	186		(2)
U.S. Dollar/Euro	90		(1)
U.S. Dollar/Canadian Dollar	46		(1)
Euro/U.S. Dollar	46		—
U.K. Pound Sterling/Euro	37		—
U.S. Dollar/Japanese Yen	31		—

Euro/Danish Krone	21		—
U.S. Dollar/Russian Ruble	15		—
U.S. Dollar/Israeli Shekel	9		—





U.S. Dollar/Brazilian Real	9		—
Euro/Norwegian Kroner	4		—




All Other	32		—
Total Foreign exchange hedging	$	1,161	$	2

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(1)Represents the net receivable (payable) amount included in the Consolidated Balance Sheet at December 31, 2020.

Foreign Currency Cash Flow Hedges

We designate a portion of our foreign currency derivative contracts as cash flow hedges of our foreign currency-denominated inventory purchases, sales and expenses. No amount of ineffectiveness was recorded in the Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. The net asset (liability) fair value of these contracts were $2 and $(4) as of December 31, 2020 and 2019, respectively.

Summary of Derivative Instruments Fair Value

The following table provides a summary of the fair value amounts of our derivative instruments:


		December 31,
Designation of Derivatives	Balance Sheet Location	2020		2019
Derivatives Designated as Hedging Instruments
Foreign exchange contracts – forwards	Other current assets	$	3	$	1
	Accrued expenses and other current liabilities	(2)		(5)
Foreign currency options	Other current assets	1		—

Interest rate swaps	Other long-term assets	—		1

	Net Designated Derivative Asset (Liability)	$	2	$	(3)

Derivatives NOT Designated as Hedging Instruments
Foreign exchange contracts – forwards	Other current assets	$	3	$	1
	Accrued expenses and other current liabilities	(3)		(3)
	Net Undesignated Derivative Liability	$	—	$	(2)

Summary of Derivatives	Total Derivative Assets	$	7	$	3
	Total Derivative Liabilities	(5)		(8)
	Net Derivative Asset (Liability)	$	2	$	(5)

Summary of Derivative Instruments Gains (Losses)

Derivative gains and (losses) affect the income statement based on whether such derivatives are designated as hedges of underlying exposures. The following is a summary of derivative gains and (losses).

Designated Derivative Instruments Gains (Losses)

The following tables provide a summary of gains (losses) on derivative instruments:


		Year Ended December 31,
Derivatives in Fair Value Relationships	Location of Gain (Loss) Recognized in Income	Derivative (Loss) Gain Recognized in Income						Hedged Item Gain (Loss) Recognized in Income
		2020		2019		2018		2020		2019		2018
Interest rate contracts	Interest expense	$	(1)	$	4	$	(3)	$	1	$	(4)	$	3


	Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships	Derivative Gain Recognized in OCI (Effective Portion)						Location of Derivative Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	(Loss) Gain Reclassified from AOCI to Income (Effective Portion)
	2020		2019		2018			2020		2019		2018
Foreign exchange contracts – forwards/options	$	4	$	2	$	9	Cost of sales	$	(1)	$	9	$	(14)

For the three years ended December 31, 2020, 2019 and 2018 no amount of ineffectiveness was recorded in the Consolidated Statements of Income for these designated cash flow hedges. All components of each derivative’s gain or (loss) were included in the assessment of hedge effectiveness. In addition, no amount was recorded for an underlying exposure that did not occur or was not expected to occur.

At December 31, 2020, a net after-tax gain of $2 was recorded in Accumulated other comprehensive loss associated with our cash flow hedging activity. The entire balance is expected to be reclassified into Net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.

Non-Designated Derivative Instruments Gains (Losses)

Non-designated derivative instruments are primarily instruments used to hedge foreign currency-denominated assets and liabilities. They are not designated as hedges since there is a natural offset for the remeasurement of the underlying foreign currency-denominated asset or liability.

The following table provides a summary of gains (losses) on non-designated derivative instruments:


		Year Ended December 31,
Derivatives NOT Designated as Hedging Instruments	Location of Derivative Gain (Loss)	2020		2019		2018
Foreign exchange contracts – forwards	Other expense – Currency gains (losses), net	$	14	$	(6)	$	21

For the three years ended December 31, 2020, 2019 and 2018, we recorded Currency losses, net of $3, $7 and $5, respectively. Net currency gains and losses include the mark-to-market adjustments of the derivatives not designated as hedging instruments and the related cost of those derivatives, as well as the remeasurement of foreign currency-denominated assets and liabilities and are included in Other expenses, net.