Derivative Financial Instruments

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedges, Assets [Abstract]

For purposes of mitigating the effect of changes in exchange rates, we hold derivative financial instruments to hedge the risks of certain identifiable and anticipated transactions and recorded assets and liabilities in our consolidated balance sheets. The types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates. Our policy is to hold derivatives only for the purpose of hedging risks associated with anticipated foreign currency purchases and sales created in the normal course of business, and not for trading purposes where the objective is solely to generate profit.

Generally, we enter into hedging relationships such that changes in the fair values or cash flows of the transactions being hedged are expected to be offset by corresponding changes in the fair value of the derivatives. For derivative instruments that qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative, which does not include the time value component of a forward currency rate, is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments, any change in the fair value of those instruments is reflected in earnings in the period such change occurs.

We hold the following types of derivative instruments:

Foreign exchange rate forward contracts – The purpose of these instruments is to hedge the risk of changes in future cash flows of anticipated purchase or sale commitments denominated in foreign currencies and recorded assets and liabilities in our consolidated balance sheets. As of December 31, 2020, we held the following material net positions:


	Net Notional Amount Bought (Sold)
(In millions)		USD Equivalent
Euro	1,794.5	2,201.8
British pound	771.7	1,054.3
Malaysian ringgit	891.0	221.5
Norwegian krone	1,721.6	201.7
Brazilian real	681.4	131.1
Singapore dollar	171.2	129.4
Mexican peso	1,288.0	64.7
Australian dollar	78.2	60.3
Indian rupee	3,172.0	43.4
Japanese yen	1,124.4	10.9
Columbian peso	37,142.2	10.8





Hong Kong dollar	(97.6)	(12.6)
Indonesian rupiah	(201,679.7)	(14.3)
U.S. dollar	(2,922.1)	(2,922.1)

Foreign exchange rate instruments embedded in purchase and sale contracts – The purpose of these instruments is to match offsetting currency payments and receipts for particular projects, or comply with government restrictions on the currency used to purchase goods in certain countries. As of December 31, 2020, our portfolio of these instruments included the following material net positions:


	Net Notional Amount Bought (Sold)
(In millions)		USD Equivalent
Brazilian real	77.9	15.0
Hong Kong dollar	48.3	6.2
Euro	(8.7)	(10.7)
Norwegian krone	(142.8)	(16.7)
U.S. dollar	5.2	5.2

Fair value amounts for all outstanding derivative instruments have been determined using available market information and commonly accepted valuation methodologies. See Note 24 for further details. Accordingly, the estimates presented may not be indicative of the amounts that we would realize in a current market exchange and may not be indicative of the gains or losses we may ultimately incur when these contracts are settled.

The following table presents the location and fair value amounts of derivative instruments reported in the consolidated balance sheets:


	December 31, 2020				December 31, 2019
(In millions)	Assets		Liabilities		Assets		Liabilities
Derivatives designated as hedging instruments
Foreign exchange contracts
Current - Derivative financial instruments	$	215.8	$	151.6	$	94.3	$	125.0
Long-term - Derivative financial instruments	35.6		23.3		34.8		48.0
Total derivatives designated as hedging instruments	251.4		174.9		129.1		173.0
Derivatives not designated as hedging instruments
Foreign exchange contracts
Current - Derivative financial instruments	85.6		15.6		7.6		16.3
Long-term - Derivative financial instruments	0.3		—		0.4		0.4
Total derivatives not designated as hedging instruments	85.9		15.6		8.0		16.7
Long-term - Derivative financial instruments - Synthetic Bonds - Call Option Premium	—		—		4.3		—
Long-term - Derivative financial instruments - Synthetic Bonds - Embedded Derivatives	—		—		—		4.3
Total derivatives	$	337.3	$	190.5	$	141.4	$	194.0

Cash flow hedges of forecasted transactions, net of tax, which qualify for hedge accounting, resulted in accumulated other comprehensive gains (losses) of $32.5 million and $(5.8) million as of December 31, 2020 and 2019, respectively. We expect to transfer an approximately $107.6 million gain from accumulated OCI to earnings during the next 12 months when the anticipated transactions actually occur. All anticipated transactions currently being hedged are expected to occur by the second half of 2025.

The following tables present the location of gains (losses) in the consolidated statements of income related to derivative instruments designated as cash flow hedges.


	Gain (Loss) Recognized in OCI
	Year Ended December 31,
(In millions)	2020		2019		2018
Foreign exchange contracts	$	28.0	$	10.3	$	(75.4)

The following represents the effect of cash flow hedge accounting on the consolidated statements of income for the year ended December 31, 2020, 2019 and 2018:


	Year Ended December 31,
(In millions)	2020								2019								2018
Total amount of income (expense) presented in the consolidated statements of income associated with hedges and derivatives	Revenue		Cost of sales		Selling, general and administrative expense		Other income (expense), net		Revenue		Cost of sales		Selling, general and administrative expense		Other income (expense), net		Revenue		Cost of sales		Selling, general and administrative expense		Other income (expense), net





Cash Flow hedge gain (loss) recognized in income
Foreign Exchange Contracts
Amounts reclassified from accumulated OCI to income (loss)	$	(83.7)	$	68.5	$	(0.4)	$	(4.4)	$	(26.6)	$	12.0	$	—	$	(9.1)	$	(2.4)	$	3.4	$	(0.1)	$	1.0
Amounts excluded from effectiveness testing	7.7		(9.8)		(0.2)		34.2		0.6		(7.6)		—		(34.9)		(2.2)		(4.8)		—		(12.3)
Total cash flow hedge gain (loss) recognized in income	(76.0)		58.7		(0.6)		29.8		(26.0)		4.4		—		(44.0)		(4.6)		(1.4)		(0.1)		(11.3)


Gain (loss) recognized in income on derivatives not designated as hedging instruments	(0.8)		3.4		—		22.7		(1.6)		0.2		—		(10.2)		(1.7)		0.2		—		(11.4)
Total	$	(76.8)	$	62.1	$	(0.6)	$	52.5	$	(27.6)	$	4.6	$	—	$	(54.2)	$	(6.3)	$	(1.2)	$	(0.1)	$	(22.7)

Balance Sheet Offsetting - We execute derivative contracts with counterparties that consent to a master netting agreement which permits net settlement of the gross derivative assets against gross derivative liabilities. Each instrument is accounted for individually and assets and liabilities are not offset. As of December 31, 2020 and 2019, we had no collateralized derivative contracts. The following tables present both gross information and net information of recognized derivative instruments:


	December 31, 2020						December 31, 2019
(In millions)	Gross Amount Recognized		Gross Amounts Not Offset Permitted Under Master Netting Agreements		Net Amount		Gross Amount Recognized		Gross Amounts Not Offset Permitted Under Master Netting Agreements		Net Amount
Derivative assets	$	337.3	$	(134.0)	$	203.3	$	141.4	$	(112.5)	$	28.9
Derivative liabilities	$	190.5	$	(134.0)	$	56.5	$	194.0	$	(112.5)	$	81.5