Note 13 - Fair Value Measurements and Derivatives

6 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs.

Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as follows:

			Fair Value
Category	Balance Sheet Location	Fair Value Level	June 30, 2021		December 31, 2020
Certificates of deposit	Marketable securities	2	$	24	$	21
Available-for-sale securities	Marketable securities	1		35
Available-for-sale securities	Other noncurrent assets	1				49
Currency forward contracts
Cash flow hedges	Accounts receivable - Other	2		13		15
Cash flow hedges	Other accrued liabilities	2		1		1
Undesignated	Accounts receivable - Other	2		1		2
Undesignated	Other accrued liabilities	2		1		1
Interest rate collars	Other accrued liabilities	2		4		7
Currency swaps
Cash flow hedges	Other noncurrent liabilities	2		65		128
Undesignated	Other noncurrent liabilities	2		20

Fair Value Level 1 assets and liabilities reflect quoted prices in active markets. Fair Value Level 2 assets and liabilities reflect the use of significant other observable inputs.

Fair value of financial instruments — The financial instruments that are not carried in our balance sheet at fair value are as follows:

			June 30, 2021				December 31, 2020
	Fair Value Level		Carrying Value		Fair Value		Carrying Value		Fair Value
Long term debt		2	$	2,348	$	2,444	$	2,376	$	2,475

Interest rate derivatives — Our portfolio of derivative financial instruments periodically includes interest rate swaps and interest rate collars designed to mitigate our interest rate risk. As of June 30, 2021, no fixed-to-floating interest rate swaps are outstanding. We have outstanding interest rate collars with a notional value of $425 that will mature in December 2021. For interest rate collars, no payments or receipts are exchanged unless interest rates rise or fall in excess of a predetermined ceiling or floor rate.

Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions, primarily involving the purchases and sales of inventory through the next fifteen months, as well as currency swaps associated with certain recorded external notes payable and intercompany loans receivable and payable. Periodically, our foreign currency derivatives also include net investment hedges of certain of our investments in foreign operations.

We have executed fixed-to-fixed cross-currency swaps in conjunction with the issuance of certain notes to eliminate the variability in the functional-currency-equivalent cash flows due to changes in exchange rates associated with the forecasted principal and interest payments. All of the underlying designated financial instruments have been designated as the hedged items in each respective cash flow hedge relationship, as shown in the table below. Designated as cash flow hedges of the forecasted principal and interest payments of the underlying designated financial instruments all of the swaps economically convert the underlying designated financial instruments into the functional currency of each respective holder. The impact of the interest rate differential between the inflow and outflow rates on all fixed-to-fixed cross-currency swaps is recognized during each period as a component of interest expense.

The following fixed-to-fixed cross-currency swaps were outstanding at June 30, 2021:

Underlying Financial Instrument							Derivative Financial Instrument
Description	Type	Face Amount		Rate			Notional Amount		Traded Amount		Inflow Rate			Outflow Rate
April 2025 Notes	Payable	$	400		5.75	%	$	400	€	371		5.75	%		3.85	%
Luxembourg Intercompany Notes	Receivable	€	278		3.70	%	€	278	$	300		5.38	%		3.70	%
Undesignated 2026 Swap							$	188	€	169		6.50	%		5.14	%
Undesignated Offset 2026 Swap							€	169	$	188		3.13	%		6.50	%

The designated swaps are expected to be highly effective in offsetting the corresponding currency-based changes in cash outflows related to the underlying designated financial instruments. Based on our qualitative assessment that the critical terms of the underlying designated financial instruments and the associated swaps match and that all other required criteria have been met, we do not expect to incur any ineffectiveness. As effective cash flow hedges, changes in the fair value of the swaps will be recorded in OCI during each period. Additionally, to the extent the swaps remain effective, the appropriate portion of AOCI will be reclassified to earnings each period as an offset to the foreign exchange gain or loss resulting from the remeasurement of the underlying designated financial instruments. See Note 12 for additional information about the April 2025 Notes. To the extent the swaps are no longer effective, changes in their fair values will be recorded in earnings.

We had previously entered into fixed-to-fixed cross currency swaps as a hedge against our June 2026 Notes.  In June 2021, we elected to redeem all of the June 2026 Notes and de-designated the fixed-to-fixed cross currency swaps. See Note 12 for additional information about the extinguishment of the June 2026 Notes.  As the forecasted payments subject to the hedge will no longer occur in the forecasted periods, we reclassified $9 of previously deferred losses from AOCI into other income (expense), net.  We settled $187 of the $375 notional value resulting in a net cash outflow of $22.  The remaining $188 continues to remain outstanding and we have entered into an offsetting swap to hedge against future fair value adjustments which will be included in earnings. The fair value of the remaining $188 will be settled with the counterparty over the life of the swap through the difference in the euro denominated inflow and outflow rates which are settled on June 15 and December 15 each year through June 2026.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $355 at June 30, 2021 and $386 at December 31, 2020. The total notional amount of outstanding foreign currency swaps, including the fixed-to-fixed cross-currency swaps, was $1,117 at June 30, 2021 and $1,118 at December 31, 2020.

The following currency derivatives were outstanding at June 30, 2021:

		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated		Undesignated		Total		Maturity
U.S. dollar	Mexican peso, Canadian dollar	$	85	$	17	$	102	Feb-2022
Euro	U.S. dollar, Hungarian forint, British pound, Swiss franc, Indian rupee, Mexican peso, Australian dollar, Chinese renminbi, Brazilian real, Japanese yen, New Zealand dollar		57		36		93	Jan-2024
British pound	U.S. dollar, euro				3		3	Jul-2021
Swedish krona	euro				1		1	Jul-2021
South African rand	U.S. dollar, euro, Thai baht				14		14	Aug-2021
Thai baht	U.S. dollar, euro		4		12		16	Dec-2021
Canadian dollar	U.S. dollar		7				7	Dec-2021
Brazilian real	U.S. dollar, euro		27		6		33	Mar-2022
Indian rupee	U.S. dollar, euro, British pound				77		77	Apr-2022
Chinese renminbi	U.S. dollar, eruo, Canadian dollar				9		9	Jul-2021
Total forward contracts			180		175		355
U.S. dollar	euro		329		200		529	Nov-2027
Euro	U.S. dollar		400		188		588	Jun-2026
Total currency swaps			729		388		1,117
Total currency derivatives		$	909	$	563	$	1,472

Designated cash flow hedges — With respect to contracts designated as cash flow hedges, changes in fair value during the period in which the contracts remain outstanding are reported in OCI to the extent such contracts remain effective. Effectiveness is measured by using regression analysis to determine the degree of correlation between the change in the fair value of the derivative instrument and the change in the associated foreign currency exchange rates. Changes in fair value of contracts not designated as cash flow hedges or as net investment hedges are recognized in other income (expense), net in the period in which the changes occur. Realized gains and losses from currency-related forward contracts associated with forecasted transactions or from other derivative instruments, including those that have been designated as cash flow hedges and those that have not been designated, are recognized in the same line item in the consolidated statement of operations in which the underlying forecasted transaction or other hedged item is recorded. Accordingly, amounts are potentially recorded in sales, cost of sales or, in certain circumstances, other income (expense), net.

The following table provides a summary of deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less:

	Deferred Gain (Loss) in AOCI
	June 30, 2021			December 31, 2020			Gain (loss) expected to be reclassified into income in one year or less
Forward Contracts	$	8		$	9		$	8
Collar		(3	)		(6	)		(3	)
Cross-Currency Swaps		2			3
Total	$	7		$	6		$	5

The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with cash flow hedging relationships:

	Three Months Ended June 30, 2021
Derivatives Designated as Cash Flow Hedges	Net sales		Cost of sales			Other income (expense), net
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded	$	2,205	$	1,953		$	(10	)
(Gain) or loss on cash flow hedging relationships
Foreign currency forwards
Amount of (gain) loss reclassified from AOCI into income				(4	)		(2	)
Cross-currency swaps
Amount of (gain) loss reclassified from AOCI into income							31

	Six Months Ended June 30, 2021
Derivatives Designated as Cash Flow Hedges	Net sales		Cost of sales			Other income (expense), net
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded	$	4,468	$	3,965		$	(29	)
(Gain) or loss on cash flow hedging relationships
Foreign currency forwards
Amount of (gain) loss reclassified from AOCI into income				(5	)		(3	)
Cross-currency swaps
Amount of (gain) loss reclassified from AOCI into income							(17	)

	Three Months Ended June 30, 2020
Derivatives Designated as Cash Flow Hedges	Net sales		Cost of sales		Other income (expense), net
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded	$	1,078	$	1,088	$	(1	)
(Gain) or loss on cash flow hedging relationships
Foreign currency forwards
Amount of (gain) loss reclassified from AOCI into income		1		5		1
Cross-currency swaps
Amount of (gain) loss reclassified from AOCI into income						21

	Six Months Ended June 30, 2020
Derivatives Designated as Cash Flow Hedges	Net sales		Cost of sales		Other income (expense), net
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow hedges are recorded	$	3,004	$	2,808	$	3
(Gain) or loss on cash flow hedging relationships
Foreign currency forwards
Amount of (gain) loss reclassified from AOCI into income		1		12		1
Cross-currency swaps
Amount of (gain) loss reclassified from AOCI into income						2

The amounts reclassified from AOCI into income for the cross-currency swaps represent an offset to a foreign exchange loss on our foreign currency-denominated intercompany and external debt instruments.

Certain of our hedges of forecasted transactions have not formally been designated as cash flow hedges. As undesignated forward contracts, the changes in the fair value of such contracts are included in earnings for the duration of the outstanding forward contract. Any realized gain or loss on the settlement of such contracts is recognized in the same period and in the same line item in the consolidated statement of operations as the underlying transaction. The following table provides a summary of the location and amount of gains or losses recognized in the consolidated statement of operations associated with undesignated hedging relationships.

	Amount of Gain (Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020			Location of Gain or (Loss) Recognized in Income
Foreign currency forward contracts	$	—		$	(5	)	Cost of sales
Foreign currency forward contracts	$	(16	)	$	3		Other income (expense), net

	Amount of Gain (Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments	Six Months Ended June 30, 2021			Six Months Ended June 30, 2020			Location of Gain or (Loss) Recognized in Income
Foreign currency forward contracts	$	—		$	—		Cost of sales
Foreign currency forward contracts	$	(14	)	$	(6	)	Other income (expense), net

Net investment hedges — We periodically designate derivative contracts or underlying non-derivative financial instruments as net investment hedges. With respect to contracts designated as net investment hedges, we apply the forward method, but for non-derivative financial instruments designated as net investment hedges, we apply the spot method. Under both methods, we report changes in fair value in the cumulative translation adjustment (CTA) component of OCI during the period in which the contracts remain outstanding to the extent such contracts and non-derivative financial instruments remain effective.