Note 15 - Fair Value Measurements and Derivatives

12 Months Ended

Dec. 31, 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	December 31, 2021		December 31, 2020
Certificates of deposit	Marketable securities	2	$	17	$	21
Available-for-sale securities	Other noncurrent assets	1				49
Currency forward contracts
Cash flow hedges	Accounts receivable - Other	2		7		15
Cash flow hedges	Other accrued liabilities	2		1		1
Undesignated	Accounts receivable - Other	2		2		2
Undesignated	Other accrued liabilities	2				1
Interest rate collars	Other accrued liabilities	2				7
Currency swaps
Cash flow hedges	Other noncurrent liabilities	2		34		128
Undesignated	Other noncurrent liabilities	2		17

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:

		2021				2020
		Carrying		Fair		Carrying		Fair
	Fair Value Level	Value		Value		Value		Value
Long term debt	2	$	2,338	$	2,412	$	2,376	$	2,475

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, and any subsequent replacement debt, 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, or subsequent replacement debt, 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  December 31, 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 all of the underlying designated financial instruments and all of 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 14 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 14 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 $449 at December 31, 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 $1,096 at December 31, 2021 and $1,118 at December 31, 2020.

The following currency derivatives were outstanding at  December 31, 2021:

		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated		Undesignated		Total		Maturity
U.S. dollar	Mexican peso, Thai baht	$	88	$	12	$	100	Nov-2022
Euro	U.S. dollar, Australian dollar, Brazilian real, Canadian dollar, Swiss franc, Chinese renminbi, Danish krone, British pound, Hungarian forint, Indian rupee, Mexican peso, Norwegian krone, New Zealand dollar, South African rand		49		87		136	Jan-2024
British pound	U.S. dollar, euro				3		3	Jan-2022
South African rand	U.S. dollar, euro, Thai baht				8		8	Feb-2022
Brazilian real	U.S. dollar, euro		25		11		36	Oct-2022
Indian rupee	U.S. dollar, euro, British pound				156		156	Dec-2022
Chinese renminbi	U.S. dollar, Canadian dollar, euro				9		9	Jan-2022
Australian dollar	U.S. dollar, euro				1		1	Jan-2022
Total forward contracts			162		287		449
U.S. dollar	euro		316		192		508	Nov-2027
Euro	U.S. dollar		400		188		588	Jun-2026
Total currency swaps			716		380		1,096
Total currency derivatives		$	878	$	667	$	1,545

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
	December 31, 2021			December 31, 2020			Gain (loss) expected to be reclassified into income in one year or less
Forward Contracts	$	(1	)	$	9		$	(1	)
Collar					(6	)
Cross-Currency Swaps		2			3
Total	$	1		$	6		$	(1	)

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:

	2021			2020		2019
Derivatives Designated as Cash Flow Hedges
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
Net sales	$	8,945		$	7,106	$	8,620
Cost of sales		8,108			6,485		7,489
Other income (expense), net		32			22		(25	)
(Gain) or loss on cash flow hedging relationships
Foreign currency forwards
Amount of (gain) loss reclassified from AOCI into income
Net sales					1
Cost of sales		(9	)		18		(9	)
Other income (expense), net		(5	)
Cross-currency swaps
Amount of (gain) loss reclassified from AOCI into income
Other income (expense), net		(45	)		99		(24	)

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.

	2021		2020			2019
Derivatives Not Designated as Hedging Instruments
(Gain) or loss recognized in income
Foreign currency forward contracts
Cost of sales	$	1	$	—		$	—
Other income (expense), net	$	—	$	(6	)	$	(14	)

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 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.