Note 11 - Fair Value Measurements and Derivatives

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 11. Fair Value Measurements and Derivatives

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, 2023		December 31, 2022
Currency forward contracts
Cash flow hedges	Accounts receivable - Other	2	$	47	$	26
Cash flow hedges	Other accrued liabilities	2		7		4
Undesignated	Accounts receivable - Other	2		3		2
Undesignated	Other accrued liabilities	2		8		7
Currency swaps
Cash flow hedges	Other noncurrent assets	2		8		17
Undesignated	Other noncurrent liabilities	2		9		11

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, 2023				December 31, 2022
	Fair Value Level		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt		2	$	2,571	$	2,348	$	2,304	$	2,010

Foreign currency derivatives — Our foreign currency derivatives include forward contracts associated with forecasted transactions, primarily involving the purchases and sales of inventory, 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 fixed-to-fixed cross-currency swaps is recognized during each period as a component of interest expense for hedges of external debt and as a component of other income (expense), net for hedges of intercompany debt.

The following fixed-to-fixed cross-currency swaps were outstanding at June 30, 2023:

Underlying Financial Instrument							Derivative Financial Instrument
Description	Type	Face Amount		Rate			Notional Amount		Traded Amount		Inflow Rate			Outflow Rate
April 2025 Notes	Payable	$	200		5.75	%	$	200	€	185		5.75	%		3.85	%
Luxembourg Intercompany Notes	Receivable	€	93		3.85	%	$	100	€	93		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 10 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.

The total notional amount of outstanding foreign currency forward contracts, involving the exchange of various currencies, was $662 at June 30, 2023 and $608 at December 31, 2022. The total notional amount of outstanding foreign currency swaps, including the fixed-to-fixed cross-currency swaps, was $975 at June 30, 2023 and $967 at December 31, 2022.

The following currency derivatives were outstanding at June 30, 2023:

		Notional Amount (U.S. Dollar Equivalent)
Functional Currency	Traded Currency	Designated		Undesignated		Total		Maturity
U.S. dollar	Mexican peso, Thai baht	$	170	$	32	$	202	Jun-2024
Euro	U.S. dollar, Australian dollar, Canadian dollar, Swiss franc, Chinese renminbi, British pound, Hungarian forint, Indian rupee, Japanese yen, Mexican peso, Norwegian krone, New Zealand dollar, Swedish krona, South African rand		191		59		250	Sep-2027
British pound	U.S. dollar, euro		1		6		7	Sep-2023
South African rand	U.S. dollar, euro, Thai baht				13		13	Aug-2023
Canadian dollar	U.S. dollar				12		12	Jul-2023
Brazilian real	U.S. dollar, euro		54		15		69	Mar-2024
Indian rupee	U.S. dollar, euro, British pound				95		95	Jun-2024
Chinese renminbi	U.S. dollar, euro, Canadian dollar				10		10	Jul-2023
Australian dollar	U.S. dollar, euro				1		1	Jul-2023
Mexican peso	U.S. dollar				3		3	Jul-2023
Total forward contracts			416		246		662
U.S. dollar	euro		303		184		487	Nov-2027
Euro	U.S. dollar		300		188		488	Jun-2026
Total currency swaps			603		372		975
Total currency derivatives		$	1,019	$	618	$	1,637

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, 2023		December 31, 2022		Gain (loss) expected to be reclassified into income in one year or less
Forward Contracts	$	28	$	11	$	28
Cross-Currency Swaps		13		11
Total	$	41	$	22	$	28

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						Six Months Ended
	June 30,						June 30,
Derivatives Designated as Cash Flow Hedges	2023			2022			2023			2022
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	$	2,748		$	2,586		$	5,392		$	5,066
Cost of sales		2,477			2,403			4,892			4,686
Other income (expense), net		4			10			9			12
(Gain) or loss on cash flow hedging relationships
Foreign currency forwards
Amount of (gain) loss reclassified from AOCI into income
Cost of sales		(8	)		(1	)		(13	)		(2	)
Other income (expense), net		(3	)		(2	)		(5	)		(4	)
Cross-currency swaps
Amount of (gain) loss reclassified from AOCI into income
Other income (expense), net		5			(36	)		12			(55	)

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.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
Derivatives Not Designated as Hedging Instruments	2023			2022			2023			2022
Gain or (loss) recognized in income
Foreign currency forward contracts
Cost of sales	$	1		$	1		$	—		$	1
Other income (expense), net	$	(10	)	$	(3	)	$	(7	)	$	(9	)

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.