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Risk Management
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Risk Management
Risk Management
Foreign Currency Risk
The Company is exposed to foreign currency risk as a result of buying and selling in various currencies, our net investments in foreign entities, and monetary assets and liabilities denominated in a currency other than the functional currency of the legal entity holding the instrument. The Company uses financial instruments to reduce its overall exposure to the effects of currency fluctuations on cash flows. The Company’s policy prohibits speculation in financial instruments for profit on exchange rate fluctuations, trading in currencies for which there are no underlying exposures, or entering into transactions for any currency to intentionally increase the underlying exposure.
The Company’s strategy related to foreign exchange exposure management is to offset the gains or losses on the financial instruments against gains or losses on the underlying operational cash flows, net investments or monetary assets and liabilities based on the Company's assessment of risk. The Company enters into derivative contracts for some of its non-functional currency cash, receivables, and payables, which are primarily denominated in major currencies that can be traded on open markets. The Company typically uses forward contracts and options to hedge these currency exposures. In addition, the Company has entered into derivative contracts for some forecasted transactions or net investments in some of its overseas entities, which are designated as part of a hedging relationship if it is determined that the transaction qualifies for hedge accounting under the provisions of the authoritative accounting guidance for derivative instruments and hedging activities. A portion of the Company’s exposure is from currencies that are not traded in liquid markets and these are addressed, to the extent reasonably possible, by managing net asset positions, product pricing and component sourcing.
At December 31, 2018, the Company had outstanding foreign exchange contracts with notional amounts totaling $819 million, compared to $507 million outstanding at December 31, 2017. The Company does not believe these financial instruments should subject it to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions.
The following table shows the Company's five largest net notional amounts of the positions to buy or sell foreign currency as of December 31, 2018 and the corresponding positions as of December 31, 2017:
 
Notional Amount
Net Buy (Sell) by Currency
2018
 
2017
British Pound
$
139

 
$
72

Euro
89

 
149

Australian Dollar
(105
)
 
(64
)
Chinese Renminbi
(55
)
 
(73
)
Brazilian Real
(41
)
 
(45
)

During the year ended December 31, 2018, the Company entered into forward contracts to sell €85 million, that expire in December 2019 as well as to sell €10 million, that will expire in January 2020. The forward contracts have been designated as a net investment hedges which are in place to partially hedge the Company's Euro foreign currency exposure on its net investments in certain foreign subsidiaries that are Euro-denominated. The gains and losses on the Company's net investments in Euro-denominated foreign operations, driven by changes in foreign exchange rates, are economically offset by movements in the fair values of the forward contracts designated as net investment hedges. Any changes in fair value of the net investment hedges are reflected as a component of Accumulated other comprehensive income (loss) with the exception of the excluded component which will be amortized on a straight-line basis to Interest expense, net.
 Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. As of December 31, 2018, all of the counterparties have investment grade credit ratings. As of December 31, 2018, the credit risk with all counterparties was approximately $5 million.
Derivative Financial Instruments
The following tables summarize the fair values and location in the Consolidated Balance Sheet of all derivative financial instruments held by the Company at December 31, 2018 and 2017
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
December 31, 2018
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
$
5

 
Other assets
 
$
4

 
Accrued liabilities
 
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
December 31, 2017
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
Other assets
 
$
3

 
Accrued liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
$
5

 
Other assets
 
$
2

 
Accrued liabilities
Total derivatives
$
5

 
 
 
$
5

 
 

The following table summarizes the effect of derivatives designated as hedging instruments, for the years ended December 31, 2018, 2017 and 2016
 
December 31
Financial Statement Location
Gain (Loss) on Derivative Instruments
2018
 
2017
 
2016
Foreign exchange contracts
$

 
$
(3
)
 
$

Other comprehensive income (loss)
The following table summarizes the effect of derivatives not designated as hedging instruments, for the years ended December 31, 2018, 2017 and 2016
 
December 31
Financial Statement Location
Gain (Loss) on Derivative Instruments
2018
 
2017
 
2016
Interest agreements
$

 
$

 
$
1

Other income (expense)
Foreign exchange contracts
(14
)
 
15

 
(57
)
Other income (expense)
Total derivatives
$
(14
)
 
$
15

 
$
(56
)