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Financial Instruments and Fair Value

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company is exposed to market risk, such as fluctuations in foreign currency exchange rates, commodity prices, equity price risk associated with share-based compensation awards, and changes in interest rates, which may result in cash flow risks. For exposures not offset within its operations, the Company may enter into various derivative or other financial instrument transactions pursuant to its risk management policies, which prohibit holding or issuing derivative financial instruments for speculative purposes. In certain cases, the Company may or may not designate certain derivative instruments as hedges for accounting purposes. Designation of derivative instruments is performed on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policy.

Market Risks

Foreign Currency Exchange Rate Risk

The Company manufactures and sells its products globally. As a result, the Company’s financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which the Company manufactures and sells its products. The Company generally tries to use natural hedges within its foreign currency activities to minimize foreign currency risk. Where natural hedges are not in place, the Company considers managing certain aspects of its foreign currency activities and larger transactions through the use of foreign currency options or forward contracts.

Concentrations of Credit Risk

Financial instruments, including cash equivalents and derivative contracts, expose the Company to counterparty credit risk for non-performance. The Company’s counterparties for cash equivalents and derivative contracts are banks and financial institutions that meet the Company’s requirement of high credit standing. The Company’s concentration of credit risk related to derivative contracts at December 31, 2021 and 2020 is not considered material to the consolidated financial statements.

Equity Price Risk

The Company has certain cash-settled share-based incentive compensation awards that are dependent upon the Company’s stock price. The related cash payouts increase as the stock price increases and decrease as the stock price decreases. The Company has entered into certain financial instruments that move in the opposite direction of the cash settlement of these awards. Based on the Company’s current position, these financial instruments mitigate the market risk related to the final settlement of the cash-settled share-based incentive compensation awards. Effective in the third quarter of 2021, investment options based on the Company’s stock price no longer exist under the incentive deferral plan and, at December 31, 2021, there are no deferred compensation balances correlated to the Company’s stock price. Refer to “Other Financial Instruments” section below for additional details on these liabilities and the related financial instruments used to reduce the Company’s equity price risk.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Asset and Liability Instruments

The carrying value of cash and cash equivalents, restricted cash, short and long-term receivables, accounts payable, and short-term debt approximates fair value.

Derivative Instruments

The Company presents its derivative positions and any related material collateral under master netting agreements on a net basis.

Foreign Currency Forward Contracts

The Company enters into foreign currency forward purchase and sale contracts to mitigate its exposure to changes in exchange rates on certain intercompany and third-party trade receivables and payables and intercompany loans. The Company calculates the fair value of its foreign currency contracts using currency forward rates (level 2), to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on bank deposit rates. Derivative gains and losses associated with these foreign currency forward contracts are recognized in “Cost of sales (exclusive of depreciation and amortization)” in the consolidated statements of income (loss). The fair value of these derivative instruments at December 31, 2021 and 2020 is not considered material to the consolidated financial statements.

The following table summarizes by position the notional amounts for foreign currency forward contracts at December 31, 2021, all of which mature in the next twelve months:


	Notional Amount
Long positions	$	401
Short positions	$	396

Other Financial Instruments

Cash-Settled Share and Index Swap Transactions

The Company has certain employee compensation arrangements, including deferred compensation and cash-settled share-based units granted under its long-term incentive plan, that are valued based on the Company’s stock price. The share equivalents outstanding related to deferred compensation and cash-settled share-based awards are as follows:


	December 31
	2021	2020
Restricted Stock Units (RSUs)	1,451,422	1,878,220
Performance Share Units (PSUs)	2,951,316	—
	4,402,738	1,878,220

Deferred compensation arrangements (a)	—	1,125,605

(a) At December 31, 2021, there are no share equivalents outstanding that are based on the Company’s stock price. On a prospective basis, the alternative for employees to invest their deferred compensation into these arrangements no longer exists.

The Company has entered into financial instruments to mitigate the risk associated with both the vested and unvested portions of its cash-settled share-based incentive compensation awards and, prior to September 30, 2021, its deferred compensation liability. The number of common share equivalents under these agreements at December 31, 2021 and 2020 was 3,100,000 and 1,700,000.

These financial instruments use the Company’s stock price as an observable input (level 2) in determining fair value. The estimated fair value of these financial instruments is as follows:


		December 31
	Balance sheet classification	2021		2020
Other financial instruments in asset positions(a)	Prepayments and other current assets	$	35	$	1

(a) There was a cash premium of $7 million at December 31, 2020 associated with these financial instruments, which is included in “Prepayments and other current assets” in the consolidated balance sheets, and none at December 31, 2021.

The gains and losses associated with these other financial instruments are recognized in “Selling, general, and administrative” in the consolidated statements of income (loss).

Hedging Instruments

Cash Flow Hedges—Commodity Price Risk

The Company’s production processes are dependent upon the supply of certain raw materials that are exposed to price fluctuations on the open market. Commodity rate price forward contracts are executed to offset a portion of the exposure to potential change in prices for raw materials. The Company monitors its commodity price risk exposures regularly to maximize the overall effectiveness of its commodity forward contracts.

The Company has designated these contracts as cash flow hedging instruments. The Company records unrecognized gains and losses in other comprehensive income (loss) (“OCI” or “OCL”) and makes reclassifying adjustments into “Cost of sales (exclusive of depreciation and amortization)” within the consolidated statements of income (loss) when the underlying hedged transaction is recognized in earnings. The Company had commodity derivatives outstanding with an equivalent notional amount of $34 million and $10 million at December 31, 2021 and 2020. Substantially all of the commodity price hedge contracts mature within one year.

The Company calculates the fair value of its commodity contracts using commodity forward rates (level 2), to calculate forward values, and then discounts the forward values. The discount rates for all derivative contracts are based on bank deposit rates. The fair value of these derivative instruments at December 31, 2021 and 2020 is not considered material to the consolidated financial statements.

Net Investment Hedge—Foreign Currency Borrowings

At December 31, 2020, the Company had foreign currency denominated debt, of which €344 million or $420 million, was designated as a net investment hedge in certain foreign subsidiaries and affiliates of the Company and was included in “Long-term debt” in the consolidated balance sheets. Changes to its carrying value were included in the consolidated statements of changes in shareholders’ equity in the foreign currency translation component of OCL and offset against the translation adjustments on the underlying net assets of those foreign subsidiaries and affiliates, which were also recorded in OCL. All of the outstanding foreign currency borrowings related to the net investment hedge were discharged on March 17, 2021, as a result, there are no outstanding foreign currency borrowings designated as a net investment hedge at December 31, 2021. The Company’s debt instruments are discussed further in Note 9, “Debt and Other Financing Arrangements”.

The following table represents the amount of gain (loss) recognized in accumulated other comprehensive income (loss) before any reclassifications into net income (loss) of derivative and non-derivative instruments designated as hedges:


	Year Ended December 31
	2021		2020		2019
Commodity price hedge contracts designated as cash flow hedges	$	6	$	4	$	1
Foreign currency borrowings designated as net investment hedges	$	—	$	(74)	$	20

The Company estimates approximately $2 million included in OCI or OCL at December 31, 2021 will be reclassified into net income (loss) within the following twelve months. Refer to Note 16, “Shareholders’ Equity” for further information.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets, which may be written down to fair value as a result of impairment.

Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the value of these long-lived asset groups are not recoverable. During the first quarter of 2020, the Company concluded certain impairment triggers had occurred for certain long-lived asset groups as a result of the effects of the COVID-19 global pandemic on the Company’s projected financial information. After failing the undiscounted cash flow recoverability test, the Company estimated the fair values of these long-lived asset groups and compared them to their net carrying values. The fair value measurements related to these long-lived asset groups rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets, as observable inputs are not available (level 3). To determine the fair value of the long-lived asset groups, the Company utilized an asset-based approach. The Company believes the assumptions and estimates used to determine the estimated fair values of the long-lived asset groups are reasonable; however, these estimates and assumptions are subject to a high degree of uncertainty. Due to the many variables inherent in estimating fair value, differences in assumptions could have a material effect on the results of the analyses.

As the net carrying values of the long-lived asset groups exceeded their fair values, the Company recorded long-lived asset impairment charges consisting of $65 million of definite-lived intangible assets and $455 million of property, plant and equipment, during the year ended December 31, 2020. Refer to Note 3, “Restructuring Charges, Net and Asset Impairments” for additional information on asset impairments and refer to Note 6, “Goodwill and Other Intangible Assets”, for additional information on the definite-lived intangible asset impairments.

Goodwill and Indefinite-Lived Intangible Assets

During the first quarter of 2020, the Company concluded it was more likely than not that the fair values of certain of its reporting units and its trade names and trademarks had declined below their carrying values as a result of the effects of the COVID-19 global pandemic on the Company’s projected financial information. The Company completed analyses to estimate the fair values of these reporting units and trade names and trademarks. The Company believes the assumptions and estimates used to determine the estimated fair value are reasonable; however, these estimates and assumptions are subject to a high degree of uncertainty. Due to the many variables inherent in estimating fair value, differences in assumptions could have a material effect on the results of the analyses.

The basis of the goodwill impairment and indefinite-lived intangible asset analyses is the Company’s current forecast of its annual budget and three-year strategic plan. This includes a projection of future cash flows, which requires the Company to make significant assumptions and estimates about the extent and timing of future cash flows and revenue growth rates. These represent Company-specific inputs and assumptions about the use of the assets, as observable inputs are not available (level 3). Due to the many variables inherent in estimating fair value and the relative size of the goodwill and indefinite-lived intangible assets, differences in assumptions could have a material effect on the results of the analyses.

In the goodwill impairment analysis, for reporting units with goodwill, fair values are estimated using a combination of the income approach and market approach. The Company applies a 75% weighting to the income approach and a 25% weighting to the market approach. The most significant inputs in estimating the fair value of the Company’s reporting units under the income approach are (i) projected operating margins, (ii) the revenue growth rate, and (iii) the discount rate, which is risk-adjusted based on the aforementioned inputs.

For the indefinite-lived asset impairment analysis, the fair value is based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets. The primary inputs utilized in determining fair values of trade names and trademarks are (i) projected branded product sales, (ii) the revenue growth rate, (iii) the royalty rate, and (iv) the discount rate, which is risk-adjusted based on the projected branded sales.

Refer to Note 6, “Goodwill and Other Intangible Assets”, for additional information on the goodwill and indefinite-lived intangible asset impairments.

Financial Instruments Not Carried at Fair Value

Estimated fair value of the Company’s outstanding debt is as follows:


		December 31, 2021				December 31, 2020
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including current maturities):
Term loans and senior notes	Level 2	$	4,998	$	5,060	$	5,153	$	5,138

The fair value of the Company’s public senior notes and private borrowings under its New Credit Facility, as subsequently defined in Note 9, “Debt and Other Financing Arrangements”, is based on observable inputs, and any borrowings on the revolving credit facility approximate fair value. The Company also had $77 million and $180 million at December 31, 2021 and 2020 in other debt whose carrying value approximates fair value, which consists primarily of foreign debt with maturities of one year or less.