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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
Risk Management Objective of Using Derivatives
We are exposed to certain risks arising from both our business operations and economic conditions, and we principally manage our exposures to these risks through management of our core business activities. Certain of our foreign operations expose us to fluctuations of interest rates and exchange rates that may impact revenue, expenses, cash receipts, cash payments, and the value of our stockholders' equity. We enter into derivative financial instruments to protect the value or fix the amount of certain cash flows in terms of the functional currency of the business unit with that exposure and reduce the volatility in stockholders' equity.
Cash Flow Hedges of Foreign Exchange Risk
We are exposed to fluctuations in various foreign currencies against our functional currencies. We use foreign currency derivatives, including currency forward agreements, to manage our exposure to fluctuations in the various exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date.
Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty, and Australian Dollar. We had foreign exchange contracts with purchase notional amounts totaling $0 million and $506 million as of December 31, 2019 and 2018, respectively. As of December 31, 2018, our most significant foreign currency derivatives included contracts to sell U.S. Dollar and purchase Euro, purchase Swedish Krona and sell Euro, sell British Pound and purchase Euro, purchase Polish Zloty and sell Euro, purchase U.S. Dollar and sell Canadian Dollar and to sell Canadian Dollar and purchase Euro. The purchase notional amounts associated with these currency derivatives were $191 million, $168 million, $52 million, $37 million, $29 million and $22 million, respectively. We entered into new foreign exchange contracts as of the first quarter of 2020.
Hedges of Net Investments in Foreign Operations
We are exposed to changes in foreign currencies impacting our net investments held in foreign subsidiaries.
Cross Currency Swaps
Beginning in 2015, we entered into cross currency swaps to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. During the second quarter of 2019 we entered into additional cross currency swaps. The total notional amount of derivative instruments designated as net investment hedges was $714 million and $426 million as of December 31, 2019 and 2018, respectively.
Foreign Currency Denominated Debt
On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023. We designated the entirety of the outstanding balance, or $554 million and $566 million as of December 31, 2019 and 2018, respectively, net of unamortized discount, as a hedge of a net investment in certain foreign subsidiaries.
The table below presents the effect of our derivative financial instruments on the Consolidated Income Statements and Consolidated Statements of Comprehensive Income:
 
 
Year Ended December 31,
(in millions)
 
2019
 
2018
 
2017
Derivatives in Cash Flow Hedges
 
 
 
 
 
 
Foreign Exchange Contracts
 
 
 
 
 
 
Amount of (loss) gain recognized in OCI (a)
 
$
(14
)
 
$
(8
)
 
$
9

Amount of loss (gain) reclassified from OCI into revenue (a)
 
7

 
—

 
(6
)
Amount of loss reclassified from OCI into cost of revenue (a)
 
5

 
4

 
1

 
 
 
 
 
 
 
Derivatives in Net Investment Hedges
 
 
 
 
 
 
Cross Currency Swaps
 
 
 
 
 
 
Amount of gain (loss) recognized in OCI (a)
 
$
22

 
$
22

 
$
(53
)
Amount income recognized in Interest Expense
 
16

 
2

 
—

Foreign Currency Denominated Debt
 
 
 
 
 
 
Amount of gain (loss) recognized in OCI (a)
 
$
13

 
$
27

 
$
(74
)
(a)
Effective portion
As of December 31, 2019, $3 million of the net losses on cash flow hedges is expected to be reclassified into earnings in the next 12 months.
As of December 31, 2019, no gains or losses on the net investment hedges are expected to be reclassified into earnings over the next 12 months.
The ineffective portion of the change in fair value of a cash flow hedge was not material for 2019, 2018, and 2017.
The net investment hedges did not experience any ineffectiveness in 2019, 2018 and 2017.

The fair values of our derivative assets and liabilities are measured on a recurring basis using Level 2 inputs and are determined through the use of models that consider various assumptions including yield curves, time value and other measurements.

The fair values of our derivative contracts currently included in our hedging program were as follows:
 
December 31,
(in millions)
2019
 
2018
Derivatives designated as hedging instruments
 
 
 
Assets
 
 
 
Cash Flow Hedges
 
 
 
Other current assets
$
—

 
$
3

Net Investment Hedges
 
 
 
Other non-current assets
4

 
—

Liabilities
 
 
 
Cash Flow Hedges
 
 
 
Other current liabilities
—

 
(1
)
Net Investment Hedges
 
 
 
Other non-current liabilities
(24
)
 
(46
)


The fair value of our long-term debt, due in 2023, designated as a net investment hedge was $591 million and $599 million as of December 31, 2019 and 2018, respectively.