Financial Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

Financial instruments

A. Fair values of financial instruments

The Company categorizes its financial assets and liabilities measured at fair value into a three-level hierarchy established by GAAP that prioritizes those inputs to valuation techniques used to measure fair value based on the degree to which they are observable.

The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices in active markets for identical assets and liabilities; Level 2 inputs, other than quoted prices included within Level 1, are observable for the asset or liability either directly or indirectly; and Level 3 inputs are not observable in the market.

The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short-term borrowings including commercial paper. The carrying value of short-term financial instruments all approximate their fair values.

The carrying value of the Company’s debt and finance lease liabilities do not approximate their fair value. Their estimated fair value has been determined based on market information where available, or by discounting future payments of principal and interest at estimated interest rates expected to be available to the Company at period end. All measurements are classified as Level 2. The Company’s debt and finance lease liabilities, including current maturities, with a carrying value of $9,327 million at September 30, 2020 (December 31, 2019 - $8,241 million), had a fair value of $11,860 million (December 31, 2019 - $10,149 million).

B. Financial risk management

The effect of the Company's net investment hedge for the three and nine months ended September 30, 2020 was an unrealized FX gain of $135 million and an unrealized FX loss of $156 million, respectively (three and nine months ended September 30, 2019 - an unrealized FX loss of $68 million and an unrealized FX gain of $172 million, respectively) recognized in “Other comprehensive income”.