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Derivative Instruments
 9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments DERIVATIVE INSTRUMENTS
We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges (both derivative and non-derivative financial instruments) and interest rate derivative instruments to manage the impact of currency exchange and interest rate fluctuations on earnings and cash flow. We do not enter into derivative instruments for speculative purposes. We have not changed our hedging strategies, accounting practices or objectives from those disclosed in our Annual Report on Form 10-K for 2018.
Foreign Currency Hedges
September 2019
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
804

$
1,100

$
5,874

$
7,778

Maximum term in days
 
 
 
586

Fair value:
 
 
 
 
Other current assets
$
7

$
—

$
189

$
196

Other noncurrent assets
—

44

—

44

Other current liabilities
(9
)
—

(10
)
(19
)
Other noncurrent liabilities
(1
)
—

—

(1
)
Total fair value
$
(3
)
$
44

$
179

$
220


December 2018
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
870

$
—

$
5,466

$
6,336

Maximum term in days
 
 
 
586

Fair value:
 
 
 
 
Other current assets
$
15

$
—

$
28

$
43

Other noncurrent assets
1

—

33

34

Other current liabilities
(5
)
—

(15
)
(20
)
Total fair value
$
11

$
—

$
46

$
57


In July 2019 we entered into €1.0 billion in certain forward currency contracts and designated these as net investment hedges to hedge a portion of our investments in certain of our entities with functional currencies denominated in Euros. We have elected to use the spot method to assess effectiveness for our derivatives designated as net investment hedges. Accordingly, the change in fair value attributable to changes in the spot rate is recorded in AOCI. We
exclude the spot-forward difference from the assessment of hedge effectiveness and amortize this amount separately on a straight-line basis over the term of the forward contracts. This amortization will be recorded to Other income (expense), net on our Consolidated Statements of Earnings.
On September 30, 2019 the total after tax gain amount in AOCI related to our €2.25 billion senior unsecured notes designated as net investment hedges was $61. We evaluate the effectiveness of our net investment hedges quarterly.
We are exposed to credit loss in the event of nonperformance by our counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum loss exposure is the asset balance of the instrument.
Net Currency Exchange Rate Gains (Losses)
 
 
Three Months
 
Nine Months
Derivative instrument
Recorded in:
2019
2018
 
2019
2018
Cash Flow
Cost of sales
$
2

$
2

 
$
4

$
4

Net Investment
Other income (expense), net
7

—

 
7

—

Non-Designated
Other income (expense), net
(6
)
1

 
(10
)
(3
)
 
Total
$
3

$
3

 
$
1

$
1


Pretax gains (losses) on derivatives designated as cash flow of ($3) and net investment hedges of $25 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense) in earnings within 12 months as of September 30, 2019. The cash flow hedge reclassification is primarily due to the sale of inventory that includes previously hedged purchases. A component of the AOCI amounts related to net investment hedges is reclassified over the life of the hedge instruments as we elected to exclude the initial value of the component related to the spot-forward difference from the effectiveness assessment.
Interest Rate Hedges
On September 30, 2019 we had interest rate swap agreements with notional amounts of €600 and $750 designated as forward starting interest rate swaps in anticipation of future debt issuances. Pretax losses of $6 and $8 for the €600 and $750 interest rate swap agreements were recorded in AOCI as of September 30, 2019. Upon the probable issuance of the debt, these amounts will be released to interest expense over the term of the debt. The cash flow effect of these hedges is recorded in cash flow from operations.