Risk Management

9 Months Ended

Sep. 26, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Risk Management

Risk Management

Foreign Currency Risk

As of September 26, 2020, the Company had outstanding foreign exchange contracts with notional amounts totaling $1.0 billion, compared to $1.1 billion outstanding at December 31, 2019. 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 five largest net notional amounts of the positions to buy or sell foreign currency as of September 26, 2020, and the corresponding positions as of December 31, 2019: 

	Notional Amount
Net Buy (Sell) by Currency	September 26, 2020		December 31, 2019
Euro	$	196	$	134
British pound	134		107
Norwegian krone	29		32
Australian dollar	(93)		(123)
Chinese renminbi	(77)		(79)

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 September 26, 2020, all of the counterparties have investment grade credit ratings. As of September 26, 2020, the Company had $1 million of exposure to aggregate credit risk with all counterparties.

The following tables summarize the fair values and locations in the Condensed Consolidated Balance Sheets of all derivative financial instruments held by the Company as of September 26, 2020 and December 31, 2019:

	Fair Values of Derivative Instruments
September 26, 2020	Other Current Assets		Accrued Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—	$	2
Derivatives not designated as hedging instruments:
Foreign exchange contracts	1		7
Total derivatives	$	1	$	9

	Fair Values of Derivative Instruments
December 31, 2019	Other Current Assets		Accrued Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	3	$	—
Derivatives not designated as hedging instruments:
Foreign exchange contracts	1		5
Total derivatives	$	4	$	5

The following table summarizes the effect of derivatives on the Company's condensed consolidated financial statements for the three and nine months ended September 26, 2020 and September 28, 2019:

	Three Months Ended				Nine Months Ended				Financial Statement Location
Foreign Exchange Contracts	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Effective portion	$	(5)	$	8	$	3	$	16	Accumulated other comprehensive income
Forward points recognized	—		2		2		5		Other income
Undesignated derivatives recognized	10		(9)		6		(16)		Other expense

Net Investment Hedges

The Company uses foreign exchange forward contracts with contract terms of 12 to 15 months to hedge against the effect of the British pound and the Euro exchange rate fluctuations against the U.S. dollar on a portion of its net investment in certain European operations. The Company recognizes changes in the fair value of the net investment hedges as a component of foreign currency translation adjustments within other comprehensive income to offset a portion of the change in translated value of the net investment being hedged, until the investment is sold or liquidated. As of September 26, 2020, the Company had €94 million of net investment hedges in certain Euro functional subsidiaries and £60 million of net investment hedges in certain British pound functional subsidiaries.

The Company excludes the difference between the spot rate and the forward rate of the forward contract from its assessment of hedge effectiveness. The effect of the excluded components will be amortized on a straight line basis and recognized through interest expense. During the nine months ended September 26, 2020, the Company amortized $2 million of income from the excluded components through interest expense. During the three and nine months ended September 28, 2019, the Company amortized $2 million, and $5 million, respectively, of income from the excluded components through interest expense.