The Company’s activities expose it to a variety of market risks, which primarily include the risks related to the effects of changes in foreign currency exchange rates and interest rates. These financial exposures are monitored and managed by the Company as part of its overall risk management program. The objective of this risk management program is to reduce the volatility that these market risks may have on the Company’s operating results and cash flows. The Company employs derivative financial instruments to hedge certain anticipated transactions, firm commitments, or assets and liabilities denominated in foreign currencies. Additionally, the Company utilizes interest rate swaps to convert fixed rate debt into variable rate debt or vice versa. The Company does not hold derivative instruments for trading or speculative purposes.

The following summarizes the notional amounts of cash flow hedges, hedges of net investments, fair value hedges, and derivative instruments not designated as hedges for accounting purposes by derivative instrument type at March 31, 2022 and the notional amounts expected to mature during the next 12 months.


(in millions)	Aggregate Notional Amount		Aggregate Notional Amount Maturing within 12 Months

Cash Flow Hedges
Foreign exchange forward contracts	$	282	$	215


Total derivative instruments designated as cash flow hedges	$	282	$	215

Hedges of Net Investments
Foreign exchange forward contracts	$	177	$	89
Cross currency basis swaps	295		—
Total derivative instruments designated as hedges of net investments	$	472	$	89

Fair Value Hedges
Interest rate swaps	$	250	$	—
Foreign exchange forward contracts	204		77
Total derivative instruments designated as fair value hedges	$	454	$	77

Derivative Instruments not Designated as Hedges
Foreign exchange forward contracts	$	349	$	349
Total derivative instruments not designated as hedges	$	349	$	349

The Company hedges select anticipated foreign currency cash flows to reduce volatility in both cash flows and reported earnings. The Company designates certain foreign exchange forward contracts as cash flow hedges. As a result, the Company records the fair value of the contracts primarily through AOCI based on the assessed effectiveness of the foreign exchange forward contracts. The Company measures the effectiveness of cash flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be deferred in AOCI and released and recorded in the Consolidated Statements of Operations in the same period that the hedged transaction is recorded. The time-value component of the fair value of the derivative is reported on a straight-line basis in Cost of products sold in the Consolidated Statements of Operations in the period which it is applicable. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows.

These foreign exchange forward contracts generally have maturities up to 18 months, which is the period over which the Company is hedging exposures to variability of cash flows and the counterparties to the transactions are typically large international financial institutions.

The Company enters into interest rate swap contracts infrequently as they are only used to manage interest rate risk on long-term debt instruments and not for speculative purposes. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows.

On May 26, 2020, the Company paid $31 million to settle the $150 million notional T-Lock contract, which partially hedged the interest rate risk of the $750 million senior unsecured notes. This loss is amortized over the ten-year life of the notes. As of March 31, 2022 and December 31, 2021, $24 million and $25 million, respectively, of this loss is remaining to be amortized from AOCI in future periods.

Overall, the derivatives designated as cash flow hedges are considered to be highly effective for accounting purposes. At March 31, 2022, the Company expects to reclassify an immaterial amount of deferred net losses on cash flow hedges recorded in AOCI in the Consolidated Statements of Operations during the next 12 months. For the rollforward of derivative instruments designated as cash flow hedges in AOCI see Note 4, Comprehensive Income (Loss).

The Company has significant investments in foreign subsidiaries. The net assets of these subsidiaries are exposed to volatility in currency exchange rates. The Company employs both derivative and non-derivative financial instruments to hedge a portion of this exposure. The derivative instruments consist of foreign exchange forward contracts and cross-currency basis swaps. The non-derivative instruments consist of foreign currency denominated debt held at the parent company level. Translation gains and losses related to the net assets of the foreign subsidiaries are offset by gains and losses in the aforementioned instruments, which are designated as hedges of net investments and are included in AOCI. The time-value component of the fair value of the derivative is reported on a straight-line basis in Other expense (income), net in the Consolidated Statements of Operations in the applicable period. Any cash flows associated with these instruments are included in investing activities in the Consolidated Statements of Cash Flows except for derivative instruments that include an other-than-insignificant financing element, for which all cash flows are classified as financing activities in the Consolidated Statements of Cash Flows.

The fair value of the foreign exchange forward contracts and cross-currency basis swaps is the estimated amount the Company would receive or pay at the reporting date, taking into account the effective interest rates, cross-currency swap basis rates and foreign exchange rates. The effective portion of the change in the value of these derivatives is recorded in AOCI, net of tax effects.

On July 2, 2021, the Company entered into a cross currency basis swap totaling a notional amount of $300 million which matures on June 3, 2030. The cross currency basis swap is designated as a hedge of net investments. This contract effectively converts a portion of the $750 million bond coupon from 3.3% to 1.7%.

On May 25, 2021, the Company re-established its euro net investment hedge portfolio by entering into eight foreign exchange forward contracts, each with a notional amount of 10 million euro. The original contracts have quarterly maturity dates through March 2023. The Company enters into additional foreign exchange contracts as individual contracts within the portfolio mature. As of March 31, 2022 the euro net investment hedge portfolio has an aggregate notional value of 160 million euro with maturity dates through March 2024.

The Company has intercompany loans denominated in Swedish kronor that are exposed to volatility in currency exchange rates. The Company employs derivative financial instruments to hedge these exposures. The Company accounts for these designated foreign exchange forward contracts as fair value hedges. The Company measures the effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be recorded in the Consolidated Statements of Operations. The time-value component of the fair value of the derivative is reported on a straight-line basis in Other expense (income), net in the Consolidated Statements of Operations in the applicable period. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows.

On January 6, 2021 the Company entered into foreign exchange forward contracts with a notional value of SEK 1.3 billion as a result of an increase in intercompany loans denominated in Swedish kronor. The foreign exchange forwards are designated as fair value hedges.

On July 1, 2021, the Company entered into variable interest rate swaps with a notional amount of $250 million, which effectively converts a portion of the underlying fixed rate of 3.3% on the $750 million Senior Notes due June 2030 to a variable interest rate. Of the $250 million notional amount, $100 million has a term of five-years maturing on June 1, 2026 and $150 million has a term of nine years maturing on March 1, 2030.

The Company enters into derivative instruments with the intent to partially mitigate the foreign exchange revaluation risk associated with recorded assets and liabilities that are denominated in a non-functional currency. The Company primarily uses foreign exchange forward contracts to hedge these risks. The gains and losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional currency balances and are recorded in Other expense (income), net in the Consolidated Statements of Operations. Any cash flows associated with the foreign exchange forward contracts and interest rate swaps not designated as hedges are included in operating activities in the Consolidated Statements of Cash Flows.


	Three Months Ended March 31, 2022
(in millions)	Gain (Loss) recognized in AOCI		Consolidated Statements of Operations Location	Effective Portion Reclassified from AOCI into Income (Expense)		Recognized in Income (Expense)

Cash Flow Hedges
Foreign exchange forward contracts	$	3	Cost of products sold	$	—	$	—
Interest rate swaps	—		Interest expense, net	(1)		—


Total for cash flow hedging	$	3		$	(1)	$	—

Hedges of Net Investments
Cross currency basis swaps	$	8	Interest expense, net	$	—	$	1

Foreign exchange forward contracts	3		Other expense (income), net	—		—

Total for net investment hedging	$	11		$	—	$	1

Fair Value Hedges
Interest rate swaps	$	—	Interest expense, net	$	—	$	1
Foreign exchange forward contracts	(2)		Other expense (income), net	—		8

Total for fair value hedging	$	(2)		$	—	$	9


	Three Months Ended March 31, 2021
(in millions)	Gain (Loss) Recognized in AOCI		Consolidated Statements of Operations Location	Effective Portion Reclassified from AOCI into Income (Expense)		Recognized in Income (Expense)

Cash Flow Hedges
Foreign exchange forward contracts	$	(6)	Cost of products sold	$	(1)	$	—
Interest rate swaps	—		Interest expense, net	(1)		—


Total for cash flow hedging	$	(6)		$	(2)	$	—

Hedges of Net Investments
Cross currency basis swaps	$	9	Interest expense, net	$	—	$	2



Total for net investment hedging	$	9		$	—	$	2

Fair Value Hedges
Foreign exchange forward contracts	$	—	Interest expense, net	$	—	$	16

Total for fair value hedging	$	—		$	—	$	16


	March 31, 2022
(in millions)	Prepaid Expenses and Other Current Assets		Other Noncurrent Assets		Accrued Liabilities		Other Noncurrent Liabilities

Designated as Hedges:
Foreign exchange forward contracts	$	23	$	11	$	2	$	1
Interest rate swaps	2		—		—		20
Cross currency basis swaps	3		1		—		—
Total	$	28	$	12	$	2	$	21

Not Designated as Hedges:
Foreign exchange forward contracts	$	3	$	—	$	4	$	—
Total	$	3	$	—	$	4	$	—

	December 31, 2021
(in millions)	Prepaid Expenses and Other Current Assets		Other Noncurrent Assets		Accrued Liabilities		Other Noncurrent Liabilities

Designated as Hedges:
Foreign exchange forward contracts	$	18	$	11	$	2	$	1
Interest rate swaps	5		—		—		9
Cross currency basis swaps	4		—		—		7
Total	$	27	$	11	$	2	$	17

Not Designated as Hedges:
Foreign exchange forward contracts	$	1	$	—	$	1	$	—
Total	$	1	$	—	$	1	$	—

Substantially all of the Company’s derivative contracts are subject to netting arrangements; whereby the right to offset occurs in the event of default or termination in accordance with the terms of the arrangements with the counterparty. While these contracts contain the enforceable right to offset through netting arrangements with the same counterparty, the Company elects to present them on a gross basis in the Consolidated Balance Sheets.



							Gross Amounts Not Offset in the Consolidated Balance Sheets
(in millions)	Gross Amounts Recognized		Gross Amount Offset in the Consolidated Balance Sheets		Net Amounts Presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received/Pledged		Net Amount

Assets
Foreign exchange forward contracts	$	31	$	—	$	31	$	(9)	$	—	$	22



Total assets	$	31	$	—	$	31	$	(9)	$	—	$	22

Liabilities
Foreign exchange forward contracts	$	4	$	—	$	4	$	(4)	$	—	$	—

Interest rate swaps	4		—		4		(2)		—		2
Cross currency basis swaps	4		—		4		(3)		—		1

Total liabilities	$	12	$	—	$	12	$	(9)	$	—	$	3