Financial Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

Financial InstrumentsThe Company’s financial instruments typically include cash and cash equivalents, marketable securities and accounts receivable. Due to the short-term nature of these instruments, their book value approximates their fair value. The Company’s financial instruments may also include long-term debt, interest rate and cross-currency swaps and options, commodity derivative contracts and foreign currency derivative contracts. All derivative contracts are placed with counterparties that have an S&P, or equivalent, investment grade credit rating at the time of the contracts’ placement. At September 30, 2020 and December 31, 2019, the Company had no derivative contracts that contained credit risk-related contingent features.

    The Company uses certain commodity derivative contracts to protect against commodity price changes related to forecasted raw material and component purchases. The Company primarily utilizes forward and option contracts, which are designated as cash flow hedges. At September 30, 2020 and December 31, 2019, the following commodity derivative contracts were outstanding:

	Commodity derivative contracts
Commodity	Volume hedged September 30, 2020	Volume hedged December 31, 2019	Units of measure	Duration
Copper	47	203	Metric Tons	Dec - 20

The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to optimize its interest costs. The Company selectively uses interest rate swaps and options to reduce market value risk associated with changes in interest rates (fair value hedges and cash flow hedges). At September 30, 2020 and December 31, 2019, the Company had no outstanding interest rate swaps.

The Company uses foreign currency forward and option contracts to protect against exchange rate movements for forecasted cash flows, including capital expenditures, purchases, operating expenses or sales transactions designated in currencies other than the functional currency of the operating unit. In addition, the Company uses foreign currency forward contracts and cross-currency swaps to hedge exposure associated with its net investment in certain foreign operations (net investment hedges). The Company has also designated its Euro-denominated debt as a net investment hedge of the Company's investment in European subsidiaries. Foreign currency derivative contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for the operating units’ local currency. At September 30, 2020 and December 31, 2019, the following foreign currency derivative contracts were outstanding:

Foreign currency derivatives (in millions)
Functional currency	Traded currency	Notional in traded currency September 30, 2020	Notional in traded currency December 31, 2019	Ending Duration
Brazilian real	Euro	1	1	Jan - 21
Brazilian real	US dollar	3	—	Jan - 21
British pound	Euro	11	9	Mar - 21
British pound	US dollar	—	4	Mar - 20
Chinese renminbi	US dollar	51	2	Jul - 21
Euro	British pound	1	—	Jan - 21
Euro	Chinese renminbi	1	—	Oct - 20
Euro	Hungarian forint	744	—	Jan - 21
Euro	Japanese yen	85	383	Dec - 20
Euro	Polish zloty	125	—	Dec - 20
Euro	US dollar	3	18	Dec - 20
Indian rupee	Japanese yen	32	—	Oct - 20
Indian rupee	US dollar	2	—	Oct - 20
Japanese yen	Korean won	1,255	—	Dec - 20
Japanese yen	US dollar	1	—	Dec - 20
Korean won	Euro	3	13	Dec - 20
Korean won	Japanese yen	169	409	Dec - 20
Korean won	US dollar	15	4	Dec - 20
Swedish krona	Euro	—	3	Jan - 20
Thai baht	US dollar	1	—	Dec - 20
US dollar	Euro	79	14	Dec - 20
US dollar	Japanese yen	500	—	Oct - 20
US dollar	Korean won	15,000	—	Apr - 21
US dollar	Mexican peso	188	—	Mar - 21

The Company selectively uses cross-currency swaps and certain foreign currency-denominated debt to hedge the foreign currency exposure associated with its net investment in certain foreign operations (net investment hedges). At September 30, 2020 and December 31, 2019, the following cross-currency swap contracts were outstanding:

	Cross-Currency Swaps
(in millions)	September 30, 2020		December 31, 2019		Duration
US dollar to Euro:
Fixed receiving notional	$	1,100	$	—	Jul - 27
Fixed paying notional	€	976	€	—	Jul - 27
US dollar to Euro:
Fixed receiving notional	$	500	$	500	Mar - 25
Fixed paying notional	€	450	€	450	Mar - 25
US dollar to Japanese yen:
Fixed receiving notional	$	100	$	100	Feb - 23
Fixed paying notional	¥	10,978	¥	10,978	Feb - 23

At September 30, 2020 and December 31, 2019, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to or receivable from counterparties under ASC Topic 815:

(in millions)	Assets					Liabilities
Derivatives designated as hedging instruments Under 815:	Location	September 30, 2020		December 31, 2019		Location	September 30, 2020		December 31, 2019
Foreign currency	Prepayments and other current assets	$	1	$	—	Accounts payable and accrued expenses	$	2	$	1
Net investment hedges	Other non-current assets	$	2	$	3	Other non-current liabilities	$	79	$	8
Derivatives not designated as hedging instruments
Foreign currency	Prepayments and other current assets	$	4	$	—	Accounts payable and accrued expenses	$	3	$	—

Effectiveness for cash flow hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into Accumulated other comprehensive (income) loss ("AOCI") and reclassified into income as the underlying operating transactions are recognized. These realized gains or losses offset the hedged transaction and are recorded on the same line in the statement of operations. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.

Effectiveness for net investment hedges is assessed at the inception of the hedging relationship and quarterly, thereafter. Gains and losses arising from these contracts that are included in the assessment of effectiveness are deferred into foreign currency translation adjustments and only released when the subsidiary being hedged is sold or substantially liquidated. The initial value of any component excluded from the assessment of effectiveness will be recognized in income using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in income under that systematic and rational method will be recognized in AOCI.

The table below shows deferred gains (losses) reported in AOCI as well as the amount expected to be reclassified to income in one year or less. The amount expected to be reclassified to income in one year or less assumes no change in the current relationship of the hedged item at September 30, 2020 market rates.

(in millions)	Deferred gain (loss) in AOCI at				Gain (loss) expected to be reclassified to income in one year or less
Contract Type	September 30, 2020		December 31, 2019
Foreign currency	$	(1)	$	—	$	(1)
Net investment hedges:
Foreign currency	6		5		—
Cross-currency swaps	(55)		16		—
Foreign currency-denominated debt	(43)		(17)		—
Total	$	(93)	$	4	$	(1)

Derivative instruments designated as cash flow hedge instruments as defined by ASC Topic 815 held during the period resulted in the following gains and losses recorded in income:

	Three Months Ended September 30, 2020
(in millions)	Net sales		Cost of sales		Selling, general and administrative expenses		Other comprehensive income (loss)
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded	$	2,534	$	2,017	$	204	$	57
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other comprehensive income (loss)							$	1
Gain (loss) reclassified from AOCI to income	$	—	$	—	$	—

	Nine Months Ended September 30, 2020
(in millions)	Net sales		Cost of sales		Selling, general and administrative expenses		Other comprehensive income(loss)
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded	$	6,239	$	5,101	$	601	$	(3)
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other comprehensive income (loss)							$	(1)
Gain (loss) reclassified from AOCI to income	$	—	$	—	$	(1)

	Three Months Ended September 30, 2019
(in millions)	Net sales		Cost of sales		Selling, general and administrative expenses		Other comprehensive income (loss)
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded	$	2,492	$	1,968	$	230	$	(109)
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other comprehensive income (loss)							$	—
Gain (loss) reclassified from AOCI to income	$	(2)	$	—	$	1

	Nine Months Ended September 30, 2019
(in millions)	Net sales		Cost of sales		Selling, general and administrative expenses		Other comprehensive income(loss)
Total amounts of earnings and other comprehensive income(loss) line items in which the effects of cash flow hedges are recorded	$	7,609	$	6,053	$	668	$	(105)
Gain (loss) on cash flow hedging relationships:
Foreign currency
Gain (loss) recognized in other comprehensive income (loss)							$	(1)
Gain (loss) reclassified from AOCI to income	$	(4)	$	1	$	2

The gains or losses recorded in income related to components excluded from the assessment of effectiveness for derivative instruments designated as cash flow hedges were immaterial for the periods presented.

Gains and (losses) on derivative instruments designated as net investment hedges were recognized in other comprehensive income (loss) during the periods presented below.

(in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
Net investment hedges	2020		2019		2020		2019
Foreign currency	$	—	$	2	$	1	$	2
Cross-currency swaps	$	(89)	$	11	$	(71)	$	16
Foreign currency-denominated debt	$	(24)	$	23	$	(26)	$	28

Derivatives designated as net investment hedge instruments as defined by ASC Topic 815 held during the period resulted in the following gains recorded in Interest expense and finance charges on components excluded from the assessment of effectiveness:

(in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
Net investment hedges	2020		2019		2020		2019
Cross-currency swaps	$	6	$	3	$	13	$	8

There were no gains or losses recorded in income related to components excluded from the assessment of effectiveness for foreign currency-denominated debt designated as net investment hedges. There were no gains and losses reclassified from AOCI for net investment hedges during the periods presented.

Derivatives not designated as hedging instruments are used to hedge remeasurement exposures of monetary assets and liabilities denominated in currencies other than the operating units' functional currency. These derivatives resulted in the following gains and (losses) recorded in income:

(in millions)		Three Months Ended September 30,				Nine Months Ended September 30,
Contract Type	Location	2020		2019		2020		2019
Foreign Currency	Selling, general and administrative expenses	$	(1)	$	—	$	2	$	(3)