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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________  
Commission file number 1-225
https://cdn.kscope.io/ad712af1a9e187ea914f344e5dfeb4d4-kmb-20210630_g1.jpg
KIMBERLY CLARK CORPORATON
(Exact name of registrant as specified in its charter

Delaware 39-0394230
(State or other jurisdiction of
incorporation)
 (I.R.S. Employer
Identification No.)
P.O. Box 619100
Dallas, TX
75261-9100
(Address of principal executive offices)
(Zip code)
(972) 281-1200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockKMBNew York Stock Exchange
0.625% Notes due 2024KMB24New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
x
  Accelerated filer
Non-accelerated filer  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No x
As of July 16, 2021, there were 336,762,087 shares of the Corporation's common stock outstanding.



Table of Contents




PART I – FINANCIAL INFORMATION
Item 1.    Financial Statements
KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended
June 30
Six Months Ended
June 30
(Millions of dollars, except per share amounts)2021202020212020
Net Sales$4,722 $4,612 $9,465 $9,621 
Cost of products sold3,242 2,835 6,396 6,053 
Gross Profit1,480 1,777 3,069 3,568 
Marketing, research and general expenses854 844 1,669 1,717 
Other (income) and expense, net13 8 17 22 
Operating Profit613 925 1,383 1,829 
Nonoperating expense(55)(6)(61)(17)
Interest income2 2 3 4 
Interest expense(65)(65)(128)(126)
Income Before Income Taxes and Equity Interests495 856 1,197 1,690 
Provision for income taxes(113)(199)(260)(396)
Income Before Equity Interests382 657 937 1,294 
Share of net income of equity companies28 35 67 73 
Net Income410 692 1,004 1,367 
Net income attributable to noncontrolling interests(6)(11)(16)(26)
Net Income Attributable to Kimberly-Clark Corporation$404 $681 $988 $1,341 
Per Share Basis
Net Income Attributable to Kimberly-Clark Corporation
Basic$1.20 $2.00 $2.92 $3.93 
Diluted$1.19 $1.99 $2.92 $3.92 
See notes to the unaudited interim consolidated financial statements.

1


KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three Months Ended
June 30
Six Months Ended
June 30
(Millions of dollars)2021202020212020
Net Income$410 $692 $1,004 $1,367 
Other Comprehensive Income (Loss), Net of Tax
   Unrealized currency translation adjustments78 125 (137)(274)
   Employee postretirement benefits11 5 29 39 
   Other22 (24)58 8 
Total Other Comprehensive Income (Loss), Net of Tax111 106 (50)(227)
Comprehensive Income521 798 954 1,140 
   Comprehensive (income) loss attributable to noncontrolling interests(6)(15)(9)(18)
Comprehensive Income Attributable to Kimberly-Clark Corporation$515 $783 $945 $1,122 
See notes to the unaudited interim consolidated financial statements.

2


KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(2021 Data is Unaudited)
(Millions of dollars)June 30, 2021December 31, 2020
ASSETS
Current Assets
Cash and cash equivalents$306 $303 
Accounts receivable, net2,340 2,235 
Inventories2,110 1,903 
Other current assets816 733 
Total Current Assets5,572 5,174 
Property, Plant and Equipment, Net8,018 8,042 
Investments in Equity Companies350 300 
Goodwill1,834 1,895 
Other Intangible Assets, Net803 832 
Other Assets1,250 1,280 
TOTAL ASSETS$17,827 $17,523 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Debt payable within one year$1,493 $486 
Trade accounts payable3,337 3,336 
Accrued expenses and other current liabilities2,037 2,262 
Dividends payable377 359 
Total Current Liabilities7,244 6,443 
Long-Term Debt7,591 7,878 
Noncurrent Employee Benefits875 864 
Deferred Income Taxes665 723 
Other Liabilities666 718 
Redeemable Preferred Securities of Subsidiaries28 28 
Stockholders' Equity
Kimberly-Clark Corporation
Preferred stock - no par value - authorized 20.0 million shares, none issued
  
Common stock - $1.25 par value - authorized 1.2 billion shares; issued 378.6 million shares at June 30, 2021 and December 31, 2020
473 473 
Additional paid-in capital627 657 
Common stock held in treasury, at cost - 41.7 and 39.9 million shares at June 30, 2021 and December 31, 2020, respectively
(5,159)(4,899)
Retained earnings7,798 7,567 
Accumulated other comprehensive income (loss)(3,215)(3,172)
Total Kimberly-Clark Corporation Stockholders' Equity524 626 
Noncontrolling Interests234 243 
Total Stockholders' Equity758 869 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,827 $17,523 
See notes to the unaudited interim consolidated financial statements.
3


KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)


Three Months Ended June 30, 2021
(Millions of dollars, shares in thousands, except per share amounts)Common Stock
Issued
Additional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at March 31, 2021378,597 $473 $658 40,956 $(5,050)$7,764 $(3,327)$228 $746 
Net income in stockholders' equity, excludes redeemable interests' share— — — — — 404 — 6 410 
Other comprehensive income, net of tax,
excludes redeemable interests' share
— — — — — — 111  111 
Stock-based awards exercised or vested— — (53)(637)70 — — — 17 
Shares repurchased— — — 1,342 (179)— — — (179)
Recognition of stock-based compensation— — 19 —  — — — 19 
Dividends declared ($1.14 per share)
— — — — — (385)— 1 (384)
Other— — 3 — — 15 1 (1)18 
Balance at June 30, 2021378,597 $473 $627 41,661 $(5,159)$7,798 $(3,215)$234 $758 

Six Months Ended June 30, 2021
(Millions of dollars, shares in thousands, except per share amounts)Common Stock
Issued
Additional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at December 31, 2020378,597 $473 $657 39,873 $(4,899)$7,567 $(3,172)$243 $869 
Net income in stockholders' equity, excludes redeemable interests' share— — — — — 988 — 15 1,003 
Other comprehensive income, net of tax, excludes redeemable interests' share— — — — — — (43)(7)(50)
Stock-based awards exercised or vested— — (77)(952)104 — — — 27 
Shares repurchased— — — 2,740 (364)— — — (364)
Recognition of stock-based compensation— — 41 —  — — — 41 
Dividends declared ($2.28 per share)
— — — — — (770)— (17)(787)
Other— — 6 — — 13   19 
Balance at June 30, 2021378,597 $473 $627 41,661 $(5,159)$7,798 $(3,215)$234 $758 
See notes to the unaudited interim consolidated financial statements.
4



Three Months Ended June 30, 2020
(Millions of dollars, shares in thousands, except per share amounts)Common Stock
Issued
Additional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at March 31, 2020378,597 $473 $559 37,761 $(4,562)$6,978 $(3,615)$213 $46 
Net income in stockholders' equity, excludes redeemable interests' share— — — — — 681 — 10 691 
Other comprehensive income, net of tax, excludes redeemable interests' share— — — — — — 102 4 106 
Stock-based awards exercised or vested— — (38)(557)66 — — — 28 
Shares repurchased— — — 370 (49)— — — (49)
Recognition of stock-based compensation— — 38 — — — — — 38 
Dividends declared ($1.07 per share)
— — — — — (365)— — (365)
Other— — (5)— — 5 — — — 
Balance at June 30, 2020378,597 $473 $554 37,574 $(4,545)$7,299 $(3,513)$227 $495 

Six Months Ended June 30, 2020
(Millions of dollars, shares in thousands, except per share amounts)Common Stock
Issued
Additional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestsTotal Stockholders' Equity
SharesAmountSharesAmount
Balance at December 31, 2019$378.597 $473 $556 37,149 $(4,454)$6,686 $(3,294)$227 $194 
Net income in stockholders' equity, excludes redeemable interests' share— — — — — 1,341 — 24 1,365 
Other comprehensive income, net of tax, excludes redeemable interests' share— — — — — — (219)(8)(227)
Stock-based awards exercised or vested— — (52)(1,622)187 — — — 135 
Shares repurchased— — — 2,047 (278)— — — (278)
Recognition of stock-based compensation— — 53 — — — — — 53 
Dividends declared ($2.14 per share)
— — — — — (730)— (17)(747)
Other— — (3)— — 2 — 1 — 
Balance at June 30, 2020378,597 $473 $554 37,574 $(4,545)$7,299 $(3,513)$227 $495 
See notes to the unaudited interim consolidated financial statements.
5


KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
 
Six Months Ended
June 30
(Millions of dollars)20212020
Operating Activities
Net income$1,004 $1,367 
Depreciation and amortization378 414 
Asset impairments3  
Stock-based compensation42 54 
Deferred income taxes(74)12 
Net (gains) losses on asset dispositions15 13 
Equity companies' earnings (in excess of) less than dividends paid(32)(47)
Operating working capital(495)490 
Postretirement benefits36 (15)
Other9 (5)
Cash Provided by Operations886 2,283 
Investing Activities
Capital spending(499)(636)
Proceeds from dispositions of property30 5 
Investments in time deposits(451)(323)
Maturities of time deposits433 254 
Other 10 
Cash Used for Investing(487)(690)
Financing Activities
Cash dividends paid(748)(722)
Change in short-term debt960 (667)
Debt proceeds5 1,241 
Debt repayments(253)(252)
Proceeds from exercise of stock options27 135 
Acquisitions of common stock for the treasury(331)(263)
Other(54)(39)
Cash Used for Financing(394)(567)
Effect of Exchange Rate Changes on Cash and Cash Equivalents(2)(20)
Change in Cash and Cash Equivalents3 1,006 
Cash and Cash Equivalents - Beginning of Period303 442 
Cash and Cash Equivalents - End of Period$306 $1,448 
See notes to the unaudited interim consolidated financial statements.

6



KIMBERLY-CLARK CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected. Dollar amounts are reported in millions, except per share dollar amounts, unless otherwise noted.
For further information, refer to the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2020. The terms "Corporation," "Kimberly-Clark," "K-C," "we," "our" and "us" refer to Kimberly-Clark Corporation and its consolidated subsidiaries.
Highly Inflationary Accounting in Argentina
GAAP guidance requires the use of highly inflationary accounting for countries whose cumulative three-year inflation exceeds 100 percent. In the second quarter of 2018, published inflation indices indicated that the three-year cumulative inflation in Argentina exceeded 100 percent, and as of July 1, 2018, we elected to adopt highly inflationary accounting for our subsidiaries in Argentina (“K-C Argentina”). Under highly inflationary accounting, K-C Argentina’s functional currency became the U.S. dollar, and its income statement and balance sheet have been measured in U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in Other (income) and expense, net and was not material.  As of June 30, 2021, K-C Argentina had a small net peso monetary position. Net sales of K-C Argentina were approximately 1 percent of our consolidated net sales for the six months ended June 30, 2021 and 2020.
Recently Adopted Accounting Standard
In 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the tax basis of goodwill after a business combination, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also changes the calculation of the income tax impact of hybrid taxes and the methodology for calculating income taxes in an interim period. We adopted this standard as of January 1, 2021 on either a prospective basis or through a modified retrospective approach, as required by the standard. There was no cumulative effect adjustment recorded to retained earnings as the amount was not material. The effects of this standard on our financial position, results of operations and cash flows were not material.
Note 2.    2018 Global Restructuring Program
In January 2018, we announced the 2018 Global Restructuring Program to reduce our structural cost base by streamlining and simplifying our manufacturing supply chain and overhead organization. We expect to close or sell approximately 10 manufacturing facilities and expand production capacity at several others. We expect to exit or divest some lower-margin businesses that generate approximately 1 percent of our net sales. The restructuring is expected to impact our organizations in all major geographies. Workforce reductions are expected to be in the range of 6,300 to 6,400.
The restructuring is expected to be completed in 2021, with total costs anticipated to be in the range of $2.0 billion to $2.1 billion pre-tax ($1.5 billion to $1.6 billion after tax). Cash costs are expected to be $1.1 billion to $1.15 billion, primarily related to workforce reductions.  Non-cash charges are expected to be $900 to $950 pre-tax and will primarily consist of incremental depreciation, asset write-offs and pension settlement and curtailment charges. Restructuring charges in 2021 are expected to be $180 to $280 pre-tax ($135 to $215 after tax).
7


The following net charges were incurred in connection with the 2018 Global Restructuring Program:
Three Months Ended
June 30
Six Months Ended
June 30
2021202020212020
Cost of products sold:
Charges (adjustments) for workforce reductions$ $1 $(2)$1 
Asset impairments  3  
Asset write-offs 3 1 9 
Incremental depreciation4 33 8 68 
Other exit costs21 23 40 52 
Total25 60 50 130 
Marketing, research and general expenses:
Charges (adjustments) for workforce reductions16 1 14 (2)
Other exit costs14 26 25 52 
Total30 27 39 50 
Other (income) and expense, net8  8  
Nonoperating expense56  56  
Total charges119 87 153 180 
Provision for income taxes(25)(15)(32)(33)
Net charges94 72 121 147 
Net impact related to equity companies and noncontrolling interests  (1)(1)
Net charges attributable to Kimberly-Clark Corporation$94 $72 $120 $146 
The following summarizes the restructuring liabilities activity:
20212020
Restructuring liabilities at January 1$93 $132 
Charges for workforce reductions and other cash exit costs77 99 
Cash payments(98)(122)
Currency and other (3)
Restructuring liabilities at June 30$72 $106 
Restructuring liabilities of $57 and $75 are recorded in Accrued expenses and other current liabilities and $15 and $31 are recorded in Other Liabilities as of June 30, 2021 and 2020, respectively. The impact related to restructuring charges is recorded in Operating working capital and Other Operating Activities, as appropriate, in our consolidated cash flow statements.
Through June 30, 2021, cumulative pre-tax charges for the 2018 Global Restructuring Program were $2.0 billion ($1.5 billion after tax).
Note 3. 2020 Acquisition
On October 1, 2020 (“Acquisition Date”), we acquired Softex Indonesia, in an all-cash transaction for approximately $1.2 billion. The transaction price, subject to working capital and net debt adjustments, resulted in a preliminary purchase price of $1.1 billion as of December 31, 2020 in addition to the assumption of certain indebtedness of Softex Indonesia at closing. The allocation of purchase consideration related to Softex Indonesia was substantially completed in the fourth quarter of 2020. We continue to evaluate potential contingencies that may have existed as of the acquisition date and expect to finalize the purchase price allocation no later than the fourth quarter of 2021.
See Note 3, Acquisition, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for the preliminary purchase price allocation, valuation methodology, and other information related to the Softex Indonesia acquisition.
8


Note 4. Fair Value Information
The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:
Level 1 – Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
Level 2 – Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3 – Prices or valuations that require inputs that are significant to the valuation and are unobservable.
A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
During the six months ended June 30, 2021 and for the full year 2020, there were no significant transfers to or from level 3 fair value determinations.
Derivative assets and liabilities are measured on a recurring basis at fair value. At June 30, 2021 and December 31, 2020, derivative assets were $41 and $44, respectively, and derivative liabilities were $60 and $92, respectively. The fair values of derivatives used to manage interest rate risk and commodity price risk are based on LIBOR rates and interest rate swap curves and NYMEX price quotations, respectively. The fair values of hedging instruments used to manage foreign currency risk are based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. Measurement of our derivative assets and liabilities is considered a level 2 measurement. Additional information on our classification and use of derivative instruments is contained in Note 7.
Redeemable preferred securities of subsidiaries are measured on a recurring basis at fair value and were $28 as of June 30, 2021 and December 31, 2020, respectively. They are not traded in active markets. The fair values of the redeemable securities were based on a discounted cash flow valuation model. Measurement of the redeemable preferred securities is considered a level 3 measurement.
Company-owned life insurance ("COLI") assets are measured on a recurring basis at fair value. COLI assets were $73 at June 30, 2021 and December 31, 2020, respectively. The COLI policies are a source of funding primarily for our nonqualified employee benefits and are included in Other Assets. The COLI policies are measured at fair value using the net asset value per share practical expedient, and therefore, are not classified in the fair value hierarchy.
The following table includes the fair value of our financial instruments for which disclosure of fair value is required:
Fair Value Hierarchy LevelCarrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
June 30, 2021December 31, 2020
Assets
Cash and cash equivalents(a)
1$306 $306 $303 $303 
Time deposits(b)
1369 369 364 364 
Liabilities
Short-term debt(c)
21,180 1,180 223 223 
Long-term debt(d)
27,904 9,079 8,141 9,627 
(a)Cash equivalents are composed of certificates of deposit, time deposits and other interest-bearing investments with original maturity dates of 90 days or less. Cash equivalents are recorded at cost, which approximates fair value.
(b)Time deposits are composed of deposits with original maturities of more than 90 days but less than one year and instruments with original maturities of greater than one year, included in Other current assets or Other Assets in the consolidated balance sheet, as appropriate. Time deposits are recorded at cost, which approximates fair value.
(c)Short-term debt is composed of U.S. commercial paper and/or other similar short-term debt issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value.
(d)Long-term debt includes the current portion of these debt instruments. Fair values were estimated based on quoted prices for financial instruments for which all significant inputs were observable, either directly or indirectly.
9


Note 5. Earnings Per Share ("EPS")
There are no adjustments required to be made to net income for purposes of computing EPS. The average number of common shares outstanding is reconciled to those used in the basic and diluted EPS computations as follows:
Three Months Ended
June 30
Six Months Ended
June 30
(Millions of shares)2021202020212020
Basic337.3 340.9 337.8 341.1 
Dilutive effect of stock options and restricted share unit awards1.0 1.0 1.0 1.2 
Diluted338.3 341.9 338.8 342.3 
The impact of options outstanding that were not included in the computation of diluted EPS because their exercise price was greater than the average market price of the common shares was insignificant. The number of common shares outstanding as of June 30, 2021 and 2020 was 336.9 million and 341.0 million, respectively.
Note 6. Stockholders' Equity
Net unrealized currency gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries, except those in highly inflationary economies, are recorded in Accumulated Other Comprehensive Income ("AOCI"). For these operations, changes in exchange rates generally do not affect cash flows; therefore, unrealized translation adjustments are recorded in AOCI rather than net income. Upon sale or substantially complete liquidation of any of these subsidiaries, the applicable unrealized translation would be removed from AOCI and reported as part of the gain or loss on the sale or liquidation.
Also included in unrealized translation amounts are the effects of foreign exchange rate changes on intercompany balances of a long-term investment nature and transactions designated as hedges of net foreign investments.
The change in net unrealized currency translation for the six months ended June 30, 2021 was primarily due to the weakening of foreign currencies versus the U.S. dollar, particularly the Indonesian rupiah, the Korean won and the euro.
The changes in the components of AOCI attributable to Kimberly-Clark, net of tax, are as follows:
Unrealized TranslationDefined Benefit Pension PlansOther Postretirement Benefit PlansCash Flow Hedges and Other
Balance as of December 31, 2019$(2,271)$(979)$(13)$(31)
Other comprehensive income (loss) before reclassifications
(266)22 2 17 
(Income) loss reclassified from AOCI 16 (a)(1)(a)(9)
Net current period other comprehensive income (loss)(266)38 1 8 
Balance as of June 30, 2020$(2,537)$(941)$(12)$(23)
Balance as of December 31, 2020$(2,157)$(912)$(40)$(63)
Other comprehensive income (loss) before
    reclassifications
(127)1 (12)28 
(Income) loss reclassified from AOCI 38 (a) (a)29 
Net current period other comprehensive income (loss)(127)39 (12)57 
Balance as of June 30, 2021$(2,284)$(873)$(52)$(6)
(a) Included in computation of net periodic benefit costs.
Note 7. Objectives and Strategies for Using Derivatives
As a multinational enterprise, we are exposed to financial risks, such as changes in foreign currency exchange rates, interest rates, and commodity prices. We employ a number of practices to manage these risks, including operating and financing activities and, where appropriate, the use of derivative instruments.
At June 30, 2021 and December 31, 2020, derivative assets were $41 and $44, respectively, and derivative liabilities were $60 and $92, respectively, primarily comprised of foreign currency exchange contracts. Derivative assets are recorded in Other
10


current assets or Other Assets, as appropriate, and derivative liabilities are recorded in Accrued expenses and other current liabilities or Other Liabilities, as appropriate.
Foreign Currency Exchange Rate Risk
Translation adjustments result from translating foreign entities' financial statements into U.S. dollars from their functional currencies. The risk to any particular entity's net assets is reduced to the extent that the entity is financed with local currency borrowings. A portion of our balance sheet translation exposure for certain affiliates, which results from changes in translation rates between the affiliates’ functional currencies and the U.S. dollar, is hedged with cross-currency swap contracts and certain foreign denominated debt which are designated as net investment hedges. The foreign currency exposure on certain non-functional currency denominated monetary assets and liabilities, primarily intercompany loans and accounts payable, is hedged with primarily undesignated derivative instruments.
Derivative instruments are entered into to hedge a portion of forecasted cash flows denominated in foreign currencies for non-U.S. operations' purchases of raw materials, which are priced in U.S. dollars, and imports of intercompany finished goods and work-in-process priced predominantly in U.S. dollars and euros. The derivative instruments used to manage these exposures are designated as cash flow hedges.
Interest Rate Risk
Interest rate risk is managed using a portfolio of variable and fixed-rate debt composed of short and long-term instruments. Interest rate swap contracts may be used to facilitate the maintenance of the desired ratio of variable and fixed-rate debt and are designated as fair value hedges. From time to time, we also hedge the anticipated issuance of fixed-rate debt, and these contracts are designated as cash flow hedges.
Commodity Price Risk
We use derivative instruments, such as forward contracts, to hedge a limited portion of our exposure to market risk arising from changes in prices of certain commodities. These derivatives are designated as cash flow hedges of specific quantities of the underlying commodity expected to be purchased in future months. In addition, we utilize negotiated short-term contract structures, including fixed price contracts, to manage volatility for a portion of our commodity costs.
Fair Value Hedges
Derivative instruments that are designated and qualify as fair value hedges are predominantly used to manage interest rate risk. The fair values of these interest rate derivative instruments are recorded as an asset or liability, as appropriate, with the offset recorded in Interest expense. The offset to the change in fair values of the related debt is also recorded in Interest expense. Any realized gain or loss on the derivatives that hedge interest rate risk is amortized to Interest expense over the life of the related debt. As of June 30, 2021, the aggregate notional values and carrying values of debt subject to outstanding interest rate contracts designated as fair value hedges were $625 and $642, respectively. For the six months ended June 30, 2021 and 2020, gains or losses recognized in Interest expense for interest rate swaps were not significant.
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is initially recorded in AOCI, net of related income taxes, and recognized in earnings in the same income statement line and period that the hedged exposure affects earnings. As of June 30, 2021, outstanding commodity forward contracts were in place to hedge a limited portion of our estimated requirements of the related underlying commodities in the remainder of 2021 and future periods. As of June 30, 2021, the aggregate notional value of outstanding foreign exchange derivative contracts designated as cash flow hedges was $741. For the six months ended June 30, 2021 and 2020, no significant gains or losses were reclassified into Interest expense, Cost of products sold or Other (income) and expense, net as a result of the discontinuance of cash flow hedges due to the original forecasted transaction no longer being probable of occurring. At June 30, 2021, amounts to be reclassified from AOCI into Interest expense, Cost of products sold or Other (income) and expense, net during the next twelve months are not expected to be material. The maximum maturity of cash flow hedges in place at June 30, 2021 is June 2023.
Net Investment Hedges
For derivative instruments that are designated and qualify as net investment hedges, the aggregate notional value was 1.5 billion at June 30, 2021. We exclude the interest accruals on cross-currency swap contracts and the forward points on foreign exchange forward contracts from the assessment and measurement of hedge effectiveness.  We recognize the interest accruals on cross-currency swap contracts in earnings within Interest expense.  We amortize the forward points on foreign exchange contracts into earnings within Interest expense over the life of the hedging relationship.  Changes in fair value of net investment hedges are recorded in AOCI and offset the change in the value of the net investment being hedged.  For the six months ended
11


June 30, 2021, unrealized gains of $25 related to net investment hedge fair value changes were recorded in AOCI and no significant amounts were reclassified from AOCI to Interest expense.
No significant amounts were excluded from the assessment of net investment, fair value or cash flow hedge effectiveness as of June 30, 2021.
Undesignated Hedging Instruments
Gains or losses on undesignated foreign exchange hedging instruments are immediately recognized in Other (income) and expense, net. Gains of $3 and $12 were recorded in the three months ended June 30, 2021 and 2020, respectively. A loss of $6 and gain of $8 were recorded in the six months ended June 30, 2021 and 2020. The effect on earnings from the use of these non-designated derivatives is substantially neutralized by the transactional gains and losses recorded on the underlying assets and liabilities. At June 30, 2021, the notional value of these undesignated derivative instruments was approximately $2.3 billion.
Note 8. Business Segment Information