Meritor Acquisition and 2022 Financial Results
Table of Contents
The following table summarizes the gains and losses:
Years ended December 31,
In millions
2022
2021
2020
Type of Swap
Gain (Loss) on
Swaps
Gain (Loss) on
Borrowings
Gain (Loss) on
Swaps
Gain (Loss) on
Borrowings
Gain (Loss) on
Gain (Loss) on
Swaps
Borrowings
Interest rate swaps(¹)
$
(148) $
145
$
(3) $
2
$
7
$
(5)
(1) The difference between the gain (loss) on swaps and borrowings represented hedge ineffectiveness.
In 2019 we entered into $350 million of interest rate lock agreements, and in 2020 we entered into an additional $50 million of lock agreements to reduce the variability of the
cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. The terms of the rate locks
mirror the time period of the expected fixed rate debt issuance and the expected timing of interest payments on that debt. The gains and losses on these derivative instruments
will be initially recorded in other comprehensive income and will be released to earnings in interest expense in future periods to reflect the difference in (1) the fixed rates
economically locked in at the inception of the hedge and (2) the actual fixed rates established in the debt instrument at issuance. In December 2022, we settled certain rate lock
agreements with notional amounts totaling $150 million for $49 million. This amount will remain in other comprehensive income to be recognized over the term of the
anticipated new debt as discussed above.
The following table summarizes the interest rate lock activity in AOCL:
In millions
2022
Gain (Loss) Reclassified
Type of Swap
Gain (Loss)
Recognized in AOCL
from AOCL into
Interest Expense
Interest rate locks
$
112
$
Year ended December 31,
2021
2020
Gain (Loss)
Recognized in AOCL
Gain (Loss) Reclassified
from AOCL into Interest
Expense
Gain (Loss)
Recognized in AOCL
Gain (Loss) Reclassified
from AOCL into Interest
Expense
$
19
$
$
(22)
$
Cash Flow Hedging
The following table summarizes the effect on our Consolidated Statements of Net Income for derivative instruments classified as cash flow hedges. The table does not include
amounts related to ineffectiveness as it was not material for the periods presented.
In millions
Gain (loss) reclassified from AOCL into income - Net sale§¹)
Gain (loss) reclassified from AOCL into income - Cost of sales(¹)(2)
Total
(1) Includes foreign currency forward contracts.
(2) Includes commodity swap contracts.
Derivatives Not Designated as Hedging Instruments
Years ended December 31,
2022
2021
2020
$
(4) $
1
(4) $
3
6
$
(3) $
2
$
3
The following table summarizes the effect on our Consolidated Statements of Net Income for derivative instruments not classified as cash flow hedges:
In millions
Gain (loss) recognized in income - Cost of sales¹)
Gain (loss) recognized in income - Other income, net(1)
Total
(1) Includes foreign currency forward contracts.
119
Years ended December 31,
2022
2021
2020
$
2 $
$
(1)
(5)
45
1
(3) $
45
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