v3.25.2
Financial Instruments
 6 Months Ended
Jun. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments Financial Instruments
We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments under ASC 815, Derivatives and Hedging. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, commodity prices and foreign exchange rates. These fluctuations can increase the costs of financing, investing in and operating the business. We may use derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, commodity price and interest rate exposures.

The four-quarter average of the notional amount of foreign exchange contracts hedging foreign currency transactions was approximately $5.5 billion and $5.3 billion as of June 30, 2025 and December 31, 2024, respectively. The four-quarter average of the notional amount of contracts hedging commodity purchases was $14 million as of June 30, 2025 and December 31, 2024.
The following table summarizes the fair value and presentation on the Condensed Consolidated Balance Sheets for derivative instruments as of June 30, 2025 and December 31, 2024:

(dollars in millions)Balance Sheet ClassificationJune 30, 2025December 31, 2024
Derivatives designated as Cash flow hedging instruments:
Asset Derivatives:
Foreign exchange contractsOther current assets$2 $5 
Foreign exchange contractsOther assets1 4 
Total asset derivatives$3 $9 
Liability Derivatives:
Foreign exchange contractsAccrued liabilities$(6)$(4)
Foreign exchange contractsOther long-term liabilities(3)(1)
Total liability derivatives$(9)$(5)
Derivatives not designated as Cash flow hedging instruments:
Asset Derivatives:
Foreign exchange contractsOther current assets$15 $53 
Foreign exchange contractsOther assets2 6 
Total asset derivatives$17 $59 
Liability Derivatives:
Foreign exchange contractsAccrued liabilities$(26)$(39)
Foreign exchange contractsOther long-term liabilities(2)(6)
Total liability derivatives$(28)$(45)

Derivatives designated as Cash flow hedging instruments. The amount of gain or (loss) attributable to foreign exchange and commodity contract activity reclassified from Accumulated other comprehensive income (loss) for the quarters and six months ended June 30, 2025 and 2024 was immaterial, and is presented in Note 10, "Accumulated Other Comprehensive Income (Loss)".

The pre-tax effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) as of June 30, 2025 and December 31, 2024 are presented in the table below:

(dollars in millions)June 30, 2025December 31, 2024
Gain (loss) recorded in Accumulated other comprehensive income (loss)$(5)$3 

The Company utilizes the critical terms match method in assessing firm commitment derivatives and regression testing in assessing commodity derivatives for hedge effectiveness. Accordingly, the hedged items and derivatives designated as hedging instruments are highly effective.

Assuming current market conditions continue, pre-tax losses of $3 million are expected to be reclassified from Accumulated other comprehensive income (loss) into Cost of products sold to reflect the fixed prices obtained from foreign exchange and commodity hedging within the next 12 months. All derivative contracts accounted for as cash flow hedges as of June 30, 2025 will mature by June 2029.
Net Investment Hedges. We may use non-derivative instruments (foreign currency denominated borrowings) and derivative instruments (foreign exchange forward contracts) to hedge portions of the Company's investments in foreign subsidiaries and manage foreign exchange risk. For instruments that are designated and qualify as a hedge of net investment in foreign operations and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in foreign currency translation within Other comprehensive income (loss) on the Condensed Consolidated Statements of Comprehensive Income, and will remain in Accumulated other comprehensive income (loss) until the hedged investment is sold or substantially liquidated. The remainder of the change in value of such instruments is recorded in earnings, including to the extent foreign currency denominated borrowings are not designated in, or are de-designated from, a net investment hedge relationship.

Our use of derivative instruments designated as hedges of the Company's net investment in foreign subsidiaries can vary depending on the Company's desired foreign exchange risk coverage.

We have ¥21.5 billion of Japanese Yen denominated long-term debt that qualifies as a net investment hedge against our investments in Japanese businesses, as well as derivative instruments that qualify as net investment hedges against our investments in certain European businesses (notional amount of €134 million) and Asian businesses (notional amount of HK$1.8 billion). The net investment hedges are deemed to be effective. The maturity dates of the current non-derivative and derivative instruments designated in net investment hedges range from 2025 to 2026.

During the quarter ended June 30, 2025, we de-designated one derivative instrument that qualified as a net investment hedge in certain European businesses with the notional amount of €30 million. During the six months ended June 30, 2025, we de-designated derivative instruments that qualified as net investment hedges in certain European and Asian businesses with notional amounts of €150 million and ¥2.1 billion respectively. These de-designated instruments were deemed to be effective until de-designation.

The following table summarizes the amounts of gains (losses) recognized in other comprehensive income (loss) related to non-derivative and derivative instruments designated as net investment hedges:

Quarter Ended June 30,Six Months Ended June 30,
(dollars in millions)2025202420252024
Foreign currency denominated long-term debt$(4)$8 $(10)$15 
Foreign currency forward contracts(11)(2)(6)(2)
Total$(15)$6 $(16)$13 

Derivatives not designated as Cash flow hedging instruments. The net effect of derivatives not designated as Cash flow hedging instruments within Other income (expense) net, on the Condensed Consolidated Statements of Operations was as follows:

Quarter Ended June 30,Six Months Ended June 30,
(dollars in millions)2025202420252024
Foreign exchange contracts$10 $3 $16 $2 

The effects of derivatives not designated as Cash flow hedge instruments within Cost of products sold on the Condensed Consolidated Statements of Operations in the quarter and six months ended June 30, 2025 were losses of less than $1 million and gains of $2 million, respectively, compared to losses of $2 million in the same periods of 2024.