Derivatives |
6 Months Ended |
|---|---|
Jun. 30, 2025 | |
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
| Derivatives | Derivatives From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes. The Company is not a party to any derivative agreements that require collateral to be posted prior to settlement. Interest Rate Contracts The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company may use fixed and floating rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Floating rate swaps would be used, depending on market conditions, to convert the fixed rates of long-term debt into short-term variable rates. Fixed rate swaps would be used to reduce the Company’s risk of the possibility of increased interest costs. The settlement of interest rate swaps is included in interest expense, net in the Condensed Consolidated Statements of Operations. At June 30, 2025, the Company had approximately $1.00 billion notional amount of interest rate swaps due September 2027 and September 2029 that exchange a fixed rate of interest for a variable rate of interest plus a weighted average spread. These floating rate swaps are designated as fair value hedges against the principal of the 6.375% senior notes due 2027 and the 6.625% senior notes due 2029 for the remaining life of the notes. The effective portion of the fair value gains or losses on these swaps is offset by fair value adjustments in the underlying debt. Cross-Currency Contracts The Company uses cross-currency swaps to hedge foreign currency risk on certain financing arrangements. These swaps mature on dates ranging from November 2026 to September 2029, with an aggregate notional amount of $2.13 billion. These cross-currency swaps were designated as net investment hedges of the Company’s foreign currency exposure of its net investment in certain Euro-functional currency subsidiaries with Euro-denominated net assets, and the Company pays a fixed or floating rate of Euro-based interest and receives a fixed or floating rate of U.S. dollar interest. The Company has elected the spot method for assessing the effectiveness of these contracts. During the three months ended June 30, 2025 and 2024, the Company recognized income of $8 million and $9 million, respectively and income of $17 million and $18 million, for the six months ended June 30, 2025 and 2024, respectively, in interest expense, net, related to the portion of cross-currency swaps excluded from hedge effectiveness testing. Foreign Currency Contracts The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the cash flows related to forecasted inventory purchases and sales with maturity dates through June 2026. The derivatives used to hedge these forecasted transactions that meet the criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these derivatives is deferred as a component of AOCL until it is recognized in earnings at the same time that the hedged item affects earnings and is included in the same caption (net sales and cost of products sold) in the Company’s Condensed Consolidated Statement of Operations as the underlying hedged item. At June 30, 2025, the Company had approximately $249 million notional amount outstanding of forward foreign currency contracts that are designated as cash flow hedges of forecasted inventory purchases and sales. The Company also uses foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At June 30, 2025, the Company had approximately $857 million notional amount outstanding of these foreign currency contracts that are not designated as effective hedges for accounting purposes and have maturity dates through June 2026. Fair market value gains or losses are included in the results of operations and are classified in other expense, net in the Company’s Condensed Consolidated Statement of Operations. Fair Value Measurements of Derivative Instruments The Company determines the fair value of its derivative instruments using standard pricing models and market-based assumptions for all significant inputs, such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2 of the fair value hierarchy. At June 30, 2025 and December 31, 2024, the fair value of the Company’s derivative financial instruments designated as effective hedges were not material by type of instrument, with the exception of cross-currency swaps included in other noncurrent liabilities. At June 30, 2025, the fair value of the derivatives, designated as effective hedges, were recorded in prepaid expenses and other current assets, other accrued liabilities, and other noncurrent liabilities of $23 million, $17 million and $287 million (including cross-currency swaps of $284 million), respectively. At December 31, 2024 the fair value of the derivatives, designated as effective hedges, were recorded in prepaid expenses and other current assets, other assets, other accrued liabilities, and other noncurrent liabilities of $39 million, $38 million, $8 million, and $64 million (including cross-currency swaps of $41 million), respectively. The fair value of the Company’s derivative financial instruments not designated as effective hedges were not material at June 30, 2025 and December 31, 2024. The gain or loss activity related to the Company’s interest rate swaps and foreign currency contract derivative financial instruments, designated or previously designated as effective hedges, recognized in other comprehensive income (effective portion) were not material to any of the periods presented, except for its cross-currency swaps. The Company recognized loss of $201 million and gain of $18 million related to the Company’s cross-currency swaps, designated or previously designated as effective hedges, for the three months ended June 30, 2025 and 2024, respectively and loss of $289 million and gain of $66 million for the six months ended June 30, 2025 and 2024, respectively. The amount reclassified from AOCL to income has been presented in Footnote 2. The gain or loss activity recognized related to derivatives that are not designated as hedging instruments were not material for the periods presented. Gains and losses on these derivatives are mostly offset by foreign currency movement in the underlying exposure. At June 30, 2025, net deferred losses to be reclassified to earnings over the next twelve months are not expected to be material.
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