Derivatives |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives | NOTE H. DERIVATIVES The Company has global operations and utilizes derivative instruments to reduce its foreign exchange risk. As of June 30, 2026, the Company held cross-currency swap contracts that, in the aggregate, effectively hedge $1,000 million of the euro exposure associated with the Company's net investment in its euro-functional subsidiaries and expire over a seven-year period. The cross-currency swaps are a portfolio of designated hedging instruments that qualify for hedge accounting under the net investment hedge model using the spot method. Fair value adjustments of the Company's cross-currency swaps are recorded as foreign currency translation, a component of Accumulated other comprehensive loss, net of tax (“AOCL”), in the Condensed Consolidated Balance Sheets. Under the spot method, the hedge effectiveness is based solely on the changes in the spot foreign exchange rates, and it excludes the interest rate differential of the receive-fixed, pay-fixed cross-currency swaps. The effective portion is recorded in AOCL and will remain in AOCL until the corresponding net investments are sold or substantially liquidated. The excluded portion, the interest rate differential, is amortized into earnings using a systematic and rational method over the life of the derivative instrument. During the six months ended June 30, 2026, the Company received $4 million and paid $4 million of cash interest rate settlements. The Company records these interest rate settlements as investing activities based on the nature of the derivative itself. During each of the three and six months ended June 30, 2026, the Company reclassified $1 million of cross-currency swap interest rate settlement gains from AOCL into Interest expense, net. See "Note G. Fair Value of Financial Instruments” for information regarding the fair value of the Company’s cross-currency swaps. The following tabular disclosures further describe the Company’s cross-currency swap derivatives qualifying and designated for hedge accounting and their impact on the financial condition of the Company (dollars in millions):
The balance of net derivative losses recorded in AOCL as of June 30, 2026 was $6 million and none as of December 31, 2025. See "Note P. Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three and six months ended June 30, 2026 and 2025. |
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