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DERIVATIVE FINANCIAL INSTRUMENTS | 3 Months Ended
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Mar. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Company is exposed to foreign currency exchange rate market risk and interest rate fluctuations. As part of its risk management strategy, the Company uses derivative financial instruments, primarily foreign currency forward contracts, fixed-to-fixed currency swaps, total return swaps and interest rate swaps to hedge certain foreign currency, market value, and interest rate exposures. The Company’s objective is to reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them. The Company does not enter into or hold derivative financial instruments for speculative trading purposes. There were no amounts eligible to be offset under master netting agreements as of March 31, 2025 and December 31, 2024. The fair value of the Company’s derivative financial instruments was determined using a market-based approach (Level 2). The following table summarizes the Company’s derivative financial instruments recorded on its consolidated balance sheets (in millions).
| March 31, 2025 |  | December 31, 2024
|  |  | Fair Value |  |  |  | Fair Value
| Notional |  | Prepaid expenses and other current assets |  | Other non- current assets |  | Accounts payable and accrued liabilities |  | Other non- current liabilities |  | Notional |  | Prepaid expenses and other current assets |  | Other non- current assets |  | Accounts payable and accrued liabilities |  | Other non- current liabilities
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange | $ | 2,557 |  |  | $ | 36 |  |  | $ | 25 |  |  | $ | 31 |  |  | $ | 21 |  |  | $ | 1,608 |  |  | $ | 47 |  |  | $ | 14 |  |  | $ | 25 |  |  | $ | 28 |
Net investment hedges: (a) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps | 434 |  |  | 6 |  |  | — |  |  | — |  |  | 6 |  |  | 421 |  |  | 6 |  |  | — |  |  | — |  |  | 4 |
No hedging designation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange | 944 |  |  | 16 |  |  | 6 |  |  | 13 |  |  | 108 |  |  | 951 |  |  | 18 |  |  | 7 |  |  | 14 |  |  | 122 |
Cross-currency swaps | 216 |  |  | 2 |  |  | — |  |  | — |  |  | 2 |  |  | 210 |  |  | 2 |  |  | — |  |  | — |  |  | 1 |
Interest rate swaps | 1,500 |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total return swaps | 443 |  |  | — |  |  | — |  |  | 17 |  |  | — |  |  | 454 |  |  | — |  |  | — |  |  | 16 |  |  | — |
Total |  |  | $ | 61 |  |  | $ | 31 |  |  | $ | 61 |  |  | $ | 137 |  |  |  |  | $ | 73 |  |  | $ | 21 |  |  | $ | 55 |  |  | $ | 155 |
(a) Excludes €1,500 million of euro-denominated notes ($1,618 million and $1,558 million equivalent at March 31, 2025 and December 31, 2024, respectively) designated as a net investment hedge. (See Note 8.) Derivatives Designated for Hedge Accounting Cash Flow Hedges The Company uses foreign exchange forward contracts to mitigate the foreign currency risk related to revenues, production rebates, and production expenses. As production spend occurs or when rebate receivables are recognized, foreign forward exchange contracts designated as cash flow hedges are de-designated. Upon de-designation, gains and losses on these derivatives directly impact earnings in the same line and same period as the hedged risk. These cash flow hedges are carried at fair market value on the Company’s consolidated balance sheets. Hedge effectiveness is assessed using the spot method, with fair market value changes recorded in other comprehensive loss until the hedged item affects earnings. Excluded components, including forward points, are included in current earnings. The following table presents the pre-tax impact of derivatives designated as cash flow hedges on income and other comprehensive loss (in millions).
|  | Three Months Ended March 31, |  |
|  | 2025 |  | 2024 |  |  |  |
Gains (losses) recognized in accumulated other comprehensive loss: |  |  |  |  |  |  |  |
Foreign exchange - derivative adjustments |  | $ | 14 |  |  | $ | 16 |  |  |  |  |
Gains (losses) reclassified into income from accumulated other comprehensive loss: |  |  |  |  |  |  |  |
Foreign exchange - distribution revenue |  | 4 |  |  | 2 |  |  |  |  |
Foreign exchange - costs of revenues |  | — |  |  | 11 |  |  |  |  |
Interest rate - interest expense, net |  | (1) |  |  | (1) |  |  |  |  |
Interest rate - other income (expense), net |  | 14 |  |  | — |  |  |  |  |
If current fair valu es of designated cash flow hedges as of March 31, 2025 remained static over the next twelve months, the amount the Company would reclassify from accumulated other comprehensive loss into income in the next twelve months would not be material for the current fiscal year. The maximum length of time the Company is hedging exposure to the variability in future cash flows is 30 years. Net Investment Hedges The Company is exposed to foreign currency risk associated with the net assets of non-USD functional entities and uses fixed-to-fixed cross currency swaps to mitigate this risk. The following table presents the pre-tax impact of derivatives designated as net investment hedges on other comprehensive loss (in millions). Other than amounts excluded from effectiveness testing, there were no other material gains (losses) reclassified from accumulated other comprehensive loss to income during the three months ended March 31, 2025 and 2024.
|  | Three Months Ended March 31,
|  | Amount of gain (loss) recognized in AOCI |  | Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) |  | Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
|  | 2025 |  | 2024 |  |  | 2025 |  | 2024
Cross currency swaps |  | $ | (4) |  |  | $ | 25 |  |  | Interest expense, net |  | $ | 3 |  |  | $ | 6 |
Euro-denominated notes (foreign denominated debt) |  | (60) |  |  | — |  |  | N/A |  | — |  |  | — |
Sterling notes (foreign denominated debt) |  | — |  |  | 4 |  |  | N/A |  | — |  |  | — |
Total |  | $ | (64) |  |  | $ | 29 |  |  |  |  | $ | 3 |  |  | $ | 6 |
Derivatives Not Designated for Hedge Accounting The Company has deferred compensation plans that have risk related to the fair value gains and losses on these investments and uses total return swaps to mitigate this risk. The gains and losses associated with these swaps are recorded to selling, general and administrative expenses, offsetting the deferred compensation investment gains and losses. The Company is also exposed to risk of secured overnight financing rate changes in connection with securitization interest paid on the receivables securitization program. To mitigate this risk, the Company entered into $1.5 billion notional of non-designated interest rate swaps in the first quarter of 2025. The gains and losses on these derivatives are recorded to selling, general and administrative expenses, offsetting securitization interest expense. The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in selling, general and administrative expense and other income (expense), net in the consolidated statements of operations (in millions).
|  | Three Months Ended March 31, |  |
|  | 2025 |  | 2024 |  |  |  |
Interest rate swaps |  | $ | 1 |  |  | $ | 21 |  |  |  |  |
Total return swaps |  | (11) |  |  | 19 |  |  |  |  |
Total in selling, general and administrative expense |  | (10) |  |  | 40 |  |  |  |  |
Interest rate swaps |  | — |  |  | 2 |  |  |  |  |
Cross-currency swaps |  | (1) |  |  | — |  |  |  |  |
Foreign exchange derivatives |  | 9 |  |  | (8) |  |  |  |  |
Total in other income (expense), net |  | 8 |  |  | (6) |  |  |  |  |
Total |  | $ | (2) |  |  | $ | 34 |  |  |  |  |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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