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DERIVATIVES AND HEDGING ACTIVITIES | 12 Months Ended
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Dec. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES AND HEDGING ACTIVITIES |
DERIVATIVES AND HEDGING ACTIVITIES
Concentrations of Credit Risk We invest excess cash in certificates of deposit or money market or other funds and diversify the concentration of cash among different financial institutions. With respect to financial instruments, where appropriate, we have diversified our selection of counterparties, and have arranged collateralization and master-netting agreements to minimize the risk of loss. Global economic conditions and liquidity issues in certain countries have resulted, and may continue to result, in delays in the collection of receivables and credit losses. Global economic conditions, governmental actions and customer-specific factors may require us to re-evaluate the collectability of our receivables and we could potentially incur additional credit losses. Foreign Currency and Interest Rate Risk Management We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. Our hedging policy attempts to manage these risks to an acceptable level based on our judgment of the appropriate trade-off between risk, opportunity and costs. We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, British Pound, Australian Dollar, Canadian Dollar, Chinese Renminbi, Japanese Yen, Mexican Peso, Indian Rupee and Swedish Krona. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative instruments to further reduce the net exposure to foreign exchange risk. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures. We are also exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. Our policy is to manage interest costs using the mix of fixed- and floating-rate debt that we believe is appropriate at that time. To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount. We do not hold any instruments for trading purposes and none of our outstanding derivative instruments contain credit-risk-related contingent features. Cash Flow Hedges We may use options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities. We periodically use treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt. The notional amounts of foreign exchange contracts designated as cash flow hedges were $99 million and $340 million as of December 31, 2024 and 2023, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at December 31, 2024 is 11 months for foreign exchange contracts. There were no outstanding interest rate contracts designated as cash flow hedges as of December 31, 2024 and 2023. Fair Value Hedges We periodically use interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. These instruments hedge our earnings from changes in the fair value of debt due to fluctuations in the designated benchmark interest rate. There were no outstanding interest rate contracts designated as fair value hedges as of December 31, 2024 and 2023. In October 2023, we entered into a foreign currency forward contract with a notional amount of $798 million and designated that derivative as a fair value hedge of our €750 million of 0.40% senior notes due May 2024. This forward contract matured in May 2024. Net Investment Hedges In May 2017, we issued €600 million of 1.3% senior notes due May 2025. In May 2019, we issued €750 million of 1.3% senior notes due May 2029. We have designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances are recorded as a component of AOCI. In May 2019, we issued €750 million of 0.40% senior notes due May 2024, which we repaid in full on their maturity date. We had designated these debt obligations as hedges of our investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances were previously recorded as a component of AOCI. In October 2023, we dedesignated this previously designated net investment hedge and concurrently entered into a fair value hedging relationship as discussed in the “Fair Value Hedges” section above. As of December 31, 2024, we had an accumulated pre-tax unrealized translation gain in AOCI of $124 million related to the Euro-denominated senior notes. Dedesignations If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged items. However, if it is probable that hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings. There were no cash flow hedge dedesignations in 2024, 2023 or 2022 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur. The losses relating to these terminations continue to be deferred and are being recognized consistent with the underlying hedged item, interest expense on the issuance of debt. If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. There were no fair value hedges terminated in 2024, 2023 or 2022. If we remove a net investment hedge designation, any gain or loss recognized in AOCI is not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged. In October 2023, we dedesignated one of our net investment hedges as discussed in the "Net Investment Hedges" section above. There were no net investment hedges terminated in 2024 or 2022. Undesignated Derivative Instruments We use forward contracts to hedge earnings from the effects of foreign exchange relating to certain of our intra-company and third-party receivables and payables denominated in a foreign currency. These derivative instruments are generally not formally designated as hedges and the terms of these instruments generally do not exceed one month. The total notional amount of undesignated derivative instruments was $389 million and $305 million as of December 31, 2024 and 2023, respectively. Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our consolidated financial statements for the years ended December 31, 2024, 2023 and 2022.
(in millions) | Gain (loss) recognized in OCI | Location of gain (loss) in income statement | Gain (loss) reclassified from AOCI into income
2024 | 2023 | 2022 | 2024 | 2023 | 2022
Cash flow hedges |  |  |  |  |  |  |
Interest rate contracts | $ | — |  | $ | — |  | $ | — |  | Interest expense, net | $ | (6) |  | $ | (6) |  | $ | (6) |
Foreign exchange contracts | 17 |  | 15 |  | 28 |  | Cost of sales | 8 |  | 15 |  | 26 |
Fair value hedges |  |  |  |  |  |  |
Foreign exchange contracts | (3) |  | (4) |  | — |  | Other (income) expense, net | (5) |  | (3) |  | — |
Net investment hedges | 87 |  | (58) |  | 141 |  | Other (income) expense, net | — |  | — |  | — |
Total | $ | 101 |  | $ | (47) |  | $ | 169 |  |  | $ | (3) |  | $ | 6 |  | $ | 20 |
| Location of gain (loss) in income statement |  | Gain (loss) recognized in income
(in millions) |  |  | 2024 | 2023 | 2022
Fair value hedges |  |  |  |  |
Foreign exchange contracts | Other (income) expense, net |  | $ | (24) |  | $ | 38 |  | $ | — |
Undesignated derivative instruments |  |  |  |  |
Foreign exchange contracts | Other (income) expense, net |  | (13) |  | 2 |  | (16) |
Total |  |  | $ | (37) |  | $ | 40 |  | $ | (16) |
The following table summarizes net-of-tax activity in AOCI, a component of stockholders’ equity, related to our cash flow hedges.
as of and for the year ended December 31 (in millions) | 2024 | 2023 | 2022
Accumulated other comprehensive income (loss) balance at beginning of year | $ | (120) |  | $ | (119) |  | $ | (126) |
(Loss) gain in fair value of derivatives during the year | 10 |  | 5 |  | 22 |
Amount reclassified to earnings during the year | 2 |  | (6) |  | (15) |
Accumulated other comprehensive income (loss) balance at end of year | $ | (108) |  | $ | (120) |  | $ | (119) |
As of December 31, 2024, $1 million of deferred, net after-tax gains on derivative instruments included in AOCI are expected to be recognized in earnings during the next 11 months, coinciding with when the hedged items are expected to impact earnings. Derivative Assets and Liabilities The following table summarizes the classification and fair values of derivative instruments reported in the consolidated balance sheet as of December 31, 2024.
| Derivatives in asset positions |  | Derivatives in liability positions
(in millions) | Balance sheet location | Fair value |  | Balance sheet location | Fair value
Derivative instruments designated as hedges |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets | $ | 6 |  |  | Accrued expenses and other current liabilities | $ | — |
Undesignated derivative instruments |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets | 1 |  |  | Accrued expenses and other current liabilities | 2 |
Total derivative instruments |  | $ | 7 |  |  |  | $ | 2 |
The following table summarizes the classification and fair values of derivative instruments reported in the consolidated balance sheet as of December 31, 2023.
| Derivatives in asset positions |  | Derivatives in liability positions
(in millions) | Balance sheet location | Fair value |  | Balance sheet location | Fair value
Derivative instruments designated as hedges |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets | $ | 41 |  |  | Accrued expenses and other current liabilities | $ | — |
Undesignated derivative instruments |  |  |  |  |
Foreign exchange contracts | Prepaid expenses and other current assets | 4 |  |  | Accrued expenses and other current liabilities | 5 |
Total derivative instruments |  | $ | 45 |  |  |  | $ | 5 |
While some of our derivatives are subject to master netting arrangements, we present our assets and liabilities related to derivative instruments on a gross basis within the consolidated balance sheets. Additionally, we are not required to post collateral for any of our outstanding derivatives. The following table provides information on our derivative positions as if they were presented on a net basis, allowing for the right of offset by counterparty.
| December 31, 2024 |  | December 31, 2023
(in millions) | Asset | Liability |  | Asset | Liability
Gross amounts recognized in the consolidated balance sheets | $ | 7 |  | $ | 2 |  |  | $ | 45 |  | $ | 5 |
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheets | (1) |  | (1) |  |  | (4) |  | (4) |
Total | $ | 6 |  | $ | 1 |  |  | $ | 41 |  | $ | 1 |
The following table presents the amounts recorded on the consolidated balance sheets related to fair value hedges:
| Carrying amount of hedged items |  | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items (a)
(in millions) | Balance as of December 31, 2024 | Balance as of December 31, 2023 |  | Balance as of December 31, 2024 | Balance as of December 31, 2023
Long-term debt | $ | 99 |  | $ | 100 |  |  | $ | 2 |  | $ | 3 |
(a) These fair value hedges were terminated in 2018 and earlier periods.

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