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Financial Instruments | 3 Months Ended
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Mar. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments | Financial Instruments The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The following financial instruments were recorded at their estimated fair value. The recurring fair value measurement of the assets and liabilities was as follows:
($ in millions) | Fair Value Measurement Level |  | March 31, 2025 |  | December 31, 2024
Other current assets: |  |  |  |  |
Forward contracts | 2 |  | $ | 15 |  |  | $ | 29 |
Other assets: |  |  |  |  |
Cross-currency swap | 2 |  | 2 |  |  | 27 |
Accrued and other current liabilities: |  |  |  |  |
Contingent consideration | 3 |  | — |  |  | 75 |
Forward contracts | 2 |  | 14 |  |  | 13 |
Other noncurrent liabilities: |  |  |  |  |
Contingent consideration | 3 |  | 330 |  |  | 319 |
Foreign Currency Risk Management The Company uses a balance sheet risk management program to partially mitigate the exposure of net monetary assets of its subsidiaries that are denominated in a currency other than a subsidiary’s functional currency from the effects of volatility in foreign exchange. In these instances, Organon principally utilizes forward exchange contracts to partially offset the effects of exchange on exposures denominated in developed country currencies, primarily the euro, Swiss franc, and Japanese yen. For exposures in developing country currencies, the Company enters into forward contracts to partially offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument. Forward Contracts Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Exchange (gains) losses in the Condensed Consolidated Statements of Income. The forward contracts are not designated as hedges and are marked to market through Exchange (gains) losses in the Condensed Consolidated Statements of Income. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than one year. The notional amount of forward contracts was $1.7 billion and $1.4 billion as of March 31, 2025 and December 31, 2024, respectively. The cash flows and the related gains and losses from these contracts are reported as operating activities in the Condensed Consolidated Statements of Cash Flows. Net Investment Hedge Euro-denominated debt instruments Foreign exchange risk is also managed through the use of economic hedges on foreign currency balances. €722 million of the euro-denominated term loan and €1.25 billion of the 2.875% euro-denominated secured notes have been designated and are effective as a hedge of the net investment in euro-denominated subsidiaries. See Note 10 “Long-Term Debt” for additional details. Cross-Currency Swaps The Company entered into cross-currency swaps that mature in 2029. The Company elected to designate the fixed-for-fixed swaps as a hedge of the net investment in euro-denominated subsidiaries balance and the change in the fair value attributable to the changes in the spot rate is recorded in Other Comprehensive Income (Loss), Net of Taxes. Throughout the term of the swaps, the Company will pay a fixed interest rate of 5.8330% based on the Euro notional amount of €922 million and receive a fixed interest rate of 7.3125% based on the U.S. dollar notional amount of $1 billion. The notional amount based on the Euro leg of the cross-currency swaps has been designated and is effective as a hedge of the net investment in euro-denominated subsidiaries. The difference between the interest rate received and paid under the cross-currency swap agreements is recorded in Interest expense in the Condensed Consolidated Statements of Income. The cash flows and the related gains and losses from the periodic settlements of the cross-currency swaps are reported as Operating Activities in the Condensed Consolidated Statements of Cash Flows. Foreign currency gain (loss) due to spot rate fluctuations on the euro-denominated debt instruments and the change in fair value of the cross-currency swaps resulting from hedge designation were included within Cumulative translation adjustment in Other comprehensive income (loss), net of taxes:
|  |  | Three Months Ended March 31,
($ in millions) |  |  |  |  | 2025 |  | 2024 |  |
Euro-denominated debt instruments (loss) gain |  |  |  |  | $ | (70) |  |  | $ | 49 |  |  |
Cross-currency swaps loss |  |  |  |  | (25) |  |  | — |  |  |
The Condensed Consolidated Statements of Income include the impact of net (gains) losses of Organon’s derivative financial instruments:
|  |  | Three Months Ended March 31,
($ in millions) |  |  |  |  | 2025 |  | 2024 |  |
Derivative gain in Exchange (gains) losses |  |  |  |  | $ | (2) |  |  | $ | (1) |  |  |
Derivative gain in Interest expense |  |  |  |  | (4) |  |  | — |  |  |
Contingent Consideration The fair value measurement of contingent consideration arising from business combinations is determined via probability-weighted cash flows using a Monte Carlo simulation model, which are then discounted to present value. These inputs may include: (i) the estimated amount and timing of projected cash flows, (ii) the probability of the achievement of the factor(s) on which the contingency is based and (iii) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly higher or lower fair value measurement. At March 31, 2025, the fair value measurements of acquisition-related contingent consideration were determined using discount rates ranging from 6.26% to 8.05%. The following table presents a reconciliation of contingent consideration measured on a recurring basis using significant unobservable inputs (Level 3):
($ in millions) |  | March 31, 2025
Beginning balance |  | $ | 394 |
Accretion |  | 11 |
Payment |  | (75) |
Ending balance |  | $ | 330 |
Concentrations of Credit Risk Organon has established accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. Under these agreements, Organon factored $249 million and $186 million of accounts receivable as of March 31, 2025 and December 31, 2024, respectively, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within Operating Activities in the Condensed Consolidated Statements of Cash Flows. The cost of factoring such accounts receivable were not material for the three months ended March 31, 2025 and 2024.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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