Quarterly report [Sections 13 or 15(d)]

DERIVATIVES

v3.25.2
DERIVATIVES
 6 Months Ended
Jun. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure
NOTE 13. DERIVATIVES
We are exposed to financial risk resulting from volatility in foreign exchange rates, interest rates and commodity prices. This risk is closely monitored and managed through the use of physical forward contracts (which are not considered derivatives) and financial derivative instruments including foreign currency forward contracts, commodity swap contracts and interest rate swaps and locks. Financial derivatives are used expressly for hedging purposes and under no circumstances are they used for speculative purposes. When material, we adjust the estimated fair value of our derivative contracts for counterparty or our credit risk. None of our derivative instruments are subject to collateral requirements. Substantially all of our derivative contracts are subject to master netting arrangements, which provide us with the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event.
Foreign Currency Exchange Rate Risk
We had foreign currency forward contracts with notional amounts of $5.3 billion at June 30, 2025, with the following currencies comprising 85 percent of outstanding foreign currency forward contracts: British pound, Chinese renminbi, Euro, Australian dollar and Canadian dollar. We had foreign currency forward contracts with notional amounts of $3.6 billion at December 31, 2024, with the following currencies comprising 86 percent of outstanding foreign currency forward contracts: British pound, Chinese renminbi, Australian dollar, Canadian dollar and Euro.
We are further exposed to foreign currency exchange risk as many of our subsidiaries are subject to fluctuations as the functional currencies of the underlying entities are not our U.S. dollar reporting currency. To help reduce volatility in the equity value of our subsidiaries, we enter into foreign exchange forwards designated as net investment hedges for certain of our investments. Under the current terms of our foreign exchange forwards, we agreed with third parties to sell British pounds, Chinese renminbi and Euros in exchange for U.S. dollar currency at a specified rate at the maturity of the contract. The notional amount of these hedges at June 30, 2025, was $1.6 billion. In the second quarter of 2025, we began entering into cross-currency interest rate swaps designated as net investment hedges for certain of our investments to help reduce volatility in the equity value of our subsidiaries. Under the current terms of our cross-currency interest rate swaps, we generally pay fixed-rate interest in Euros or Chinese renminbi and receive fixed-rate interest in U.S. dollars. The notional amount of these hedges at June 30, 2025, was $500 million.
The following table summarizes our net investment hedge activity in accumulated other comprehensive loss (AOCL):
Three months ended Six months ended
June 30, June 30,
In millions 2025 2024 2025 2024
Type of Derivative Gain (Loss) 
Recognized in AOCL		 Gain (Loss) Reclassified from AOCL into Earnings Gain (Loss) 
Recognized in AOCL		 Gain (Loss) Reclassified from AOCL into Earnings Gain (Loss) 
Recognized in AOCL		 Gain (Loss) Reclassified from AOCL into Earnings Gain (Loss) 
Recognized in AOCL		 Gain (Loss) Reclassified from AOCL into Earnings
Foreign exchange forwards $ (45) $ —  $ (3) $ —  $ (69) $ —  $ 3  $ — 
Cross-currency interest rate swaps (8) —  —  —  (8) —  —  — 
Interest Rate Risk
In 2021, we entered into a series of interest rate swaps to effectively convert our $500 million senior notes, due in 2025, from a fixed rate of 0.75 percent to a floating rate equal to the three-month London Interbank Offered Rate (LIBOR) plus a spread (subsequently adjusted to Secured Overnight Financing Rate (SOFR) under a fallback protocol in our derivative agreements). We also entered into a series of interest rate swaps to effectively convert $765 million of our $850 million senior notes, due in 2030, from a fixed rate of 1.50 percent to a floating rate equal to the three-month LIBOR plus a spread (also similarly adjusted to SOFR). We designated the swaps as fair value hedges. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, were recognized in current income as interest expense. The net swap settlements that accrue each period were also reported in our Condensed Consolidated Financial Statements as interest expense. In 2023 and 2024, we settled a portion of these swaps with the immaterial losses amortized over the remaining term of the related debt. In the first quarter of 2025, we settled the remainder of the $350 million interest rate swaps, at their expiration date, on our debt due in 2025. The interest rate swaps on our 2030 debt had $680 million of the notional amounts outstanding at June 30, 2025.
The following table summarizes the gains and losses:
Three months ended Six months ended
June 30, June 30,
In millions 2025 2024 2025 2024
Type of Swap Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings
Interest rate swaps (1)
$ 10  $ (12) $ 3  $ (6) $ 27  $ (26) $ (7) $ 8 
(1) The difference between the gain (loss) on swaps and borrowings represents hedge ineffectiveness.
In the first quarter of 2025, we entered into a series of interest rate lock agreements including 5-year and 10-year locks, with notional amounts totaling $200 million and $400 million, respectively, to reduce variability of cash flows of interest payments on total fixed rate debt forecasted to be issued in 2025 to replace our senior notes at maturity and for other general purposes. In the second quarter of 2025, we entered into additional 10-year interest rate lock agreements with notional amounts totaling $100 million. The terms of the rate locks mirrored the time period of the expected fixed rate debt issuances and the expected timing of interest payments on planned debt issuances. The gains and losses on these derivative instruments were initially recorded in other comprehensive income and will be released to earnings in interest expense in future periods to reflect the difference in (1) the fixed rates economically locked in at the inception of the hedge and (2) the actual fixed rates established in the debt instrument at issuance. In the second quarter of 2025, with the issuance of senior unsecured notes, we settled all interest rate lock agreements with a notional amount of $700 million. The immaterial net losses from settlement will be amortized over the remaining term of the related debt. Amortization of net losses were immaterial for the three and six months ended June 30, 2025.
Derivatives Not Designated as Hedging Instruments
The following table summarizes the effect on our Condensed Consolidated Statements of Net Income for derivative instruments not designated as hedging instruments:
Three months ended Six months ended
June 30, June 30,
In millions 2025 2024 2025 2024
(Loss) gain recognized in income - Cost of sales (1)
$ (1) $ 1  $ (4) $ 1 
Gain (loss) recognized in income - Other income, net (1)
89  (4) 150  (44)
(1) Includes foreign currency forward contracts.
Fair Value Amount and Location of Derivative Instruments
The following table summarizes the location and fair value of derivative instruments on our Condensed Consolidated Balance Sheets:
Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments
In millions June 30,
2025		 December 31,
2024		 June 30,
2025		 December 31,
2024
Notional amount $ 3,592  $ 3,512  $ 4,503  $ 2,713 
Derivative assets
Prepaid expenses and other current assets (1)
$ 26  $ 60  $ 70  $ 6 
Other assets —  6  —  — 
Total derivative assets (1)
$ 26  $ 66  $ 70  $ 6 
Derivative liabilities
Other accrued expenses $ 40  $ 10  $ 7  $ 67 
Other liabilities 78  89  —  — 
Total derivative liabilities (1)
$ 118  $ 99  $ 7  $ 67 
(1) Estimates of the fair value of all derivative assets and liabilities above are derived from Level 2 inputs, which are estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 input measures and there were no transfers into or out of Level 2 or 3 during the six months ended June 30, 2025, or the year ended December 31, 2024.
We elected to present our derivative contracts on a gross basis in our Condensed Consolidated Balance Sheets. Had we chosen to present on a net basis, we would have derivatives in a net asset position of $28 million and $37 million and derivatives in a net liability position of $57 million and $131 million at June 30, 2025 and December 31, 2024, respectively.