Fair Value Measurements

12 Months Ended

Dec. 31, 2023

4. Fair Value Measurements

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, other current liabilities and short-term debt approximate their fair value because of the short-term maturity of these instruments.

The Company uses derivative financial instruments, “derivatives”, as part of its debt management to mitigate the market risk that occurs from its exposure to changes in interest and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial policy. All derivatives are recognized in the consolidated financial statements at fair value. Certain derivatives are from time to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other derivatives hedge accounting is not applied either because non-hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest and foreign exchange rates.

The degree of judgment utilized in measuring the fair value of the instruments generally correlates to the level of pricing observability. Pricing observability is impacted by several factors, including the type of asset or liability, whether the asset or liability has an established market and the characteristics specific to the transaction. Instruments with readily active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment utilized in measuring fair value.

Under U.S. GAAP, there is a disclosure framework hierarchy associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3 - Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The Company’s derivatives are all classified as Level 2 of the fair value hierarchy.

The tables below present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and December 31, 2022. The carrying value is the same as the fair value as these instruments are recognized in the consolidated financial statements at fair value. Although the Company is party to close-out netting agreements (ISDA agreements) with all derivative counterparties, the fair values in the tables below and in the Consolidated Balance Sheets at December 31, 2023 and December 31, 2022 have been presented on a gross basis. According to the close-out netting agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted. The amounts subject to netting agreements that the Company choose not to offset are presented below.

DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS

There were no derivatives designated as hedging instruments as of December 31, 2023 and December 31, 2022.

DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS

Derivatives not designated as hedging instruments, relate to economic hedges and are marked to market with all amounts recognized in the Consolidated Statements of Income. The derivatives not designated as hedging instruments outstanding at December 31, 2023 and December 31, 2022 were foreign exchange swaps.

For 2023, the Company recognized a gain of $2 million in other non-operating items, net for derivative instruments not designated as hedging instruments. For 2022, the Company recognized a gain of $2 million. For 2021, the Company recognized a loss of $33 million. The realized part of the losses referred to above are reported under financing activities in the statement of cash flows. For 2023, 2022 and 2021, the gains and losses recognized as interest expense were immaterial.


	DECEMBER 31, 2023									DECEMBER 31, 2022
				Fair Value Measurements									Fair Value Measurements
				Derivative asset			Derivative liability						Derivative asset			Derivative liability
	Nominal			(Other current			(Other current			Nominal			(Other current			(Other current
(Dollars in millions)	volume			assets)			liabilities)			volume			assets)			liabilities)
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign exchange swaps, less than 6 months	$	1,895	1)	$	22	2)	$	12	3)	$	2,616	4)	$	22	5)	$	15	6)
TOTAL DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS	$	1,895		$	22		$	12		$	2,616		$	22		$	15

1) Net nominal amount after deducting for offsetting swaps under ISDA agreements is $1,895 million.

2) Net amount after deducting for offsetting swaps under ISDA agreements is $22 million.

3) Net amount after deducting for offsetting swaps under ISDA agreements is $12 million.

4) Net nominal amount after deducting for offsetting swaps under ISDA agreements is $2,616 million.

5) Net amount after deducting for offsetting swaps under ISDA agreements is $22 million.

6) Net amount after deducting for offsetting swaps under ISDA agreements is $15 million.

FAIR VALUE OF DEBT

The fair value of long-term debt is determined either from quoted market prices as provided by participants in the secondary market or for long-term debt without quoted market prices, estimated using a discounted cash flow method based on the Company’s current borrowing rates for similar types of financing. The Company has determined that each of these fair value measurements of debt reside within Level 2 of the fair value hierarchy.

During the first quarter of 2023, the Company issued a five year €500 million Eurobond. These notes were issued as green bonds.

The fair value and carrying value of debt are summarized in the table below (dollars in millions).


	DECEMBER 31, 2023				DECEMBER 31, 2022
	CARRYING VALUE1)		FAIR VALUE		CARRYING VALUE1)		FAIR VALUE
LONG-TERM DEBT
Bonds	$	1,023	$	1,022	$	767	$	735
Loans		301		306		287		292
TOTAL	$	1,324	$	1,328	$	1,054	$	1,027

SHORT-TERM DEBT
Short-term portion of long-term debt	$	297	$	297	$	533	$	527
Overdrafts and other short-term debt		241		241		178		178
TOTAL	$	538	$	538	$	711	$	705

1) Debt as reported in balance sheet.

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A NON-RECURRING BASIS

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also has assets and liabilities in its balance sheet that are measured at fair value on a nonrecurring basis including certain long-lived assets, including equity method investments, goodwill and other intangible assets, typically as it relates to impairment.

The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets as of the reporting date, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the expected life of the long-lived assets.

For the period 2021-2023, the Company did not record any material impairment charges on its long-lived assets for its continuing operations.