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Derivative Financial Instruments and Hedging Activities | 6 Months Ended
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Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities | Derivative Financial Instruments and Hedging Activities Foreign Currency Derivatives The Company uses derivatives to facilitate cross-currency corporate payments by writing derivatives to customers within its cross-border solution. The Company writes derivatives, primarily foreign currency forward contracts, option contracts, and swaps, mostly with small and medium size enterprises that are customers and derives a currency spread from this activity. Derivative transactions associated with the Company's cross-border solution include: •Forward contracts, which are commitments to buy or sell at a future date a currency at a contract price and will be settled in cash. •Option contracts, which give the purchaser the right, but not the obligation, to buy or sell within a specified time a currency at a contracted price that may be settled in cash. •Swap contracts, which are commitments to settlement in cash at a future date or dates, usually on an overnight basis. The credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. Concentrations of credit and performance risk may exist with counterparties, which includes customers and banking partners, as the Company is engaged in similar activities with similar economic characteristics related to fluctuations in foreign currency rates. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis. The Company also monitors the concentration of its contracts with any individual counterparty against limits at the individual counterparty level. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties' ability to perform. These actions may include requiring customers to post or increase collateral, and for all counterparties, if the counterparty does not perform under the term of the contract, the contract may be terminated. The Company does not designate any of its foreign exchange derivatives as hedging instruments in accordance with ASC 815, "Derivatives and Hedging". The aggregate equivalent U.S. dollar notional amount of foreign exchange derivative customer contracts held by the Company as of June 30, 2023 and December 31, 2022 (in millions) is presented in the following table:
| Notional
| June 30, 2023 |  | December 31, 2022
Foreign exchange contracts: |  |  |
Swaps | $ | 157.3 |  |  | $ | 160.9 |
Futures and forwards | 18,717.5 |  |  | 15,159.4 |
Written options | 18,092.6 |  |  | 13,701.9 |
Purchased options | 14,477.0 |  |  | 11,474.2 |
Total | $ | 51,444.4 |  |  | $ | 40,496.4 |
The majority of customer foreign exchange contracts are written in currencies such as the U.S. dollar, Canadian dollar, British pound, euro and Australian dollar. The following table summarizes the fair value of derivatives reported in the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (in millions):
| June 30, 2023 |  |  |  |
| Fair Value, Gross |  | Fair Value, Net |  |
| Derivative Assets |  | Derivative Liabilities |  | Derivative Assets |  | Derivative Liabilities |  |  |  |
Derivatives - undesignated: |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | $ | 587.0 |  |  | $ | 530.2 |  |  | $ | 259.6 |  |  | $ | 202.9 |  |  |  |  |
Cash collateral | 41.8 |  |  | 165.5 |  |  | 41.8 |  |  | 165.5 |  |  |  |  |
Total net of cash collateral | $ | 545.2 |  |  | $ | 364.7 |  |  | $ | 217.8 |  |  | $ | 37.4 |  |  |  |  |
| December 31, 2022 |  |  |  |
| Fair Value, Gross |  | Fair Value, Net |  |
| Derivative Assets |  | Derivative Liabilities |  | Derivative Assets |  | Derivative Liabilities |  |  |  |
Derivatives - undesignated: |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | $ | 582.2 |  |  | $ | 540.0 |  |  | $ | 266.9 |  |  | $ | 224.7 |  |  |  |  |
Cash collateral | 56.1 |  |  | 148.2 |  |  | 56.1 |  |  | 148.2 |  |  |  |  |
Total net of cash collateral | $ | 526.1 |  |  | $ | 391.8 |  |  | $ | 210.8 |  |  | $ | 76.5 |  |  |  |  |
The fair values of derivative assets and liabilities associated with contracts, which include netting terms that the Company believes to be enforceable, have been recorded net within prepaid expenses and other current assets, other assets, other current liabilities and other noncurrent liabilities the Consolidated Balance Sheets. The Company receives cash from customers as collateral for trade exposures, which is recorded within cash and cash equivalents, restricted cash and customer deposits liability in the Consolidated Balance Sheets. The customer has the right to recall their collateral in the event exposures move in their favor, they perform on all outstanding contracts and have no outstanding amounts due to the Company, or they cease to do business with the Company. The Company has trading lines with several banks, most of which require collateral to be posted if certain mark-to-market (MTM) thresholds are exceeded. Cash collateral posted with banks is recorded within restricted cash and can be recalled in the event that exposures move in the Company’s favor or move below the collateral posting thresholds. The Company does not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral. The following table presents the fair value of the Company’s derivative assets and liabilities, as well as their classification on the accompanying Consolidated Balance Sheets, as of June 30, 2023 and December 31, 2022 (in millions):
|  |  | June 30, 2023 |  | December 31, 2022
| Balance Sheet Classification |  | Fair Value
Derivative Assets | Prepaid expenses and other current assets |  | $ | 182.5 |  |  | $ | 204.9 |
Derivative Assets | Other assets |  | $ | 77.1 |  |  | $ | 62.0 |
Derivative Liabilities | Other current liabilities |  | $ | 144.9 |  |  | $ | 184.1 |
Derivative Liabilities | Other noncurrent liabilities |  | $ | 58.0 |  |  | $ | 40.6 |
Cash Flow Hedges On January 22, 2019, the Co mpany entered into three interest rate swap cash flow contracts (the "swap contracts"). One contract (which matured in January 2022) had a notional value of $1.0 billion, while the other two contracts (with maturity dates of January 2023 and December 2023) each had a notional value of $500 million. The objective of these swap contracts was to reduce the variability of cash flows in the previously unhedged interest payments associated with $2.0 billion of unspecified variable rate debt, the sole source of which is due to changes in the LIBOR benchmark interest rate. At inception, the Company designated these contracts as hedging instruments in accordance with ASC 815, "Derivatives and Hedging." During January 2023, the Company entered into five receive-variable SOFR, pay-fixed interest rate swap derivative contracts with a cumulative notional U.S. dollar value of $1.5 billion as shown disaggregated in the table below. On May 4, 2023, the Company amended the remaining LIBOR-based interest rate swap with a notional amount of $500 million from one-month term LIBOR of 2.55% to one-month term SOFR of 2.50%, without further changes to the terms of the swap. The Company applied certain expedients provided in ASU No. 2020-04, Reference Rate Reform (Topic 848), related to changes in critical terms of the hedging relationships due to reference rate reform, which allowed the change in critical terms without dedesignation of the hedging relationship. As of June 30, 2023, the Company had the following outstanding interest rate swap derivatives that qualify as hedging instruments within designated cash flow hedges of variable interest rate risk (in millions):
Notional Amount |  | Fixed Rates |  | Maturity Date
$500 |  | 2.50% |  | 12/19/2023
$250 |  | 4.01% |  | 7/31/2025
$250 |  | 4.02% |  | 7/31/2025
$500 |  | 3.80% |  | 1/31/2026
$250 |  | 3.71% |  | 7/31/2026
$250 |  | 3.72% |  | 7/31/2026
The purpose of these contracts is to reduce the variability of cash flows in interest payments associated with the Company's unspecified variable rate debt, the sole source of which is due to changes in the SOFR benchmark interest rate. The Company has designated these derivative instruments as cash flow hedging instruments, which are expected to be highly effective at offsetting changes in cash flows of the related underlying exposure. As a result, changes in fair value of the interest rate swaps are recorded in accumulated other comprehensive loss. For each of these swap contracts, the Company pays a fixed monthly rate and receives one month SOFR. The Company reclassified $12.4 million from accumulated other comprehensive loss resulting in a benefit to interest expense, net for the six months ended June 30, 2023 related to these interest rate swap contracts. For derivatives accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. The Company formally assesses, both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposures. The following table presents the fair value of the Compa ny’s interest rate swap contracts, as well as their classification on the accompanying Consolidated Balance Sheets, as of June 30, 2023 and December 31, 2022 (in millions). See Note 3 for additional information on the fair value of the Company’s swap contracts.
|  |  | June 30, 2023 |  | December 31, 2022
| Balance Sheet Classification |  | Fair Value
Derivatives designated as cash flow hedges: |  |  |  |  |
Swap contracts | Prepaid expenses and other current assets |  | $ | 28.2 |  |  | $ | 12.0 |
Swap contracts | Other assets |  | $ | 1.6 |  |  | $ | — |
As of June 30, 2023, the estimated net amount of the existing gains expected to be reclassified into earnings within the next 12 months is approximately $28.2 million. In August 2023, the Company entered into eight new interest rate swap contracts totaling $2.0 billion, as summarized in the table below (in millions):
Notional Amount |  | Fixed Rates |  | Maturity Date
$100 |  | 4.35% |  | 7/31/2026
$250 |  | 4.40% |  | 7/31/2026
$250 |  | 4.40% |  | 7/31/2026
$400 |  | 4.33% |  | 7/31/2026
$250 |  | 4.29% |  | 1/31/2027
$250 |  | 4.29% |  | 1/31/2027
$250 |  | 4.19% |  | 7/31/2027
$250 |  | 4.19% |  | 7/31/2027
The objective of these contracts is to eliminate the variability of cash flows in interest payments associated with $2.0 billion of unspecified variable rate debt, the sole source of which is due to changes in SOFR benchmark interest rate. For each of these swap contracts, we pay a fixed monthly rate and receive one month term SOFR. Net Investment Hedge In February 2023, the Company entered into a cross currency interest rate swap that is designated as a net investment hedge of our investments in euro-denominated operations. This contract effectively converts $500 million of U.S. dollar equivalent to an obligation denominated in euro, and partially offsets the impact of changes in currency rates on our euro-denominated net investments. This contract also creates a positive interest differential on the U.S. dollar-denominated portion of the swap, resulting in a 1.96% interest rate savings on the USD notional. Hedge effectiveness is tested based on changes in the fair value of the cross currency swap due to changes in the USD/euro spot rate. The Company anticipates perfect effectiveness of the designated hedging relationship and records changes in the fair value of the cross currency interest rate swap associated with changes in the spot rate through accumulated other comprehensive loss. Excluded components associated with the forward differential are recognized directly in earnings as interest expense, net. The Company recognized a benefit of $3.9 million in interest expense, net for the six months ended June 30, 2023 related to these excluded components. The cross currency interest rate swap designated as a net investment hedge is recorded in Other current liabilities at a fair value of $8.1 million as of June 30, 2023.

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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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