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Derivative Instruments | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative InstrumentsOur exposure to market risk includes changes in foreign exchange rates and interest rates. We have operations in foreign countries where the functional currency is primarily the local currency. For international operations that are determined to be extensions of the parent company, the U.S. dollar is the functional currency. We typically have naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. As of September 30, 2023 and December 31, 2022, we have entered into foreign exchange forward contracts to mitigate or hedge the effect of adverse fluctuations in foreign exchange rates and cross currency swap contracts to hedge a portion of our net investment in a foreign subsidiary against volatility in foreign exchange rates. As of September 30, 2023 and December 31, 2022, we entered into a series of interest rate swaps to mitigate or hedge the adverse fluctuations in interest rates on our future debt refinancing. These contracts are recorded at fair value that is based on foreign currency exchange rates and interest rates in active markets; therefore, we classify these derivative contracts within Level 2 of the fair value hierarchy. We do not enter into any derivative financial instruments for speculative purposes. Undesignated Derivative Instruments During the nine months ended September 30, 2023 and twelve months ended December 31, 2022, we entered into foreign exchange forward contracts in order to mitigate the change in fair value of specific assets and liabilities in the consolidated balance sheets. These forward contracts do not qualify for hedge accounting. As of September 30, 2023 and December 31, 2022, the aggregate notional value of these outstanding forward contracts was $2.3 billion and $1.8 billion, respectively. The changes in fair value of these forward contracts are recorded in prepaid and other current assets or other current liabilities in the consolidated balance sheets with their corresponding change in fair value recognized in selling and general expenses in the consolidated statements of income. The amount recorded in prepaid and other current assets as of September 30, 2023 and December 31, 2022 was less than $1 million and $5 million, respectively. The amount recorded in other current liabilities as of September 30, 2023 and December 31, 2022 was $80 million and $37 million, respectively. The amount recorded in selling and general expense related to these contracts was a net loss of $82 million and $24 million for three and nine months ended September 30, 2023, respectively, and a net loss of $82 million and $151 million for three and nine months ended September 30, 2022, respectively. Net Investment Hedges As of September 30, 2023 and December 31, 2022, we held cross currency swaps to hedge a portion of our net investment in one of our European subsidiaries against volatility in the Euro/U.S. dollar exchange rate. These swaps are designated and qualify as a hedge of a net investment in a foreign subsidiary and are scheduled to mature in 2024, 2029 and 2030. As of September 30, 2023 and December 31, 2022, the notional value of our outstanding cross currency swaps designated as a net investment hedge was $1 billion. The changes in the fair value of these swaps are recognized in foreign currency translation adjustments, a component of other comprehensive income (loss), and reported in accumulated other comprehensive loss in our consolidated balance sheet. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated. We have elected to assess the effectiveness of our net investment hedges based on changes in spot exchange rates. Accordingly, amounts related to the cross currency swaps recognized directly in net income for the three and nine months ended September 30, 2023 represent net periodic interest settlements and accruals, which are recognized in interest expense, net. We recognized net interest income of $6 million and $18 million for the three and nine months ended September 30, 2023 and net interest expense of $6 million and $24 million for the three and nine months ended September 30, 2022, respectively. Cash Flow Hedges Foreign Exchange Forward Contracts During the nine months ended September 30, 2023 and the twelve months ended December 31, 2022, we entered into a series of foreign exchange forward contracts to hedge a portion of the Indian rupee, British pound, and Euro exposures through the third quarter of 2025 and the fourth quarter of 2024, respectively. These contracts are intended to offset the impact of movement of exchange rates on future revenue and operating costs and are scheduled to mature within twenty-four months. The changes in the fair value of these contracts are initially reported in accumulated other comprehensive loss in our consolidated balance sheet and are subsequently reclassified into revenue and selling and general expenses in the same period that the hedged transaction affects earnings. As of September 30, 2023, we estimate that $3 million of pre-tax gain related to foreign exchange forward contracts designated as cash flow hedges recorded in other comprehensive income is expected to be reclassified into earnings within the next twelve months. As of September 30, 2023 and December 31, 2022, the aggregate notional value of our outstanding foreign exchange forward contracts designated as cash flow hedges was $530 million and $529 million, respectively. Interest Rate Swaps As of September 30, 2023 and December 31, 2022, we held positions in a series of interest rate swaps. These contracts are intended to mitigate or hedge the adverse fluctuations in interest rates on our future debt refinancing and are scheduled to mature beginning in the first quarter of 2027. These interest rate swaps are designated as cash flow hedges. The changes in the fair value of these contracts are initially reported in accumulated other comprehensive loss in our consolidated balance sheet and will be subsequently reclassified into interest expense, net in the same period that the hedged transaction affects earnings. As of September 30, 2023 and December 31, 2022, the aggregate notional value of our outstanding interest rate swaps designated as cash flow hedges was $813 million and $1.4 billion, respectively, with the current period reduction attributable to the issuance of $750 million 5.25% senior notes in September of 2023. The following table provides information on the location and fair value amounts of our cash flow hedges and net investment hedges as of September 30, 2023 and December 31, 2022:
(in millions) |  | September 30, |  | December 31,
Balance Sheet Location |  | 2023 |  | 2022
Derivatives designated as cash flow hedges: |  |  |  |
Prepaid and other current assets | Foreign exchange forward contracts | $ | 4 |  |  | $ | 3 |
Other current liabilities | Foreign exchange forward contracts | $ | — |  |  | $ | 7 |
Other non-current assets | Interest rate swap contracts | $ | 197 |  |  | $ | 145 |
Derivatives designated as net investment hedges: |  |  |  |
Other non-current assets | Cross currency swaps | $ | 77 |  |  | $ | 84 |
The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges and net investment hedges for the periods ended September 30: Three Months
(in millions) | Gain (Loss) recognized in Accumulated Other Comprehensive Loss (effective portion) |  | Location of Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (effective portion) |  | Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
| 2023 |  | 2022 |  |  |  | 2023 |  | 2022
Cash flow hedges - designated as hedging instruments |  |  |  |  |  |  |  |  |
Foreign exchange forward contracts | $ | (5) |  |  | $ | (2) |  |  | Revenue, Selling and general expenses |  | $ | 2 |  |  | $ | (6) |
Interest rate swap contracts | $ | 120 |  |  | $ | 56 |  |  | Interest expense, net |  | $ | (1) |  |  | $ | (1) |
Net investment hedges - designated as hedging instruments |  |  |  |  |  |  |  |  |
Cross currency swaps | $ | 22 |  |  | $ | 70 |  |  | Interest expense, net |  | $ | (1) |  |  | $ | (1) |
Nine Months
(in millions) | Gain (Loss) recognized in Accumulated Other Comprehensive Loss (effective portion) |  | Location of Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (effective portion) |  | Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
| 2023 |  | 2022 |  |  |  | 2023 |  | 2022
Cash flow hedges - designated as hedging instruments |  |  |  |  |  |  |  |  |
Foreign exchange forward contracts | $ | 4 |  |  | $ | (20) |  |  | Revenue, Selling and general expenses |  | $ | 4 |  |  | $ | (4) |
Interest rate swap contracts | $ | 111 |  |  | $ | 303 |  |  | Interest expense, net |  | $ | (4) |  |  | $ | (3) |
Net investment hedges - designated as hedging instruments |  |  |  |  |  |  |  |  |
Cross currency swaps | $ | (9) |  |  | $ | 176 |  |  | Interest expense, net |  | $ | (3) |  |  | $ | (3) |
The activity related to the change in unrealized gains (losses) in accumulated other comprehensive loss was as follows for the periods ended September 30:
(in millions) | Three Months |  | Nine Months
| 2023 |  | 2022 |  | 2023 |  | 2022
Cash Flow Hedges |  |  |  |  |  |  |
Foreign exchange forward contracts |  |  |  |  |  |  |
Net unrealized gains on cash flow hedges, net of taxes, beginning of period | $ | 7 |  |  | $ | (9) |  |  | $ | — |  |  | $ | 6 |
Change in fair value, net of tax | (2) |  |  | (7) |  |  | 7 |  |  | (21) |
Reclassification into earnings, net of tax | (2) |  |  | 5 |  |  | (4) |  |  | 4 |
Net unrealized gains (losses) on cash flow hedges, net of taxes, end of period | $ | 3 |  |  | $ | (11) |  |  | $ | 3 |  |  | $ | (11) |
Interest rate swap contracts |  |  |  |  |  |  |
Net unrealized gains (losses) on cash flow hedges, net of taxes, beginning of period | $ | 41 |  |  | $ | (16) |  |  | $ | 48 |  |  | $ | (203) |
Change in fair value, net of tax | 89 |  |  | 41 |  |  | 79 |  |  | 226 |
Reclassification into earnings, net of tax | 1 |  |  | 1 |  |  | 4 |  |  | 3 |
Net unrealized gains (losses) on cash flow hedges, net of taxes, end of period | $ | 131 |  |  | $ | 26 |  |  | $ | 131 |  |  | $ | 26 |
Net Investment Hedges |  |  |  |  |  |  |
Net unrealized gains (losses) on net investment hedges, net of taxes, beginning of period | $ | 32 |  |  | $ | 62 |  |  | $ | 56 |  |  | $ | (17) |
Change in fair value, net of tax | 16 |  |  | 52 |  |  | (10) |  |  | 129 |
Reclassification into earnings, net of tax | 1 |  |  | 1 |  |  | 3 |  |  | 3 |
Net unrealized gains on net investment hedges, net of taxes, end of period | $ | 49 |  |  | $ | 115 |  |  | $ | 49 |  |  | $ | 115 |

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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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