Derivative instruments

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Cash flow hedges

As of September 30, 2023, the Company used foreign currency exchange contracts to hedge the foreign currency effects related to the forecasted purchase of MPOs devices in U.S. dollars owed by a Brazilian subsidiary whose functional currency is the Brazilian Real. The Company designated the foreign currency exchange contracts as cash flow hedges, the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. As of September 30, 2023, the Company estimated that the whole amount of net derivative gains or losses related to its cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.

In addition, the Company has entered into swap contracts to hedge the interest rate fluctuation of its variable financial debt issued by one of its Brazilian subsidiaries. The Company designated the swap contracts as cash flow hedges. The derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income and subsequently reclassified into earnings within the next 12 months.

Fair value hedges

The Company has entered into cross currency swap contracts to hedge the interest rate and the foreign currency exposure of its fixed-rate, foreign currency financial debt issued by its Brazilian subsidiaries. The Company designated the swap contracts as fair value hedges. The derivative’s gain or loss is reported in earnings in the same line items as the change in the value of the financial debt due to the hedged risks. Since the terms of the interest rate swaps match the terms of the hedged debts, changes in the fair value of the interest rate swaps are offset by changes in the fair value of the hedged debts attributable to changes in interest rates. Accordingly, the net impact in current earnings is that the interest expense associated with the hedged debts is recorded at the floating rates.

Net investment hedge

The Company used cross currency swap contracts, to reduce the foreign currency exchange risk related to its investment in its Brazilian foreign subsidiaries and the interest rate risk. This derivative was designated as a net investment hedge and, accordingly, gains and losses are reported as a component of accumulated other comprehensive income. The derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income and is expected to be reclassified into earnings in the same period that the interest expense affects earnings.

Derivative instruments not designated as hedging instruments

As of September 30, 2023, the Company entered into certain foreign currency exchange contracts to hedge the foreign currency fluctuations related to certain transactions denominated in U.S. dollars of certain of its Brazilian subsidiaries, whose functional currencies are the Brazilian Real. These transactions were not designated as hedges for accounting purposes.

Finally, as of September 30, 2023, the Company entered into swap contracts to hedge the interest rate fluctuation of a certain portion of its financial debt in its Brazilian subsidiaries and VIEs. These transactions were not designated as hedges for accounting purposes.

The following table presents the notional amounts of the Company’s outstanding derivative instruments:


	Notional Amount as of
	September 30, 2023		December 31, 2022
	(In millions)
Designated as hedging instrument
Foreign exchange contracts	$	62	$	109
Interest rate swap contracts	—		229
Cross currency swap contracts	244		133

Not designated as hedging instrument
Foreign exchange contracts	$	39	$	110
Interest rate swap contracts	249		480

Derivative Instrument Contracts

The fair values of the Company’s outstanding derivative instruments as of September 30, 2023 and December 31, 2022 were as follows:


	Balance sheet location	September 30, 2023		December 31, 2022
		(In millions)
Derivative Instruments
Foreign exchange contracts designated as cash flow hedges	Other current assets	$	—	$	1
Cross currency swap contracts designated as fair value hedge	Other current assets	5		—
Interest rate swap contracts not designated as hedging instruments	Other non-current assets	11		—
Cross currency swap contracts designated as net investment hedge	Other current liabilities	4		2
Interest rate swap contracts designated as cash flow hedges	Other current liabilities	—		8
Cross currency swap contracts designated as fair value hedge	Other current liabilities	4		2
Interest rate swap contracts not designated as hedging instruments	Other current liabilities	7		1
Foreign exchange contracts not designated as hedging instruments	Other current liabilities	2		2
Foreign exchange contracts designated as cash flow hedges	Other current liabilities	1		2
Interest rate swap contracts not designated as hedging instruments	Other non-current liabilities	—		6
Cross currency swap contracts designated as net investment hedge	Other non-current liabilities	—		1

The effects of derivative contracts on the unaudited interim condensed consolidated statement of comprehensive income as of September 30, 2023 were as follows:


	December 31, 2022		Amount of gain (loss) recognized in other comprehensive income		Amount of (gain) loss reclassified from accumulated other comprehensive income		September 30, 2023
	(In millions)
Foreign exchange contracts designated as cash flow hedges	$	(2)	$	(9)	$	9	$	(2)
Interest swap contracts designated as cash flow hedges	(2)		8		(6)		—
Cross currency swap contracts designated as net investment hedge	(1)		(7)		5		(3)
	$	(5)	$	(8)	$	8	$	(5)

The effect of the Company’s fair value hedge relationships on the unaudited interim condensed consolidated statements of income for the nine and three-month periods ended September 30, 2023 is a loss of $9 million and a gain of $4 million, respectively, and affected interest expense and other financial losses and foreign exchange losses, net. For the nine and three-month periods ended September 30, 2022, the Company recognized a gain of $1 million that affected interest expense and other financial losses.

The carrying amount of the hedged items for fair value hedges as of September 30, 2023 and December 31, 2022 was $214 million and $59 million, respectively.

The effect of the Company’s fair value hedge relationships on the unaudited interim condensed consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of September 30, 2023 is less than $1 million, while as of September 30, 2022 is $1 million.

The effects of derivative contracts not designated as hedging instruments on the unaudited interim condensed consolidated statements of income for the nine and three-month periods ended September 30, 2023 and 2022 were as follows:


	Nine Months Ended September 30,				Three Months Ended September 30,
	2023		2022		2023		2022
	(In millions)				(In millions)
Foreign exchange contracts not designated as hedging instruments recognized in Foreign currency losses, net	$	(10)	$	—	$	1	$	—
Currency swap contracts not designated as hedging instruments recognized in Foreign currency losses, net	—		(23)		—		(1)
Interest rate contracts not designated as hedging instruments recognized in Interest expense and other financial losses	1		(5)		(4)		(5)