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Derivatives and Hedging Instruments | 3 Months Ended
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Mar. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Instruments | Derivatives and Hedging Instruments Derivatives Designated as Hedging Instruments Net Investment Hedges Foreign Currency Debt. We are exposed to the impact of foreign exchange rate fluctuations on the value of investments in our foreign subsidiaries whose functional currencies are other than the U.S. Dollar. In order to mitigate the impact of foreign currency exchange rates, we have entered into various foreign currency debt obligations, which are designated as hedges against our net investments in foreign subsidiaries. As of March 31, 2024 and December 31, 2023, the total principal amounts of foreign currency debt obligations designated as net investment hedges were $423 million and $1.5 billion, respectively. Foreign Currency Forward Contracts. From time to time, we use foreign currency forward contracts, which are designated as net investment hedges, to hedge against the effect of foreign exchange rate fluctuations on our net investment in our foreign subsidiaries. Certain of our customer agreements that are priced in currencies different from the functional or local currencies of the parties involved are deemed to have foreign currency forward contracts embedded in them. These embedded derivatives are separated from their host contracts and carried on our balance sheet at their fair value. The majority of these embedded derivatives arise as a result of our foreign subsidiaries pricing their customer contracts in U.S. Dollars. We use these forward contracts embedded within our customer agreements to hedge against the effect of foreign exchange rate fluctuations on our net investment in our foreign subsidiaries. Cross-currency Interest Rate Swaps. We also utilize cross-currency interest rate swaps, designated as net investment hedges, which effectively convert a portion of our U.S. dollar-denominated fixed-rate debt to foreign currency-denominated fixed-rate debt, to hedge the currency exposure associated with our net investment in our foreign subsidiaries. The effect of net investment hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 was as follows (in millions):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
|  |  | Three Months Ended March 31, |  |
|  |  | 2024 |  | 2023 |  |  |  |
Foreign currency debt |  | $ | 29 |  |  | $ | (24) |  |  |  |  |
Foreign currency forward contracts (included component) (1) |  | 27 |  |  | (1) |  |  |  |  |
Foreign currency forward contracts (excluded component) (2) |  | — |  |  | 1 |  |  |  |  |
Cross-currency interest rate swaps (included component) (1) |  | 76 |  |  | (40) |  |  |  |  |
Cross-currency interest rate swaps (excluded component) (3) |  | (2) |  |  | 24 |  |  |  |  |
Total |  | $ | 130 |  |  | $ | (40) |  |  |  |  |
Amount of gain or (loss) recognized in earnings: |  |  |  |
|  |  | Three Months Ended March 31, |  |
| Location of gain (loss) |  | 2024 |  | 2023 |  |  |  |
Foreign currency forward contracts (excluded component) (2) | Interest expense |  | $ | 2 |  |  | $ | — |  |  |  |  |
Cross-currency interest rate swaps (excluded component) (3) | Interest expense |  | 8 |  |  | 12 |  |  |  |  |
Total |  |  | $ | 10 |  |  | $ | 12 |  |  |  |  |
(1)Included component represents foreign exchange spot rates. (2)Excluded component represents foreign currency forward points. (3)Excluded component represents cross-currency basis spread and interest rates. Cash Flow Hedges Foreign Currency Forward and Option Contracts. We hedge our foreign currency transaction exposure for forecasted revenues and expenses in our EMEA region between the U.S. Dollar and foreign currencies, primarily the British Pound and the Euro. The foreign currency forward and option contracts that we use to hedge this exposure are designated as cash flow hedges. We enter into intercompany hedging instruments ("intercompany derivatives") with our wholly-owned subsidiaries in order to hedge certain forecasted revenues and expenses denominated in currencies other than the U.S. Dollar. Simultaneously, we enter into derivative contracts with unrelated third parties to externally hedge the net exposure created by such intercompany derivatives. As of March 31, 2024, our foreign currency cash flow hedge instruments had maturity dates ranging from April 2024 to December 2025 and we had a net gain of $10 million recorded within accumulated other comprehensive income (loss) to be reclassified to revenues and expenses for cash flow hedges that will mature in the next 12 months. As of December 31, 2023, our foreign currency cash flow hedge instruments had maturity dates ranging from January 2024 to December 2025 and we had a net loss of $7 million recorded within accumulated other comprehensive income (loss) to be reclassified to revenues and expenses for cash flow hedges that will mature in the next 12 months. Cross-currency Interest Rate Swaps. We also use cross-currency swaps, which are designated as cash flow hedges, to manage the foreign currency exposure associated with a portion of our foreign currency-denominated debt. Interest Rate Locks. We hedge the interest rate exposure created by anticipated fixed rate debt issuances through the use of treasury locks and swap locks (collectively, interest rate locks), which are designated as cash flow hedges. As of both March 31, 2024 and December 31, 2023, we had no interest rate locks outstanding. When interest rate locks are settled, any gain or loss from the transactions is deferred and included as a component of other comprehensive income (loss) and is amortized to interest expense over the term of the forecasted hedged transaction which is equivalent to the term of the interest rate locks. As of both March 31, 2024 and December 31, 2023, we had an insignificant net gain recorded within accumulated other comprehensive income (loss) to be reclassified to interest expense in the next 12 months for interest rate locks. The effect of cash flow hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023 was as follows (in millions):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
|  |  | Three Months Ended March 31, |  |
|  |  | 2024 |  | 2023 |  |  |  |
Foreign currency forward and option contracts (included component) (1) |  | $ | 27 |  |  | $ | (13) |  |  |  |  |
Cross-currency interest rate swaps |  | (2) |  |  | (2) |  |  |  |  |
Interest rate locks |  | 1 |  |  | (4) |  |  |  |  |
Total |  | $ | 26 |  |  | $ | (19) |  |  |  |  |
Amount of gain or (loss) reclassified from accumulated other comprehensive income to income:
|  |  | Three Months Ended March 31, |  |
| Location of gain (loss) |  | 2024 |  | 2023 |  |  |  |
Foreign currency forward contracts | Revenues |  | $ | (3) |  |  | $ | 12 |  |  |  |  |
Foreign currency forward contracts | Costs and operating expenses |  | 2 |  |  | (3) |  |  |  |  |
Total |  |  | $ | (1) |  |  | $ | 9 |  |  |  |  |
(1)Included component represents foreign exchange spot rates. Derivatives Not Designated as Hedging Instruments Embedded Derivatives. As described above, certain of our customer agreements that are priced in currencies different from the functional or local currencies of the parties involved are deemed to have foreign currency forward contracts embedded in them. Economic Hedges of Embedded Derivatives. We use foreign currency forward contracts to manage the foreign exchange risk associated with our customer agreements that are priced in currencies different from the functional or local currencies of the parties involved ("economic hedges of embedded derivatives"). Foreign currency forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Foreign Currency Forward Contracts. We also use foreign currency forward contracts to manage the foreign exchange risk associated with certain foreign currency-denominated monetary assets and liabilities. As a result of foreign currency fluctuations, the U.S. Dollar equivalent values of our foreign currency-denominated monetary assets and liabilities change. Gains and losses on these contracts are included in other income (expense), on a net basis, along with the foreign currency gains and losses of the related foreign currency-denominated monetary assets and liabilities associated with these foreign currency forward contracts. Cross-currency Interest Rate Swaps. We may, from time to time, elect to de-designate a portion of our cross-currency interest rate swaps previously designated as net investment hedges. Gains and losses subsequent to the de-designation will be recognized in earnings to offset remeasurement gains and losses from foreign currency monetary assets and liabilities. The following table presents the effect of derivatives not designated as hedging instruments in our condensed consolidated statements of operations (in millions):
Amount of gain or (loss) recognized in earnings: |  |  |  |  |  |  |  |
|  |  | Three Months Ended March 31, |  |
| Location of gain (loss) |  | 2024 |  | 2023 |  |  |  |
Foreign currency forward contracts | Other income (expense) |  | 76 |  |  | 11 |  |  |  |  |
Total |  |  | $ | 76 |  |  | $ | 11 |  |  |  |  |
Notional Amounts of Derivative Instruments The notional amounts of our outstanding derivative instruments as of March 31, 2024 and December 31, 2023 were as follows (in millions):
| March 31, 2024 |  | December 31, 2023
Designated as hedging instruments: |  |  |
Net investment hedges |  |  |
Foreign currency forward contracts | $ | 1,004 |  |  | $ | 887 |
Cross-currency interest rate swaps | 3,121 |  |  | 3,121 |
Cash flow hedges |  |  |
Foreign currency forward and option contracts | 1,187 |  |  | 1,154 |
Cross-currency interest rate swaps | 280 |  |  | 280 |
Total designated as hedging | 5,592 |  |  | 5,442 |
Not designated as hedging instruments: |  |  |
Foreign currency forward contracts | 2,736 |  |  | 3,053 |
Cross-currency interest rate swaps | 661 |  |  | 1,061 |
Total not designated as hedging | 3,397 |  |  | 4,114 |
Total Derivatives | $ | 8,989 |  |  | $ | 9,556 |
Fair Value of Derivative Instruments The following table presents the fair value of derivative instruments recognized in our condensed consolidated balance sheets, excluding accrued interest, as of March 31, 2024 and December 31, 2023 (in millions):
| March 31, 2024 |  | December 31, 2023
| Assets (1) |  | Liabilities (2) |  | Assets (1) |  | Liabilities (2)
Designated as hedging instruments: |  |  |  |  |  |  |
Net investment hedges |  |  |  |  |  |  |
Foreign currency forward contracts | $ | 19 |  |  | $ | 2 |  |  | $ | 3 |  |  | $ | 17 |
Cross-currency interest rate swaps | 209 |  |  | — |  |  | 132 |  |  | — |
Cash flow hedges |  |  |  |  |  |  |
Foreign currency forward and option contracts | 15 |  |  | 2 |  |  | 2 |  |  | 14 |
Cross-currency interest rate swaps | 33 |  |  | — |  |  | 36 |  |  | — |
Total designated as hedging | 276 |  |  | 4 |  |  | 173 |  |  | 31 |
Not designated as hedging instruments: |  |  |  |  |  |  |
Foreign currency forward contracts | 23 |  |  | 3 |  |  | 4 |  |  | 70 |
Cross-currency interest rate swaps | 79 |  |  | 13 |  |  | 80 |  |  | — |
Total not designated as hedging | 102 |  |  | 16 |  |  | 84 |  |  | 70 |
Total Derivatives | $ | 378 |  |  | $ | 20 |  |  | $ | 257 |  |  | $ | 101 |
(1)As presented in our condensed consolidated balance sheets within other current assets and other assets. (2)As presented in our condensed consolidated balance sheets within other current liabilities and other liabilities. Offsetting Derivative Assets and Liabilities We enter into master netting agreements with our counterparties for transactions other than embedded derivatives to mitigate credit risk exposure to any single counterparty. Master netting agreements allow for individual derivative contracts with a single counterparty to offset in the event of default. For presentation on the condensed consolidated balance sheets, we do not offset fair value amounts recognized for derivative instruments or the accrued interest related to cross-currency interest rate swaps under master netting arrangements. The following table presents information related to these offsetting arrangements, inclusive of accrued interest, as of March 31, 2024 and December 31, 2023 (in millions):
| Gross Amounts Offset in Condensed Consolidated Balance Sheets |  |  |  |
| Gross Amounts |  | Gross Amounts Offset in the Balance Sheet |  | Net Amounts |  | Gross Amounts not Offset in the Balance Sheet |  | Net
March 31, 2024 |  |  |  |  |  |  |  |  |
Derivative assets | $ | 394 |  |  | $ | — |  |  | $ | 394 |  |  | $ | (29) |  |  | $ | 365 |
Derivative liabilities | 31 |  |  | — |  |  | 31 |  |  | (29) |  |  | 2 |
December 31, 2023 |  |  |  |  |  |  |  |  |
Derivative assets | $ | 282 |  |  | $ | — |  |  | $ | 282 |  |  | $ | (56) |  |  | $ | 226 |
Derivative liabilities | 112 |  |  | — |  |  | 112 |  |  | (56) |  |  | 56 |

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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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