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Derivatives and Hedging Instruments | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Instruments | Derivatives and Hedging Instruments Derivatives and Nonderivatives 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 September 30, 2024 and December 31, 2023, the total principal amounts of foreign currency debt obligations designated as net investment hedges were $1.1 billion and $1.5 billion, respectively. Foreign Currency Forward Contracts: We use foreign currency forward contracts, designated as net investment hedges, to hedge against the effect of foreign exchange rate fluctuations on our net investment in our foreign subsidiaries. We use the spot method to assess hedge effectiveness and recognize fair value changes from spot rates in other comprehensive income. We exclude forward points from the assessment of hedge effectiveness and amortize the initial value of the excluded component through interest expense. The difference between fair value changes from the excluded component and the amount amortized is recognized in other comprehensive income. Embedded Derivatives: 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. As of both September 30, 2024 and December 31, 2023, the total remaining contract value of such customer agreements outstanding under this hedging program was $223 million. Cross-currency Interest Rate Swaps: We also use 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. We use the spot method to assess hedge effectiveness and recognize fair value changes from spot rates in other comprehensive income. We exclude time value and cross currency basis spread from the assessment of hedge effectiveness and recognize the excluded component in interest expense through the swap accrual process. The difference between fair value changes of the excluded component and the amount amortized is recognized in other comprehensive income. Cash Flow Hedges Foreign Currency Forward 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 contracts that we use to hedge this exposure are designated as cash flow hedges. We also 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. We do not exclude any components from the assessment of hedge effectiveness and the change in fair value of these derivatives is recognized in other comprehensive income until the hedged transaction occurs. As of September 30, 2024, our foreign currency forward contracts had maturity dates ranging from October 2024 to December 2026 and we had a net loss of $19 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 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 variable-rate debt and our U.S. dollar-denominated fixed-rate debt issued by our foreign subsidiaries. As of September 30, 2024, our cross-currency interest rate swaps had maturity dates ranging from March 2026 to June 2034. We had a net gain of $10 million recorded within accumulated other comprehensive income (loss) to be reclassified to interest expense in the next 12 months for cash flow hedges. We use the spot method to assess hedge effectiveness. Fair value changes from spot rates are recognized in other comprehensive income initially and immediately reclassified to earnings to offset the gain or loss from remeasuring the associated debt. We exclude time value and cross currency basis spread from the assessment of hedge effectiveness and recognize the excluded component in interest expense through the swap accrual process. The difference between fair value changes of the excluded component and the amount amortized is recognized in other comprehensive income. 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 September 30, 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 September 30, 2024 and December 31, 2023, we had insignificant net gains recorded within accumulated other comprehensive income (loss) to be reclassified to interest expense in the next 12 months for interest rate locks. Derivatives Not Designated as Hedging Instruments 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 hedging instruments. Gains and losses subsequent to the de-designation are recognized in earnings to offset remeasurement gains and losses from foreign currency monetary assets and liabilities. Notional Amounts and Fair Value of Derivative Instruments The following table presents the composition of derivative instruments recognized in our condensed consolidated balance sheets, excluding accrued interest, as of September 30, 2024 and December 31, 2023 (in millions):
| September 30, 2024 |  | December 31, 2023
|  |  | Fair Value |  |  |  | Fair Value
| Notional Amount (1) |  | Assets (2) |  | Liabilities (3) |  | Notional Amount (1) |  | Assets (2) |  | Liabilities (3)
Designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Net investment hedges |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | $ | 886 |  |  | $ | 2 |  |  | $ | 12 |  |  | $ | 887 |  |  | $ | 3 |  |  | $ | 17 |
Cross-currency interest rate swaps | 2,171 |  |  | 73 |  |  | 1 |  |  | 3,121 |  |  | 132 |  |  | — |
Cash flow hedges |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | 1,397 |  |  | 1 |  |  | 31 |  |  | 1,154 |  |  | 2 |  |  | 14 |
Cross-currency interest rate swaps | 1,030 |  |  | 52 |  |  | 3 |  |  | 280 |  |  | 36 |  |  | — |
Total designated as hedging | 5,484 |  |  | 128 |  |  | 47 |  |  | 5,442 |  |  | 173 |  |  | 31 |
Not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | 5,319 |  |  | 31 |  |  | 70 |  |  | 3,053 |  |  | 4 |  |  | 70 |
Cross-currency interest rate swaps | 2,211 |  |  | 144 |  |  | 7 |  |  | 1,061 |  |  | 80 |  |  | — |
Total not designated as hedging | 7,530 |  |  | 175 |  |  | 77 |  |  | 4,114 |  |  | 84 |  |  | 70 |
Total Derivatives | $ | 13,014 |  |  | $ | 303 |  |  | $ | 124 |  |  | $ | 9,556 |  |  | $ | 257 |  |  | $ | 101 |
(1)Excludes embedded derivatives. (2)As presented in our condensed consolidated balance sheets within other current assets and other assets. (3)As presented in our condensed consolidated balance sheets within other current liabilities and other liabilities. Impact on Accumulated Other Comprehensive Income The pre-tax gains (losses) from hedging instruments recognized in accumulated other comprehensive income for the three and nine months ended September 30, 2024 and 2023 were as follows (in millions):
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  |  | 2024 |  | 2023 |  | 2024 |  | 2023
Net investment hedges: |  |  |  |  |  |  |  |  |
Foreign currency debt |  | $ | (39) |  |  | $ | 51 |  |  | $ | (5) |  |  | $ | 12 |
Foreign currency forward contracts (included component) |  | (36) |  |  | 10 |  |  | (1) |  |  | 9 |
Foreign currency forward contracts (excluded component) |  | 3 |  |  | — |  |  | 3 |  |  | — |
Cross-currency interest rate swaps (included component) |  | (82) |  |  | 100 |  |  | 2 |  |  | 79 |
Cross-currency interest rate swaps (excluded component) |  | 16 |  |  | (12) |  |  | 17 |  |  | (15) |
Total |  | $ | (138) |  |  | $ | 149 |  |  | $ | 16 |  |  | $ | 85 |
Cash flow hedges: |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | $ | (46) |  |  | $ | 36 |  |  | $ | (17) |  |  | $ | 18 |
Cross-currency interest rate swaps (excluded component) |  | 9 |  |  | (1) |  |  | 17 |  |  | (2) |
Interest rate locks |  | — |  |  | — |  |  | 1 |  |  | (4) |
Total |  |  | $ | (37) |  |  | $ | 35 |  |  | $ | 1 |  |  | $ | 12 |
Impact on Earnings The gains (losses) from derivative instruments recognized in earnings, and location of such gains (losses) in the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 were as follows (in millions):
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| Location of gain (loss) |  | 2024 |  | 2023 |  | 2024 |  | 2023
Net investment hedges: |  |  |  |  |  |  |  |  |
Foreign currency forward contracts (excluded component) | Interest expense |  | $ | 3 |  |  | $ | — |  |  | $ | 8 |  |  | $ | 1 |
Cross-currency interest rate swaps (excluded component) | Interest expense |  | 6 |  |  | 11 |  |  | 21 |  |  | 35 |
Total |  |  | $ | 9 |  |  | $ | 11 |  |  | $ | 29 |  |  | $ | 36 |
Cash flow hedges: |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | Revenues |  | $ | 3 |  |  | $ | (12) |  |  | $ | 8 |  |  | $ | (6) |
Foreign currency forward contracts | Costs and operating expenses |  | (2) |  |  | 8 |  |  | (4) |  |  | 12 |
Cross-currency interest rate swaps (excluded component) | Interest expense |  | 3 |  |  | — |  |  | 4 |  |  | — |
Cross-currency interest rate swaps (included component) | Other income (expense) |  | (10) |  |  | (13) |  |  | (3) |  |  | 3 |
Total |  |  | $ | (6) |  |  | $ | (17) |  |  | $ | 5 |  |  | $ | 9 |
Non designated hedges: |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | Other income (expense) |  | $ | (70) |  |  | $ | 78 |  |  | $ | (4) |  |  | $ | 82 |
Cross-currency interest rate swaps | Other income (expense) |  | (18) |  |  | 2 |  |  | (8) |  |  | 2 |
Total |  |  | $ | (88) |  |  | $ | 80 |  |  | $ | (12) |  |  | $ | 84 |
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 September 30, 2024 and December 31, 2023 (in millions):
| Gross Amounts |  | Gross Amounts Offset in Condensed Consolidated Balance Sheet |  | Net Amounts |  | Gross Amounts not Offset in Condensed Consolidated Balance Sheet |  | Net
September 30, 2024 |  |  |  |  |  |  |  |  |
Derivative assets | $ | 333 |  |  | $ | — |  |  | $ | 333 |  |  | $ | (95) |  |  | $ | 238 |
Derivative liabilities | 145 |  |  | — |  |  | 145 |  |  | (95) |  |  | 50 |
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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