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Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments Risk Management Objective of Using Derivatives We are exposed to certain risks arising from both our business operations and economic conditions, and we principally manage our exposures to these risks through management of our core business activities. Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates that may impact revenue, expenses, cash receipts, cash payments, and the value of our stockholders' equity. We enter into derivative financial instruments to protect the value or fix the amount of certain cash flows in terms of the functional currency of the business unit with that exposure and also reduce the volatility in stockholders' equity. Cash Flow Hedges of Foreign Exchange Risk We are exposed to fluctuations in various foreign currencies against our functional currencies. We use foreign currency derivatives, including currency forward agreements, to manage our exposure to fluctuations in the various exchange rates. Currency forward agreements involve fixing the foreign currency exchange rate for delivery of a specified amount of foreign currency on a specified date. Certain business units with exposure to foreign currency exchange risks have designated certain currency forward agreements as cash flow hedges of forecasted intercompany inventory purchases and sales. Our principal currency exposures for which we enter into cash flow hedges relate to the Euro, Swedish Krona, British Pound, Canadian Dollar, Polish Zloty and Australian Dollar. We had foreign exchange contracts with purchased notional amounts totaling $517 million and $255 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, our most significant foreign currency derivatives included contracts to sell U.S. Dollar and purchase Euro, purchase Swedish Krona and sell Euro, sell British Pound and purchase Euro, purchase U.S. Dollar and sell Canadian Dollar, purchase Polish Zloty and sell Euro, sell Canadian Dollar and purchase Euro, and sell Australian Dollar and purchase Euro. The purchased notional amounts associated with these currency derivatives are $219 million, $144 million, $58 million, $26 million, $26 million, $25 million and $19 million, respectively. As of December 31, 2022 the purchased notional amounts associated with these currency derivatives were $105 million, $73 million, $29 million, $13 million, $13 million, $13 million and $9 million, respectively. Hedges of Net Investments in Foreign Operations We are exposed to changes in foreign currencies impacting our net investments held in foreign subsidiaries. Cross-Currency Swaps Beginning in 2015, we entered into cross-currency swaps to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. During the second quarter of 2019, third quarter of 2020, and second quarter of 2022 we entered into additional cross-currency swaps. The total notional amount of derivative instruments designated as net investment hedges was $1,653 million and $1,616 million as of March 31, 2023 and December 31, 2022, respectively. Foreign Currency Denominated Debt On March 11, 2016, we issued 2.250% Senior Notes of €500 million aggregate principal amount due March 2023. On December 12th, 2022 our Senior Notes due March 2023 were settled with cash on hand for a total of $527 million. Previously, the entirety of the outstanding balance was designated as a hedge of a net investment in certain foreign subsidiaries. On June 2, 2022, we de-designated the entirety of the outstanding balance of the €500 million 2.250% Senior Notes, or $533 million from the net investment hedge relationship. The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Income Statements and Statements of Comprehensive Income:
| Three Months Ended |  |
| March 31, |  |
(in millions) | 2023 |  | 2022 |  |  |  |
Cash Flow Hedges |  |  |  |  |  |  |
Foreign Exchange Contracts |  |  |  |  |  |  |
Amount of gain (loss) recognized in OCL | $ | 4 |  |  | $ | (6) |  |  |  |  |
Amount of loss reclassified from OCL into Revenue | 3 |  |  | 2 |  |  |  |  |
Amount of loss reclassified from OCL into Cost of revenue | 2 |  |  | — |  |  |  |  |
Net Investment Hedges |  |  |  |  |  |  |
Cross-Currency Swaps |  |  |  |  |  |  |
Amount of gain (loss) recognized in OCL | $ | (22) |  |  | $ | 1 |  |  |  |  |
Amount of income recognized in Interest expense | 7 |  |  | 6 |  |  |  |  |
Foreign Currency Denominated Debt |  |  |  |  |  |  |
Amount of gain recognized in OCL | $ | — |  |  | $ | 8 |  |  |  |  |
As of March 31, 2023, $3 million of net gains on cash flow hedges are expected to be reclassified into earnings in the next 12 months. As of March 31, 2023, no gains or losses on the net investment hedges are expected to be reclassified into earnings over their duration. The fair values of our derivative assets and liabilities are measured on a recurring basis using Level 2 inputs and are determined through the use of models that consider various assumptions including yield curves, time value and other measurements. The fair values of our derivative contracts currently included in our hedging program were as follows:
(in millions) | March 31, 2023 |  | December 31, 2022
Derivatives designated as hedging instruments |  |  |
Assets |  |  |
Cash Flow Hedges |  |  |
Prepaid and other current assets | $ | 6 |  |  | $ | — |
Net Investment Hedges |  |  |
Other non-current assets | $ | 66 |  |  | $ | 79 |
Liabilities |  |  |
Cash Flow Hedges |  |  |
Accrued and other current liabilities | $ | (2) |  |  | $ | — |
Net Investment Hedges |  |  |
Other non-current accrued liabilities | $ | (14) |  |  | $ | (6) |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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