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DERIVATIVE FINANCIAL INSTRUMENTS | 12 Months Ended
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Dec. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, the Company is exposed to foreign currency exchange rate market risk and interest rate fluctuations. As part of its risk management strategy, the Company uses derivative financial instruments, primarily foreign currency forward contracts, fixed-to-fixed currency swaps, total return swaps, and interest rate swaps, to hedge certain foreign currency, market value and interest rate exposures. The Company’s objective is to reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them. The Company does not enter into or hold derivative financial instruments for speculative trading purposes. There were no amounts eligible to be offset under master netting agreements as of December 31, 2024 and 2023. The fair value of the Company’s derivative financial instruments at December 31, 2024 and 2023 was determined using a market-based approach (Level 2). The following table summarizes the Company’s derivative financial instruments recorded on its consolidated balance sheets (in millions).
| December 31, 2024 |  | December 31, 2023
|  |  | Fair Value |  |  |  | Fair Value
| Notional |  | Prepaid expenses and other current assets |  | Other non- current assets |  | Accrued liabilities |  | Other non- current liabilities |  | Notional |  | Prepaid expenses and other current assets |  | Other non- current assets |  | Accrued liabilities |  | Other non- current liabilities
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange | $ | 1,608 |  |  | $ | 47 |  |  | $ | 14 |  |  | $ | 25 |  |  | $ | 28 |  |  | $ | 1,484 |  |  | $ | 40 |  |  | $ | 8 |  |  | $ | 37 |  |  | $ | 8 |
Net investment hedges: (a) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps | 421 |  |  | 6 |  |  | — |  |  | — |  |  | 4 |  |  | 1,779 |  |  | 23 |  |  | 12 |  |  | 7 |  |  | 42 |
Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,500 |  |  | 7 |  |  | — |  |  | — |  |  | 5 |
No hedging designation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange | 951 |  |  | 18 |  |  | 7 |  |  | 14 |  |  | 122 |  |  | 1,058 |  |  | 1 |  |  | 1 |  |  | 1 |  |  | 83 |
Cross-currency swaps | 210 |  |  | 2 |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total return swaps | 454 |  |  | — |  |  | — |  |  | 16 |  |  | — |  |  | 395 |  |  | 19 |  |  | — |  |  | — |  |  | — |
Total |  |  | $ | 73 |  |  | $ | 21 |  |  | $ | 55 |  |  | $ | 155 |  |  |  |  | $ | 90 |  |  | $ | 21 |  |  | $ | 45 |  |  | $ | 138 |
(a) Excludes €1,500 million of euro-denominated notes ($1,558 million equivalent at December 31, 2024) and £402 million of sterling notes ($513 million equivalent at December 31, 2023) designated as net investment hedges. (See Note 11.) Derivatives Designated for Hedge Accounting Cash Flow Hedges The Company uses foreign exchange forward contracts to mitigate the foreign currency risk related to revenues, production rebates, and production expenses. As production spend occurs or when rebate receivables are recognized, foreign forward exchange contracts designated as cash flow hedges are de-designated. Upon de-designation, gains and losses on these derivatives directly impact earnings in the same line and same period as the hedged risk. These cash flow hedges are carried at fair market value on the Company’s consolidated balance sheets. Hedge effectiveness is assessed using the spot method, with fair market value changes recorded in other comprehensive loss until the hedged item affects earnings. Excluded components, including forward points, are included in current earnings. The Company is exposed to foreign currency risk associated with its British Pound Sterling denominated debt and executed a fixed-to-fixed cross-currency swap in 2022 to mitigate this risk. During the year ended December 31, 2023, the Company unwound the cross-currency swaps related to its Sterling debt and recognized a gain of $76 million as an adjustment to other comprehensive income. The Company is exposed to interest rate risk associated with future issuances of debt and unwound the forward starting swap derivatives designated as hedging instruments to mitigate this risk in 2022. Realized gains from these derivatives will remain in other comprehensive loss until the debt is issued during the hedging window or the hedging window expires, which extends through 2025, and interest payments are made. An immaterial portion of the realized gain was released in 2024 since no debt was issued during this period of the hedging window. The following table presents the pre-tax impact of derivatives designated as cash flow hedges on income and other comprehensive loss (in millions).
|  | Year Ended December 31,
|  | 2024 |  | 2023 |  | 2022
Gains (losses) recognized in accumulated other comprehensive loss: |  |  |  |  |  |
Foreign exchange - derivative adjustments |  | $ | 37 |  |  | $ | 23 |  |  | $ | 7 |
Gains (losses) reclassified into income from accumulated other comprehensive loss: |  |  |  |  |  |
Foreign exchange - distribution revenue |  | 22 |  |  | (5) |  |  | (1) |
Foreign exchange - advertising revenue |  | 2 |  |  | 1 |  |  | 1 |
Foreign exchange - costs of revenues |  | 7 |  |  | 3 |  |  | 25 |
Foreign exchange - other income (expense), net |  | — |  |  | 18 |  |  | — |
Interest rate - interest expense, net |  | (5) |  |  | (1) |  |  | (2) |
Interest rate - gain (loss) on extinguishment of debt |  | (4) |  |  | 1 |  |  | — |
Interest rate - other income (expense), net |  | 20 |  |  | — |  |  | — |
If current fair values of designated cash flow hedges as of December 31, 2024 remained static over the next twelve months, the amount the Company would reclassify from accumulated other comprehensive loss into income in the next twelve months would not be material for the current fiscal year. The maximum length of time the Company is hedging exposure to the variability in future cash flows is 31 years. Net Investment Hedges The Company is exposed to foreign currency risk associated with the net assets of non-USD functional entities and uses fixed-to-fixed cross currency swaps to mitigate this risk. During the year ended December 31, 2024, to mitigate the currency risk associated with the net assets of non-USD functional entities, the Company designated its €1,500 million denominated debt issued in May 2024 as a net investment hedge (see Note 11) and subsequently de-designated and re-designated €225 million of its Euro denominated debt. During the year ended December 31, 2024, the Company also designated an additional €900 million of fixed-to-fixed cross currency swaps as a net investment hedge and subsequently settled €300 million and de-designated €200 million of fixed-to-fixed cross currency swaps designated as a net investment hedge. During the year ended December 31, 2023, to mitigate the risk associated with the net assets of non-USD functional entities, the Company re-designated its Sterling denominated debt due in 2024 as a net investment hedge after the unwind of the cash flow hedge previously noted. During the year ended December 31, 2024, the Company de-designated £255 million of the Sterling debt, repaid the Sterling debt in full at maturity, and settled the remaining £145 million designated as a net investment hedge. The Company is also exposed to foreign currency risk stemming from foreign denominated debt. During the year ended December 31, 2023, the Company settled its Euro denominated debt that was acquired in connection with the Merger and was designated as the hedging instrument in a net investment hedge. The following table presents the pre-tax impact of derivatives designated as net investment hedges on other comprehensive loss (in millions). Other than amounts excluded from effectiveness testing, there were no other material gains (losses) reclassified from accumulated other comprehensive loss to income during the years ended December 31, 2024, 2023 and 2022.
|  | Year Ended December 31, |  |
|  | Amount of gain (loss) recognized in AOCI |  |  |  |  |  | Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) |  | Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
|  | 2024 |  | 2023 |  | 2022 |  |  |  |  |  |  |  | 2024 |  | 2023 |  | 2022
Cross currency swaps |  | $ | 70 |  |  | $ | 43 |  |  | $ | 46 |  |  |  |  |  |  |  |  | Interest expense, net |  | $ | 4 |  |  | $ | 24 |  |  | $ | 33 |
Euro denominated notes (foreign denominated debt) |  | 78 |  |  | 3 |  |  | 4 |  |  |  |  |  |  |  |  | N/A |  | — |  |  | — |  |  | — |
Sterling denominated notes (foreign denominated debt) |  | (5) |  |  | (11) |  |  | 112 |  |  |  |  |  |  |  |  | N/A |  | — |  |  | — |  |  | — |
Total |  | $ | 143 |  |  | $ | 35 |  |  | $ | 162 |  |  |  |  |  |  |  |  |  |  | $ | 4 |  |  | $ | 24 |  |  | $ | 33 |
Fair Value Hedges During the year ended December 31, 2023, the Company issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. Simultaneously, the Company entered into a fixed-to-floating interest rate swap designated as a fair value hedge to allow the Company to mitigate the variability in the fair value of its senior notes due to fluctuations in the benchmark interest rate. Changes in the fair value of the senior note and the interest rate swap were recorded in interest expense, net. The fair value hedge was settled during the year ended December 31, 2024. Derivatives Not Designated for Hedge Accounting The Company has deferred compensation plans that have risk related to the fair market value gains and losses on investments and uses total return swaps to mitigate this risk. The gains and losses associated with these swaps are recorded to selling, general and administrative expenses, offsetting the deferred compensation investment gains and losses. The Company is exposed to risk of secured overnight financing rate changes in connection with securitization interest paid on the receivables securitization program. To mitigate this risk, the Company entered into and unwound and settled $3.0 billion notional of non-designated interest rate swaps for an immaterial realized gain during the year ended December 31, 2024. The Company entered into and unwound and settled $6.0 billion notional of non-designated interest rate swaps for a total realized gain of $63 million during the year ended December 31, 2023. The gains and losses on these derivatives are recorded to selling, general and administrative expenses, offsetting securitization interest expense. The following table presents the pre-tax gains (losses) on derivatives not designated as hedges and recognized in selling, general and administrative expense and other income (expense), net in the consolidated statements of operations (in millions).
|  | Year Ended December 31,
|  | 2024 |  | 2023 |  | 2022
Interest rate swaps |  | $ | 19 |  |  | $ | 63 |  |  | $ | — |
Total return swaps |  | 31 |  |  | 46 |  |  | 5 |
Total in selling, general and administrative expense |  | 50 |  |  | 109 |  |  | 5 |
Interest rate swaps |  | (3) |  |  | 20 |  |  | 512 |
Cross-currency swaps |  | 1 |  |  | 1 |  |  | — |
Foreign exchange derivatives |  | (27) |  |  | 7 |  |  | (37) |
Total in other income (expense), net |  | (29) |  |  | 28 |  |  | 475 |
Total |  | $ | 21 |  |  | $ | 137 |  |  | $ | 480 |

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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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