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Derivatives | 6 Months Ended
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Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | NOTE 9. DERIVATIVES The Company uses foreign currency forward contracts, cross currency swaps, and interest rate swap agreements to manage risks associated with foreign currency exchange rates, interest rates, and net investments in foreign operations. The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. The Company records derivatives as assets and liabilities on the condensed consolidated balance sheets at fair value. Changes in fair value are recognized immediately in earnings unless the derivative qualifies and is designated as a hedge. Cash flows from derivatives are classified in the condensed consolidated statements of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. The Company evaluates hedge effectiveness at inception and on an ongoing basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued. The Company is exposed to credit risk in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements. The Company monitors its exposure to credit risk by using credit approvals and credit limits and by selecting major global banks and financial institutions as counterparties. The Company does not enter into derivative transactions for trading purposes, and is not party to any derivatives that require collateral to be posted prior to settlement. Cash flow hedges For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized in current earnings. Interest rate swaps The Company manages its fixed and floating rate debt mix using interest rate swaps. Interest rate swap contracts are used by the Company to separate interest rate risk management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense in the condensed consolidated statements of operations. The Company elected a method that does not require continuous evaluation of hedge effectiveness. During the second quarter of 2022, the Company entered into an aggregate $400 notional amount of interest rate swaps that exchange a variable rate of interest (LIBOR) for an average fixed rate of interest of approximately 3.46% over the term of the agreements, which mature in January 2028. These swaps are forward-starting and are effective commencing January 2023. As of June 30, 2022, the Company had $1,120 notional amount outstanding in swap agreements, which includes the aggregate $400 notional amount of forward-starting swaps, and a 5-year $720 notional amount interest rate swap with a maturity date of October 2024. The Company has designated these swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest (LIBOR) payments. As of June 30, 2022, the weighted average fixed rate of interest on these swaps, excluding the forward-starting swap, was approximately 1.62%. The effective portion of the after tax fair value gains or losses on these swaps is included as a component of accumulated other comprehensive income (loss) ("AOCI"). Variations in the assets and liability balances are primarily driven by changes in the applicable forward yield curves related to LIBOR. The fair value of the effective interest rate swaps designated as hedging instruments was an asset of $23 and a liability of $11 as of June 30, 2022 and December 31, 2021, respectively. The fair value of the forward-starting interest rate swaps designated as hedging instruments was liability of $10 as of June 30, 2022. The Company recorded interest expense of $2 and $3 during the three months ended June 30, 2022 and 2021, respectively, and $4 and $5 of interest expense during the six months ended June 30, 2022 and 2021, respectively, related to interest rate swaps. Cross currency swaps The Company enters into cross currency exchange contracts utilized to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies. These transactions are designated as cash flow hedges. The settlement or extension of these derivatives will result in reclassifications (from AOCI) to earnings in the period during which the hedged transactions affect earnings. The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively. During 2021, the Company entered into two cross-currency swaps designated as cash flow hedges with gross notional U.S. dollar equivalent amounts of $26 and $94 with maturity dates of September 2027 and 2030, respectively. The total fair value of the cross-currency hedges was an asset of $18 and $6 as of June 30, 2022 and December 31, 2021, respectively. The Company recognized income of $7 and $10 in investment income and other, net, during the three and six months ended June 30, 2022, respectively, and expense of $3 and income of less than $1 in investment income and other, net, during the three and six months ended June 30, 2021, respectively. Net investment hedges The Company has net investments in foreign subsidiaries subject to changes in foreign currency exchange rates. During 2021, the Company entered into a $230 notional foreign currency swap designated as a net investment hedge for a portion of the Company’s net investments in Euro-denominated subsidiaries. Gains and losses resulting from a change in fair value of the net investment hedge are offset by gains and losses on the underlying foreign currency exposure and are included in AOCI in the condensed consolidated balance sheets. During 2021, the Company amended the critical terms of the foreign currency swap by extending the maturity date and modifying the U.S. dollar and Euro coupons. The amended swap was redesignated as a net investment hedge as a result of the amendment, recorded at fair value with changes recorded in AOCI, and the initial net investment hedge was dedesignated. The amended net investment hedge reduces the Company’s interest expense by approximately $3 annually and reduces its overall effective interest rate by approximately 24 basis points, and will mature in July 2029. The fair value previously recognized in AOCI related to interest rate movements of the dedesignated swap is being amortized to interest expense on a straight-line basis through the third quarter 2029. The Company recorded interest income of $1 and $2 during the three and six months ended June 30, 2022, respectively. The amount amortized from AOCI into interest expense during the three and six months ended June 30, 2021 was immaterial. The fair value of the foreign currency swaps designated as net investment hedges was an asset of $33 and $12 as of June 30, 2022 and December 31, 2021, respectively. Fair value hedges The Company has certain intercompany loans subject to changes in foreign currency exchange rates. To hedge these exposures, during the first quarter of 2022, the Company entered into three cross currency swaps each with maturity dates of January 2027. These contracts are designated as fair value hedges with gross notional U.S. dollar equivalents of $271, $241, and $209 in GBP, CAD, and EUR, respectively. The Company measures the effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis. Accordingly, the spot-to-spot change in the derivative fair values are recorded in the condensed consolidated statements of operations and perfectly offset the spot-to-spot change in the underlying intercompany loans, and as such, these hedges are deemed highly effective. The excluded component of the fair values of these derivatives is reported in AOCI within shareholders’ equity in the condensed consolidated balance sheets. Any cash flows associated with these instruments are included in operating activities in the condensed consolidated statements of cash flows. The fair value of these hedges were an asset of $38 and a liability of $1 as of June 30, 2022, respectively, and are included in other noncurrent liabilities and other assets. The Company recognized income of $38 and $44 in investment income and other, net, during the three and six months ended June 30, 2022, respectively. Foreign currency contracts The Company used foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain foreign currency transactions. Fair market value gains or losses on foreign currency contracts not designated as hedging instruments were included in the results of operations and are classified in investment income and other, net in the condensed consolidated statements of operations. Certain of the Company’s derivative transactions are subject to master netting arrangements that allow the Company to net settle contracts with the same counterparties. These arrangements generally do not call for collateral and no cash collateral had been received or pledged related to the underlying derivatives. The Company recognized income of $2 and $3 in investment income and other, net, during the three and six months ended June 30, 2022, respectively, and an immaterial amount during the three and six months ended June 30, 2021. As of June 30, 2022 and December 31, 2021, foreign currency contracts carried immaterial balances within other non current liabilities and other assets.

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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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