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Derivatives | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | 10. Derivatives The Company is exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the euro, and, to a lesser degree, the Canadian dollar, the Mexican peso, and other currencies, related to forecasted revenues and settlement assets and obligations, as well as on certain foreign currency denominated cash and other asset and liability positions. The Company is also exposed to risk from derivative contracts, primarily from customer derivatives, arising from its cross-currency Business Solutions payment operations. Additionally, the Company is exposed to interest rate risk related to changes in market rates both prior to and subsequent to the issuance of debt. The Company has used derivatives to: (i) minimize its exposures related to changes in foreign currency exchange rates and interest rates and (ii) facilitate cross-currency Business Solutions payments by writing derivatives to customers. The Company executes derivatives with established financial institutions; the substantial majority of these financial institutions have a credit rating of "A-" or higher from a major credit rating agency. Customer derivatives written by the Company’s Business Solutions operations primarily involve small and medium size enterprises. The primary credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis, while also monitoring the concentration of its contracts with any individual counterparty. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties’ ability to perform. These actions may include requiring Business Solutions customers to post or increase collateral, and for all counterparties, the possible termination of the related contracts. The Company’s hedged foreign currency exposures are in liquid currencies; consequently, there is minimal risk that appropriate derivatives to maintain the hedging program would not be available in the future. Foreign Currency Derivatives The Company’s policy is to use longer duration foreign currency forward contracts, with maturities of up to 36 months at inception and a targeted weighted-average maturity of approximately one year, to help mitigate some of the risk that changes in foreign currency exchange rates compared to the United States dollar could have on forecasted revenues denominated in other currencies related to its business. As of September 30, 2022, these foreign currency forward contracts had maturities of a maximum of 24 months with a weighted-average maturity of approximately one year. These contracts are accounted for as cash flow hedges of forecasted revenue, with effectiveness assessed based on changes in the spot rate of the affected currencies during the period of designation and thus time value is excluded from the assessment of effectiveness. The initial value of the excluded components is amortized into Revenues within the Company’s Condensed Consolidated Statements of Income. The Company also uses short duration foreign currency forward contracts, generally with maturities ranging from a few days to one month, to offset foreign exchange rate fluctuations on settlement assets and obligations between initiation and settlement. In addition, forward contracts, typically with maturities of less than one year at inception, are utilized to offset foreign exchange rate fluctuations on certain foreign currency denominated cash and other asset and liability positions. None of these contracts are designated as accounting hedges. The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of September 30, 2022 and December 31, 2021 were as follows (in millions):
|  | September 30, 2022 |
Contracts designated as hedges: |  |  |
Euro |  | $ | 364.3 |
Canadian dollar |  |  | 124.1 |
Australian dollar |  |  | 55.4 |
Swiss franc |  |  | 43.3 |
British pound |  |  | 36.0 |
Swedish krona |  |  | 27.5 |
Other (a) |  |  | 24.5 |
Contracts not designated as hedges: |  |  |
Euro |  | $ | 532.8 |
Mexican peso |  |  | 154.6 |
British pound |  |  | 80.7 |
Australian dollar |  |  | 67.4 |
Indian rupee |  |  | 55.9 |
Chinese yuan |  |  | 41.8 |
Canadian dollar |  |  | 32.9 |
Japanese yen |  |  | 32.1 |
Swiss franc |  |  | 28.3 |
Brazilian real |  |  | 25.1 |
Other (a) |  |  | 168.5 |
|  | December 31, 2021 |
Contracts designated as hedges: |  |  |
Euro |  | $ | 399.9 |
Canadian dollar |  |  | 134.0 |
Australian dollar |  |  | 58.4 |
Swiss franc |  |  | 45.9 |
British pound |  |  | 43.8 |
Swedish krona |  |  | 30.7 |
Japanese yen |  |  | 30.4 |
Other (a) |  |  | 0.9 |
Contracts not designated as hedges: |  |  |
Euro |  | $ | 755.7 |
British pound |  |  | 148.1 |
Canadian dollar |  |  | 144.2 |
Australian dollar |  |  | 98.1 |
Mexican peso |  |  | 96.3 |
Philippine peso |  |  | 76.2 |
Indian rupee |  |  | 63.4 |
Japanese yen |  |  | 46.0 |
Russian ruble |  |  | 44.4 |
Chinese yuan |  |  | 31.6 |
New Zealand dollar |  |  | 26.6 |
Swiss franc |  |  | 25.1 |
Swedish krona |  |  | 25.1 |
Other (a) |  |  | 132.7 |
(a) Comprised of exposures to various currencies; none of these individual currency exposures is greater than $25 million. Business Solutions Operations The Company writes derivatives, primarily foreign currency forward contracts and option contracts, mostly with small and medium size enterprises and derives a currency spread from this activity as part of its Business Solutions operations. On August 4, 2021, the Company entered into an agreement to sell its Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC. During the third quarter of 2022, all parties agreed for the sale to be completed in three closings instead of two. The first closing occurred on March 1, 2022, the second is expected to occur in December 2022, and the third is expected in the first quarter of 2023. See Note 4 for further information regarding this transaction. The Company aggregates its Business Solutions foreign currency exposures arising from customer contracts, including the derivative contracts described above, and hedges the resulting net currency risks by entering into offsetting contracts with Convera through the end of the third closing of the Business Solutions divestiture. The derivatives written are part of the broader portfolio of foreign currency positions arising from the Company’s cross-currency payments operations, which primarily include spot exchanges of currency in addition to forwards and options. Foreign exchange revenues from the total portfolio of positions included in Revenues in the Company’s Condensed Consolidated Statements of Income were $39.3 million and $99.5 million for the three months ended September 30, 2022 and 2021, respectively, and $151.5 million and $271.4 million for the nine months ended September 30, 2022 and 2021, respectively. None of the derivative contracts used in Business Solutions operations are designated as accounting hedges and the majority of these derivative contracts have a duration at inception of less than one year. The aggregate equivalent United States dollar notional amount of derivative customer contracts held by the Company in its Business Solutions operations was approximately $5.0 billion and $8.0 billion as of September 30, 2022 and December 31, 2021, respectively. The significant majority of customer contracts are written in the following currencies: the United States dollar, euro, and the British pound. Interest Rate Hedging Periodically, the Company utilizes interest rate swaps to effectively change the interest rate payments on a portion of its notes from fixed-rate payments to short-term, variable-rate payments in order to manage its overall exposure to interest rate fluctuations. The Company designates these derivatives as fair value hedges. The change in the fair value of the interest rate swaps is offset by a change in the carrying value of the debt being hedged within Borrowings in the Condensed Consolidated Balance Sheets. Interest expense in the Condensed Consolidated Statements of Income has been adjusted to include the effects of interest accrued on the swaps. The Company terminated two of its treasury locks in the first quarter of 2021, which were associated with the issuance of $600.0 million of aggregate principal amount of 1.350% unsecured notes due March 15, 2026 (“2026 Notes”). The Company received a total of $3.3 million upon termination, of which $2.6 million was deferred as a component of AOCL and will be amortized to Interest expense in the Condensed Consolidated Statements of Income over the term of the 2026 Notes. As a portion of the forecasted interest payments on the 2026 Notes will occur outside the time period originally specified at designation of the treasury locks as cash flow hedges, $0.7 million was recognized in Other income/(expense), net in the Condensed Consolidated Statements of Income, upon termination. Balance Sheet The following table summarizes the fair value of derivatives reported in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (in millions):
|  | Derivative Assets |  |  | Derivative Liabilities |
|  |  |  | Fair Value |  |  |  |  | Fair Value |
|  | Balance Sheet |  | September 30, |  |  | December 31, |  |  | Balance Sheet |  | September 30, |  |  | December 31, |
|  | Location |  | 2022 |  |  | 2021 |  |  | Location |  | 2022 |  |  | 2021 |
Derivatives designated as hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency cash flow hedges |  | Other assets |  | $ | 83.2 |  |  | $ | 30.6 |  |  | Other liabilities |  | $ | 0.2 |  |  | $ | 2.6 |
Total derivatives designated as hedges |  |  |  | $ | 83.2 |  |  | $ | 30.6 |  |  |  |  | $ | 0.2 |  |  | $ | 2.6 |
Derivatives not designated as hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Business Solutions operations - foreign currency (a) |  | Assets held for sale |  | $ | 232.9 |  |  | $ | 213.1 |  |  | Liabilities associated with assets held for sale |  | $ | 235.0 |  |  | $ | 174.1 |
Foreign currency |  | Other assets |  |  | 12.1 |  |  |  | 4.0 |  |  | Other liabilities |  |  | 7.1 |  |  |  | 7.1 |
Total derivatives not designated as hedges |  |  |  | $ | 245.0 |  |  | $ | 217.1 |  |  |  |  | $ | 242.1 |  |  | $ | 181.2 |
Total derivatives |  |  |  | $ | 328.2 |  |  | $ | 247.7 |  |  |  |  | $ | 242.3 |  |  | $ | 183.8 |
(a) In many circumstances, the Company allows its Business Solutions customers to settle part or all of their derivative contracts prior to maturity. However, the offsetting positions entered into with Convera do not allow for similar settlement. To mitigate this, additional foreign currency contracts are entered into with Convera to offset the original economic hedge contracts. This frequently results in changes in the Company’s derivative assets and liabilities that may not directly align with the performance in the underlying derivatives business. The fair values of derivative assets and liabilities associated with contracts that include netting language that the Company believes to be enforceable have been netted in the following tables to present the Company’s net exposure with these counterparties. The Company’s rights under these agreements generally allow for transactions to be settled on a net basis, including upon early termination, which could occur upon the counterparty’s default, a change in control, or other conditions. In addition, certain of the Company’s other agreements include netting provisions, the enforceability of which may vary from jurisdiction to jurisdiction, depending on the circumstances. Due to the uncertainty related to the enforceability of these provisions, the derivative balances associated with these agreements are included within "Derivatives that are not or may not be subject to master netting arrangement or similar agreement" in the following tables. In certain circumstances, the Company may require its Business Solutions customers to maintain collateral balances which may mitigate the risk associated with potential customer defaults. The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 2022 and December 31, 2021 (in millions): Offsetting of Derivative Assets
|  |  |  |  | Gross |  |  | Net Amounts |  |  | Derivatives |  |  |  |
|  | Gross |  |  | Amounts Offset in |  |  | Presented in |  |  | Not Offset in |  |  |  |
|  | Amounts of |  |  | the Condensed |  |  | the Condensed |  |  | the Condensed |  |  |  |
|  | Recognized |  |  | Consolidated |  |  | Consolidated |  |  | Consolidated |  |  | Net |
September 30, 2022 |  | Assets |  |  | Balance Sheets |  |  | Balance Sheets |  |  | Balance Sheets |  |  | Amounts |
Derivatives subject to a master netting arrangement or similar agreement |  | $ | 176.5 |  |  | $ | — |  |  | $ | 176.5 |  |  | $ | (89.2 | ) |  | $ | 87.3 |
Derivatives that are not or may not be subject to master netting arrangement or similar agreement |  |  | 151.7 |  |  |  |  |  |  |  |  |  |  |  |  |
Total |  | $ | 328.2 |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives subject to a master netting arrangement or similar agreement |  | $ | 163.9 |  |  | $ | — |  |  | $ | 163.9 |  |  | $ | (92.4 | ) |  | $ | 71.5 |
Derivatives that are not or may not be subject to master netting arrangement or similar agreement |  |  | 83.8 |  |  |  |  |  |  |  |  |  |  |  |  |
Total |  | $ | 247.7 |  |  |  |  |  |  |  |  |  |  |  |  |
Offsetting of Derivative Liabilities
|  |  |  |  | Gross |  |  | Net Amounts |  |  | Derivatives |  |  |  |
|  | Gross |  |  | Amounts Offset in |  |  | Presented in |  |  | Not Offset in |  |  |  |
|  | Amounts of |  |  | the Condensed |  |  | the Condensed |  |  | the Condensed |  |  |  |
|  | Recognized |  |  | Consolidated |  |  | Consolidated |  |  | Consolidated |  |  | Net |
September 30, 2022 |  | Liabilities |  |  | Balance Sheets |  |  | Balance Sheets |  |  | Balance Sheets |  |  | Amounts |
Derivatives subject to a master netting arrangement or similar agreement |  | $ | 159.5 |  |  | $ | — |  |  | $ | 159.5 |  |  | $ | (89.2 | ) |  | $ | 70.3 |
Derivatives that are not or may not be subject to master netting arrangement or similar agreement |  |  | 82.8 |  |  |  |  |  |  |  |  |  |  |  |  |
Total |  | $ | 242.3 |  |  |  |  |  |  |  |  |  |  |  |  |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives subject to a master netting arrangement or similar agreement |  | $ | 109.6 |  |  | $ | — |  |  | $ | 109.6 |  |  | $ | (92.4 | ) |  | $ | 17.2 |
Derivatives that are not or may not be subject to master netting arrangement or similar agreement |  |  | 74.2 |  |  |  |  |  |  |  |  |  |  |  |  |
Total |  | $ | 183.8 |  |  |  |  |  |  |  |  |  |  |  |  |
Income Statement Cash Flow Hedges The effective portion of the change in fair value of derivatives that qualify as cash flow hedges is recorded in AOCL in the Company’s Condensed Consolidated Balance Sheets. Generally, amounts are recognized in income when the related forecasted transaction affects earnings. The following table presents the pre-tax amount of unrealized gains/(losses) recognized in other comprehensive income from cash flow hedges for the three and nine months ended September 30, 2022 and 2021 (in millions):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Foreign currency derivatives (a) |  | $ | 43.4 |  |  | $ | 17.7 |  |  | $ | 86.9 |  |  | $ | 32.4 |
Interest rate derivatives |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3.3 |
(a) Gains/(losses) of $0.2 million and $(0.2) million for the three months ended September 30, 2022 and 2021, respectively, and $(4.7) million and $(1.2) million for the nine months ended September 30, 2022 and 2021, respectively, represent amounts excluded from the assessment of effectiveness and recognized in other comprehensive income, for which an amortization approach is applied. The following table presents the location and amounts of pre-tax net gains/(losses) from cash flow hedging relationships recognized in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 (in millions):
|  | Three Months Ended September 30,
|  | 2022 |  |  | 2021
|  | Revenues |  |  | Interest Expense |  |  | Revenues |  |  | Interest Expense |  |
Total amounts presented in the Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded |  | $ | 1,089.6 |  |  | $ | (25.2 | ) |  | $ | 1,286.3 |  |  | $ | (25.7 | ) |
Gain/(loss) on cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |
Gains/(losses) reclassified from AOCL into earnings |  |  | 17.5 |  |  |  | — |  |  |  | (0.6 | ) |  |  | — |  |
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach |  |  | 1.5 |  |  |  | — |  |  |  | 1.4 |  |  |  | — |  |
Interest rate derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |
Losses reclassified from AOCL into earnings |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (0.1 | ) |
|  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |
|  | Revenues |  |  | Interest Expense |  |  | Revenues |  |  | Interest Expense |  |  | Other income/(expense), net |
Total amounts presented in the Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded |  | $ | 3,383.6 |  |  | $ | (74.8 | ) |  | $ | 3,786.0 |  |  | $ | (79.7 | ) |  | $ | 26.8 |
Gain/(loss) on cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains/(losses) reclassified from AOCL into earnings |  |  | 32.4 |  |  |  | — |  |  |  | (10.0 | ) |  |  | — |  |  |  | — |
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach |  |  | 4.0 |  |  |  | — |  |  |  | 4.9 |  |  |  | — |  |  |  | — |
Interest rate derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains/(losses) reclassified from AOCL into earnings |  |  | — |  |  |  | (0.1 | ) |  |  | — |  |  |  | (0.5 | ) |  |  | 0.7 |
Undesignated Hedges The following table presents the location and amount of pre-tax net gains/(losses) from undesignated hedges in the Condensed Consolidated Statements of Income on derivatives for the three and nine months ended September 30, 2022 and 2021 (in millions):
|  |  |  | Three Months Ended |  |  | Nine Months Ended |
|  |  |  | September 30, |  |  | September 30, |
Derivatives (a) |  | Location |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Foreign currency derivatives (b) |  | Selling, general, and administrative |  | $ | 42.6 |  |  | $ | 23.4 |  |  | $ | 97.6 |  |  | $ | 41.3 |
(a) The Company uses foreign currency forward and option contracts as part of its Business Solutions payments operations. These derivative contracts are excluded from this table as they are managed as part of a broader currency portfolio that includes non-derivative currency exposures. The gains and losses on these derivatives are included as part of the broader disclosure of portfolio revenue for this business discussed above. (b) The Company uses foreign currency forward contracts to offset foreign exchange rate fluctuations on settlement assets and obligations as well as certain foreign currency denominated positions. Foreign exchange losses on settlement assets and obligations, cash balances, and other assets and liabilities, not including amounts related to derivative activity as displayed above and included in Selling, general, and administrative in the Condensed Consolidated Statements of Income, were $40.6 million and $25.7 million for the three months ended September 30, 2022 and 2021, respectively, and $90.4 million and $50.7 million for the nine months ended September 30, 2022 and 2021, respectively. All cash flows associated with derivatives are included in Cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. Based on September 30, 2022 foreign exchange rates, an accumulated other comprehensive pre-tax gain of $59.8 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.

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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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