Derivatives

6 Months Ended

Jun. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

10. Derivatives

The Company is exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, including the euro, and, to a lesser degree, the Mexican peso, the British pound, 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. 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 uses derivatives to minimize its exposures related to changes in foreign currency exchange rates and interest rates.

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. 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.

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 June 30, 2024, 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 June 30, 2024 and December 31, 2023 were as follows (in millions):


	June 30, 2024		December 31, 2023
Contracts designated as hedges:
Euro	$	207.6	$	227.0
Canadian dollar		102.5		97.9
British pound		62.5		56.9
Australian dollar		46.7		46.5
Swiss franc		39.2		37.4
Other (a)		37.7		40.3
Contracts not designated as hedges:
Euro	$	550.9	$	597.9
Mexican peso		181.5		168.1
British pound		103.8		174.9
Philippine peso		57.8		38.0
Australian dollar		55.4		79.9
Canadian dollar		52.4		77.2
Indian rupee		49.8		55.3
Brazilian real		28.9		31.4
Chinese yuan		22.9		30.0
Japanese yen		16.1		29.2
Singapore dollar		14.5		27.5
Other (a)		142.7		146.2

(a)

Comprised of exposures to various currencies; none of these individual currency exposures is greater than $25 million for both periods presented.

Business Solutions Operations

Prior to the final closing of the Business Solutions sale in 2023, the derivatives written related to this business were part of the broader portfolio of foreign currency positions arising from the Company’s cross-currency payments operations, which primarily included 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 $13.5 million and $27.8 million for the three and six months ended June 30, 2023, respectively. None of the derivative contracts used in Business Solutions operations were designated as accounting hedges.

Balance Sheet

The following table summarizes the fair value of derivatives reported in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (in millions):


	Derivative Assets					Derivative Liabilities
		Fair Value					Fair Value
	Balance Sheet	June 30,		December 31,		Balance Sheet	June 30,		December 31,
	Location	2024		2023		Location	2024		2023
Derivatives designated as hedges:
Foreign currency cash flow hedges	Other assets	$	10.0	$	8.5	Other liabilities	$	4.1	$	13.2
Total derivatives designated as hedges		$	10.0	$	8.5		$	4.1	$	13.2
Derivatives not designated as hedges:
Foreign currency	Other assets	$	2.4	$	2.3	Other liabilities	$	2.9	$	4.2
Total derivatives not designated as hedges		$	2.4	$	2.3		$	2.9	$	4.2
Total derivatives		$	12.4	$	10.8		$	7.0	$	17.4

Offsetting of Derivative Assets and Liabilities

The Company has elected to present derivative assets and liabilities on a gross basis in the Condensed Consolidated Balance Sheets; however, derivatives associated with the Company's foreign currency exchange contracts that are subject to a master netting arrangement or similar agreement would have resulted in an offset of $3.3 million and $7.3 million to both derivative assets and liabilities as of June 30, 2024 and December 31, 2023, respectively. This includes the fair values of derivative assets and liabilities associated with contracts that include netting language that the Company believes to be enforceable. 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.

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 six months ended June 30, 2024 and 2023 (in millions):


	Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024		2023
Foreign currency derivatives (a)	$	1.6	$	(3.5	)	$	15.2	$	(5.7	)

(a)

Gains/(losses) of $(0.2) million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively, and $(1.1) million and $1.9 million for the six months ended June 30, 2024 and 2023, 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 six months ended June 30, 2024 and 2023 (in millions):


	Three Months Ended June 30,
	2024					2023
	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	$	1,066.4	$	(31.1	)	$	1,170.0	$	(27.0	)
Gain/(loss) on cash flow hedges:
Foreign currency derivatives:
Gains reclassified from AOCL into earnings		1.3		—			7.8		—
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach		1.6		—			1.7		—
Interest rate derivatives:
Gains/(losses) reclassified from AOCL into earnings		—		0.1			—		—


	Six Months Ended June 30,
	2024					2023
	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	$	2,115.5	$	(57.2	)	$	2,206.9	$	(52.0	)
Gain/(loss) on cash flow hedges:
Foreign currency derivatives:
Gains reclassified from AOCL into earnings		4.0		—			16.0		—
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach		3.2		—			3.3		—
Interest rate derivatives:
Gains/(losses) reclassified from AOCL into earnings		—		0.1			—		—

Undesignated Hedges

The following table presents the location and amount of pre-tax net gains from undesignated hedges in the Condensed Consolidated Statements of Income on derivatives for the three and six months ended June 30, 2024 and 2023 (in millions):


		Three Months Ended				Six Months Ended
		June 30,				June 30,
Derivatives	Location	2024		2023		2024		2023
Foreign currency derivatives (a)	Selling, general, and administrative	$	6.1	$	3.3	$	27.6	$	8.0

(a)

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 $12.9 million and $3.1 million for the three months ended June 30, 2024 and 2023, respectively, and $30.4 million and $2.9 million for the six months ended June 30, 2024 and 2023, 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 June 30, 2024 foreign exchange rates, an accumulated other comprehensive pre-tax gain of $0.3 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.