Derivative Financial Instruments

6 Months Ended

Jun. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

11.

Derivative Financial Instruments

The Company uses forward currency contracts to manage the foreign currency exchange rate risk on forecasted revenues and expenses denominated in currencies other than the functional currency of the operating unit (cash flow hedge). The Company also executes forward currency contracts to manage the foreign currency exchange rate risk on recognized nonfunctional currency monetary accounts (non-designated hedge).

The fair value of these derivative financial instruments are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available foreign exchange and interest rates at each financial reporting date.

Forward currency contracts consist of (in millions):


	Currency Denomination
	June 30,		December 31,
Foreign Currency	2022		2021
South Korean Won	KRW	35,610	KRW	17,600
Norwegian Krone	NOK	3,149	NOK	2,430
U.S. Dollar	USD	548	USD	415
Japanese Yen	JPY	492	JPY	476
Mexican Peso	MXN	327	MXN	637
South African Rand	ZAR	115	ZAR	124
Canadian Dollar	CAD	100	CAD	—
Euro	EUR	71	EUR	106
Singapore Dollar	SGD	34	SGD	36
British Pound Sterling	GBP	13	GBP	14
Danish Krone	DKK	5	DKK	7
Russian Ruble	RUB	—	RUB	1,128

Cash Flow Hedging Strategy

To protect against the volatility of forecasted foreign currency cash flows resulting from forecasted revenues and expenses, the Company instituted a cash flow hedging program. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “revenues” when the hedged transactions are cash flows associated with forecasted revenues). The Company includes time value in hedge relationships.

The Company expects $14 million of the accumulated other comprehensive loss will be reclassified into earnings within the next twelve months.

Non-designated Hedging Strategy

The Company enters into forward exchange contracts to hedge certain nonfunctional currency monetary accounts. The gain or loss on the derivative instrument is recognized in earnings in other income (expense), together with the changes in the hedged nonfunctional monetary accounts.

The amount of gain (loss) recognized in other income (expense), net was ($11) million and ($14) million for the three and six months ended June 30, 2022, respectively, and ($1) million and ($5) million for the three and six months ended June 30, 2021, respectively.

The Company has the following fair values of its derivative instruments and their balance sheet classifications (in millions):


	Asset Derivatives					Liability Derivatives
		Fair Value					Fair Value
	Balance Sheet	June 30,		December 31,		Balance Sheet	June 30,		December 31,
	Location	2022		2021		Location	2022		2021
Derivatives designated as hedging instruments under ASC Topic 815
Foreign exchange contracts	Prepaid and other current assets	$	1	$	11	Accrued liabilities	$	17	$	2
Derivatives not designated as hedging instruments under ASC Topic 815
Foreign exchange contracts	Prepaid and other current assets	$	5	$	7	Accrued liabilities	$	11	$	6
Total derivatives		$	6	$	18		$	28	$	8