The Company uses foreign currency forward contracts, cross-currency swaps, and interest rate swap agreements to manage risks associated with foreign currency exchange rates, net investments in foreign operations, and interest rates. 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 under ASC 815, Derivatives and Hedging. Cash flows from derivatives are classified in the condensed consolidated statements of cash flows in the same category as the cash flows from 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.

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 do not call for collateral, and no cash collateral had been received or pledged related to the underlying derivatives as of June 30, 2023.

The following table presents the fair value of derivative instruments:


	June 30, 2023						December 31, 2022
	Outstanding Gross				Other		Outstanding Gross				Other
	Notional Amount		Other Assets		Noncurrent liabilities		Notional Amount		Other Assets		Noncurrent liabilities
Derivatives designated as hedging instruments:
Cash flow hedges:
Interest rate swaps	$	1,120	$	25	$	—	$	1,120	$	14	$	—
Cross currency contracts		120		14		—		120		17		—
Foreign currency forward contracts		12		—		—		—		—		—
Fair value hedges:
Cross currency contracts		721		33		—		721		50		—
Net investment hedges:
Cross currency contracts		230		26		—		230		32		—
Total derivatives designated as hedging instruments		2,203		98		—		2,191		113		—

Derivatives not designated as hedging instruments:
Foreign currency forward contracts		102		1		1		118		—		—
Total derivatives not designated as hedging instruments		102		1		1		118		—		—

Total derivatives	$	2,305	$	99	$	1	$	2,309	$	113	$	—

The following table presents the effect of derivatives on the condensed consolidated statements of operations:


		Amount of income (expense) recognized in income
	Location of income (expense)	Three Months Ended June 30,
Derivatives	recognized in income	2023			2022
Cash flow hedging relationships:
Interest rate swaps	Interest expense, net	$	7		$	(2	)
Cross currency contracts	Investment income and other, net		(1	)		6
Cross currency contracts	Interest expense, net		(1	)		1
Foreign currency forward contracts	Investment income and other, net		—			—
Fair value hedging relationships:
Cross currency contracts	Investment income and other, net		(13	)		37
Cross currency contracts	Interest expense, net		1			1
Net investment hedging relationships:
Cross currency contracts	Interest expense, net		1			1
Not designated as hedging instruments:
Foreign currency forward contracts	Investment income and other, net		(1	)		2


		Amount of income (expense) recognized in income
	Location of income (expense)	Six Months Ended June 30,
Derivatives	recognized in income	2023			2022
Cash flow hedging relationships:
Interest rate swaps	Interest expense, net	$	15		$	(4	)
Cross currency contracts	Investment income and other, net		(2	)		9
Cross currency contracts	Interest expense, net		1			1
Foreign currency forward contracts	Investment income and other, net		—			—
Fair value hedging relationships:
Cross currency contracts	Investment income and other, net		(22	)		43
Cross currency contracts	Interest expense, net		1			1
Net investment hedging relationships:
Cross currency contracts	Interest expense, net		2			2
Not designated as hedging instruments:
Foreign currency forward contracts	Investment income and other, net		(1	)		3

The income (expense) from derivatives designed to offset foreign currency exposure and recorded in investment income and other, net were offset by foreign currency transaction gains and losses resulting in a net gain (loss) of $0 million and ($1) million for the three months ended June 30, 2023 and 2022, respectively, and $0 million and ($2) million for the six months ended June 30, 2023 and 2022, respectively.

The following table presents the effect of cash flow and fair value hedge accounting on accumulated other comprehensive income (loss) ("AOCI"):


	Amount of gain (loss)						Amount of gain (loss)
	recognized in other						reclassified from
	comprehensive income						AOCI into income
	Three Months Ended June 30,					Location of gain (loss) reclassified from	Three Months Ended June 30,
Derivatives	2023			2022		AOCI into income	2023			2022
Cash flow hedging relationships:
Interest rate swaps	$	17		$	8	Interest expense, net	$	4		$	—
Cross currency contracts		(2	)		3	Investment income and other, net		(1	)		6
Forward currency forward contracts		—			—	Investment income and other, net		—			—
Fair value hedging relationships:
Cross currency contracts		4			8	Investment income and other, net		(14	)		37
Net investment hedging relationships:
Cross currency contracts		(4	)		13	Investment income and other, net		1			—


	Amount of gain (loss)							Amount of gain (loss)
	recognized in other							reclassified from
	comprehensive income							AOCI into income
	Six Months Ended June 30,						Location of gain (loss) reclassified from	Six Months Ended June 30,
Derivatives	2023			2022			AOCI into income	2023			2022
Cash flow hedging relationships:
Interest rate swaps	$	8		$	28		Interest expense, net	$	8		$	—
Cross currency contracts		(1	)		2		Investment income and other, net		(2	)		9
Forward currency forward contracts		—			—		Investment income and other, net		—			—
Fair value hedging relationships:
Cross currency contracts		4			(4	)	Investment income and other, net		(22	)		43
Net investment hedging relationships:
Cross currency contracts		(5	)		15		Investment income and other, net		—			—

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.

The Company manages its fixed and floating rate debt mix using interest rate swaps. The Company uses interest rate swap contracts to separate interest rate risk management from the debt funding decision. The Company elected a method that does not require continuous evaluation of hedge effectiveness.

During 2022, the Company terminated the previously outstanding $720 notional amount interest rate swap with a maturity date in October 2024 ("2024 Interest Rate Swap"). The present value as of the date of termination of the 2024 Interest Rate Swap is recorded in AOCI on the condensed consolidated balance sheets. The fair value previously recognized in AOCI related to interest rate movements of the 2024 Interest Rate Swap is being amortized to interest expense on a straight-line basis through October 2024. As of June 30, 2023, approximately $22 of unrealized pre-tax gains remained in AOCI.

During 2022, the Company entered into an aggregate $720 notional amount interest rate swap ("2026 Interest Rate Swap"), as amended on May 19, 2023 in connection with the 2019 Term Loan transition to the Secured Overnight Financing Rate ("SOFR"). Refer to Note 10 - "Debt" for additional information. The 2026 Interest Rate Swap exchanges a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.59% over the term of the agreement, which matures in October 2026.

During the first quarter of 2023, the aggregate $400 notional forward-starting swaps became effective ("2028 Interest Rate Swap"), as amended on May 19, 2023 in connection with the 2021 Term Loan transition to SOFR. Refer to Note 10 - "Debt" for additional information. These interest rate swaps exchange a variable rate of interest (SOFR) for an average fixed rate of interest of approximately 3.41% over the term of the agreements, which mature in January 2028.

As of June 30, 2023, the Company had $1,120 notional amount outstanding in swap agreements, which includes the aggregate $400 notional 2028 Interest Rate Swap, and the $720 notional 2026 Interest Rate Swap. The Company has designated these swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest (SOFR) payments. As of June 30, 2023, the weighted average fixed rate of interest on these swaps was approximately 3.52%. Variations in the assets and liability balances are primarily driven by changes in the applicable forward yield curves related to SOFR.

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 and to hedge exposures of certain intercompany loans subject to changes in foreign currency exchange rates. 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 Company utilizes foreign currency forward contracts to hedge the effect of foreign currency exchange rate fluctuations on forecasted foreign currency transactions, including inventory purchases and intercompany charges and other payments. These forward contracts are designated as cash flow hedges. The changes in fair value of these contracts are recorded in other comprehensive income until the hedged items affect earnings, at which time the hedge gain or loss is reclassified into current 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.

The Company has certain intercompany loans subject to changes in foreign currency exchange rates. To hedge these exposures, during 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 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 of 2029.

The Company uses foreign currency forward contracts to mitigate the foreign currency exposure of certain foreign currency transactions. Fair market value gains or losses on foreign currency forward 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.