XML 28 R19.htm IDEA: XBRL DOCUMENT v3.23.1
FINANCIAL INSTRUMENTS
 3 Months Ended
Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
FINANCIAL INSTRUMENTS FINANCIAL INSTRUMENTS
RECURRING FAIR VALUE MEASUREMENTS
Our assets and liabilities measured at fair value on a recurring basis consists of derivative instruments and investment securities.
March 31, 2023December 31, 2022
Level 1Level 2Level 3Net BalanceLevel 1Level 2Level 3Net Balance
Assets   
Derivatives
$— $27 $— $27 $— $18 $— $18 
Investment securities1,105 — — 1,105 748 — — 748 
Total assets1,105 27 — 1,132 748 18 — 766 
Liabilities
Derivatives— (88)— (88)— (86)— (86)
Total liabilities$— $(88)$— $(88)$— $(86)$— $(86)

March 31, 2023December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Investment securities (1)
      
Non-U.S. debt securities (2)
$11 $— $— $11 $— $— $— $— 
Equity securities545 549 — 1,094 557 191 — 748 
Total$556 $549 $— $1,105 $557 $191 $— $748 
(1)Gains recorded to earnings related to these securities were $392 million and $12 million for the three months ended March 31, 2023 and 2022, respectively.
(2)As of March 31, 2023, our non-U.S. debt securities are classified as available for sale securities and mature within one year.
As of March 31, 2023 and December 31, 2022, our equity securities with readily determinable fair values are comprised primarily of our investment in C3.ai, Inc. ("C3 AI") of $232 million and $97 million, respectively, and ADNOC Drilling of $860 million and $649 million, respectively. We measured our investments to fair value based on quoted prices in active markets.
As of March 31, 2023, our investment in C3 AI consists of 6,920,476 shares of Class A common stock ("C3 AI Shares"). During the three months ended March 31, 2023, we sold approximately 1.7 million of C3 AI Shares and received proceeds of $46 million. For the three months ended March 31, 2023 and 2022, we recorded a gain of $181 million and a loss of $74 million, respectively, from the net change in fair value of our investment in C3 AI, which is reported in “Other non-operating income (loss), net” in our condensed consolidated statements of income (loss).
As of March 31, 2023, our investment in ADNOC Drilling consists of 800,000,000 shares. For the three months ended March 31, 2023 and 2022, we recorded a gain of $211 million and $85 million, respectively, from the net change in fair value of our investment in ADNOC Drilling, which is reported in “Other non-operating income (loss), net” in our condensed consolidated statements of income (loss).
As of March 31, 2023 and December 31, 2022, $1,105 million and $748 million, respectively, of total investment securities are recorded in "All other current assets."
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Our financial instruments include cash and cash equivalents, current receivables, certain investments, accounts payable, short and long-term debt, and derivative financial instruments. Except for long-term debt, the estimated fair value of these financial instruments as of March 31, 2023 and December 31, 2022 approximates their carrying value as reflected in our condensed consolidated financial statements. For further information on the fair value of our debt, see "Note 8. Debt."
DERIVATIVES AND HEDGING
We use derivatives to manage our risks and do not use derivatives for speculation. The table below summarizes the fair value of all derivatives, including hedging instruments and embedded derivatives.
 March 31, 2023December 31, 2022
AssetsLiabilitiesAssetsLiabilities
Derivatives accounted for as hedges
Currency exchange contracts$— $— $1 $— 
Interest rate swap contracts— (61)— (69)
Derivatives not accounted for as hedges
Currency exchange contracts and other27 (27)17 (17)
Total derivatives$27 $(88)$18 $(86)
Derivatives are classified in the condensed consolidated statements of financial position depending on their respective maturity date. As of March 31, 2023 and December 31, 2022, $26 million and $17 million of derivative assets are recorded in "All other current assets" and $1 million and $1 million are recorded in "All other assets" in the condensed consolidated statements of financial position, respectively. As of March 31, 2023 and December 31, 2022, $29 million and $17 million of derivative liabilities are recorded in "All other current liabilities" and $59 million and $69 million are recorded in "All other liabilities" of the condensed consolidated statements of financial position, respectively.
FORMS OF HEDGING
Cash Flow Hedges
We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts. Accordingly, the vast majority of our derivative activity in this category consists of currency exchange contracts. In addition, we are exposed to interest rate risk fluctuations in connection with long-term debt that we issue from time to time to fund our operations. During the three months ended March 31, 2023, the Company executed interest rate swap contracts designated as cash flow hedges with a notional amount of $375 million in order to hedge the Company's expected exposure in connection with refinancing activities we may undertake in 2023. Changes in the fair value of cash flow hedges are recorded in a separate component of equity (referred to as "Accumulated Other Comprehensive Income" or "AOCI") and are recorded in earnings in the period in which the hedged transaction occurs. See "Note 10. Members' Equity" for further information on activity in AOCI for cash flow hedges. As of March 31, 2023 and December 31, 2022, the maximum term of derivative instruments that hedge forecasted transactions was approximately one year.
Fair Value Hedges
All of our long-term debt is comprised of fixed rate instruments. We are subject to interest rate risk on our debt portfolio and may use interest rate swaps to manage the economic effect of fixed rate obligations associated with certain debt. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
As of March 31, 2023 and December 31, 2022, we had interest rate swaps with a notional amount of $500 million that converted a portion of our $1,350 million aggregate principal amount of 3.337% fixed rate Senior Notes due 2027 into a floating rate instrument with an interest rate based on a LIBOR index as a hedge of its exposure to changes in fair value that are attributable to interest rate risk. We concluded that the interest rate swap met the criteria necessary to qualify for the short-cut method of hedge accounting, and as such, an assumption is made that the change in the fair value of the hedged debt, due to changes in the benchmark rate, exactly offsets the change in the fair value of the interest rate swaps. Therefore, the derivative is considered to be effective at achieving offsetting changes in the fair value of the hedged liability, and no ineffectiveness is recognized. The mark-to-market of this fair value hedge is recorded as gains or losses in interest expense and is equally offset by the gain or loss of the underlying debt instrument, which also is recorded in interest expense.
Economic Hedges
These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements. Economic hedges are marked to fair value through earnings each period.
The following table summarizes the gains (losses) from derivatives not designated as hedges in the condensed consolidated statements of income (loss):
Derivatives not designated as hedging instrumentsCondensed consolidated statements of income (loss) captionThree Months Ended March 31,
20232022
Currency exchange contracts (1)
Cost of goods sold$3 $(2)
Currency exchange contractsCost of services sold2 3 
Commodity derivativesCost of goods sold1 9 
Total (2)
$6 $10 
(1)Excludes losses of nil and gains of $1 million on embedded derivatives for the three months ended March 31, 2023 and 2022, respectively, as embedded derivatives are not considered to be hedging instruments in our economic hedges.
(2)The effect on earnings of derivatives not designated as hedges is substantially offset by the change in fair value of the economically hedged items in the current and future periods.
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is the number of units of the underlying. A substantial majority of the outstanding notional amount of $4.3 billion and $3.8 billion at March 31, 2023 and December 31, 2022, respectively, is related to hedges of anticipated sales and purchases in foreign currency, commodity purchases, changes in interest rates, and contractual terms in contracts that are considered embedded derivatives and for intercompany borrowings in foreign currencies. We generally disclose derivative notional amounts on a gross basis to indicate the total counterparty risk. Where we have gross purchase and sale derivative contracts for a particular currency, we look to execute these contracts with the same counterparty to reduce our exposure. The notional amount of these derivative instruments do not generally represent cash amounts exchanged by us and the counterparties, but rather the nominal amount upon which changes in the value of the derivatives are measured.
COUNTERPARTY CREDIT RISK
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis.