FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company uses derivative financial instruments to manage its exposure to market risks for changes in interest rates and, from time to time, foreign currencies. This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, treasury lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies prohibit holding or issuing derivative financial instruments for speculative purposes. The Company does not enter into derivative financial instruments that contain credit-risk-related contingent features or requirements to post collateral.

Interest Rate Risk

The Company is exposed to interest rate risk on its cash and cash equivalents and its debt obligations. Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows and the impact of interest rate risk is not material. The Company's debt obligations consist of fixed-rate and variable-rate debt instruments. The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company enters into interest rate swaps.

Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements between the counterparties are recognized as an adjustment to interest expense.

Interest Rate Derivatives – Cash Flow Hedges

From time to time, the Company has entered into various interest rate lock agreements and forward-starting interest rate swap agreements to hedge part of the Company's interest rate exposure associated with the variability in future cash flows attributable to changes in interest rates.

During March 2020, the Company entered into a forward-starting interest rate swap agreement with a financial institution for a total notional amount of $25 million. Additionally, during May 2020, the Company entered into interest rate lock agreements with several financial institutions for a total notional amount of $275 million. The forward-starting interest rate swap agreement and the interest rate lock agreements were entered into in order to hedge a portion of the Company's interest rate exposure associated with variability in future cash flows attributable to changes in interest rates over a ten-year period related to an anticipated issuance of debt and were accounted for as cash flow hedges. In connection with the issuance of the 2031 Senior Notes (see Note 8), these agreements were settled and the Company received net proceeds of $1 million. The net gain is deferred in stockholders' equity, net of taxes, as a component of accumulated other comprehensive loss, and is being amortized as an adjustment to interest expense, net over a ten-year period.

The total net loss, net of taxes, recognized in accumulated other comprehensive loss, related to the Company's cash flow hedges was $1 million and $4 million as of September 30, 2020 and December 31, 2019, respectively. The net amount of deferred losses on cash flow hedges that is expected to be reclassified from accumulated other comprehensive loss into interest expense, net within the next twelve months is $1 million.

Interest Rate Derivatives – Fair Value Hedges

As of December 31, 2019, the Company had various fixed-to-variable interest rate swap agreements outstanding with an aggregate notional amount of $1.2 billion, which were entered into in order to convert a portion of the Company's long-term debt into variable interest rate debt. In April 2020, the Company terminated these existing fixed-to-variable interest rate swap agreements and received proceeds of $40 million. Such amount was reflected as a basis adjustment to the hedged debt instruments and is being amortized as a reduction of interest expense, net over their remaining terms.

As of September 30, 2020 and December 31, 2019, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:


	Carrying Amount of Hedged Long-Term Debt			Hedge Accounting Basis Adjustment (a)			Carrying Amount of Hedged Long-Term Debt			Hedge Accounting Basis Adjustment (a)
Balance Sheet Classification		September 30, 2020			September 30, 2020			December 31, 2019			December 31, 2019
Long-term debt		$	—		$	56		$	1,186		$	(3)

(a) As of September 30, 2020, the entire balance is associated with remaining unamortized hedging adjustments on discontinued relationships. As of December 31, 2019, the balance includes $25 million of remaining unamortized hedging adjustments on discontinued relationships.

The following table presents the effect of fair value hedge accounting on the Company's consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,									Nine Months Ended September 30,
	2020			2019			2020			2019
		Other income, net			Other income, net			Other income, net			Other income, net
Total for line item in which the effects of fair value hedges are recorded		$	77		$	1		$	74		$	13

Gain (loss) on fair value hedging relationships:
Hedged items (Long-term debt)		$	—		$	(20)		$	(68)		$	(76)
Derivatives designated as hedging instruments		$	—		$	20		$	68		$	76

A detailed description regarding the Company's use of derivative financial instruments is contained in Note 15 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.