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DERIVATIVE FINANCIAL INSTRUMENTS
9 Months Ended
Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS DERIVATIVE FINANCIAL INSTRUMENTSIn the normal course of business, the Company is exposed to foreign currency exchange rate market risk and interest rate fluctuations. As part of its risk management strategy, the Company uses derivative financial instruments, primarily foreign currency forward contracts, fixed-to-fixed currency swaps, total return swaps and interest rate swaps, to hedge certain foreign currency, market value and interest rate exposures. The Company’s objective is to reduce earnings volatility by offsetting gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them. The Company does not enter into or hold derivative financial instruments for speculative trading purposes.
The following table summarizes the impact of derivative financial instruments on the Company’s consolidated balance sheets (in millions). There were no amounts eligible to be offset under master netting agreements as of September 30, 2023 and December 31, 2022. The fair value of the Company’s derivative financial instruments was determined using a market-based approach (Level 2).
September 30, 2023December 31, 2022
Fair ValueFair Value
NotionalPrepaid expenses and other current assetsOther non-
current assets
Accounts payable and accrued liabilitiesOther non-
current liabilities
NotionalPrepaid expenses and other current assetsOther non-
current assets
Accounts payable and accrued liabilitiesOther non-
current liabilities
Cash flow hedges:
Foreign exchange$1,653 $69 $27 $33 $$1,382 $49 $35 $42 $25 
Cross-currency swaps— — — — — 482 58 — — 
Net investment hedges: (a)
Cross-currency swaps1,700 21 43 1,778 20 12 — 73 
Fair value hedges:
Interest rate swaps1,500 — — — — — — — 
No hedging designation:
Foreign exchange1,017 97 976 96 
Cross-currency swaps— — — — — 139 — — 
Interest rate swaps6,000 66 14 — — — — — — — 
Total return swaps388 — — 17 — 291 — — 13 — 
Total$162 $49 $60 $155 $80 $106 $58 $197 
(a) Excludes €164 million of euro-denominated notes ($174 million equivalent at December 31, 2022) designated as a net investment hedge and £400 million of sterling notes ($487 million equivalent at September 30, 2023) designated as a net investment hedge. (See Note 9.)
Derivatives Designated for Hedge Accounting
Cash Flow Hedges
The Company uses foreign exchange forward contracts to mitigate the foreign currency risk related to revenues, production rebates and production expenses and fixed-to-fixed cross-currency swaps to mitigate foreign currency risk associated with its British Pound Sterling denominated debt. In April 2023, the Company unwound cross-currency swaps related to its Sterling debt and recognized a gain of $76 million as an adjustment to other comprehensive income. The Sterling debt was subsequently re-designated as a net investment hedge effective May 2023.
The following table presents the pre-tax impact of derivatives designated as cash flow hedges on income and other comprehensive loss (in millions).
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign exchange - derivative adjustments
$15 $30 $35 $10 
Gains (losses) reclassified into income from accumulated other comprehensive loss:
Foreign exchange - distribution revenue
(3)(2)(5)— 
Foreign exchange - advertising revenue
— — — 
Foreign exchange - costs of revenues
12 27 
Foreign exchange - other (expense) income, net
— — 18 — 
Interest rate - interest expense, net(1)— — (1)
Interest rate - other (expense) income, net
— — 
If current fair values of designated cash flow hedges as of September 30, 2023 remained static over the next twelve months, the amount the Company would reclassify from accumulated other comprehensive loss into income in the next twelve months would not be material for the current fiscal year. The maximum length of time the Company is hedging exposure to the variability in future cash flows is 32 years.
Net Investment Hedges
The Company uses fixed-to-fixed cross currency swaps to mitigate foreign currency risk associated with the net assets of non-USD functional entities.
During the three months ended September 30, 2023, the Company settled its Euro denominated debt that was designated as the hedging instrument in a net investment hedge.
During the three months ended June 30, 2023, to mitigate the currency risk associated with the net assets of non-USD functional entities, the Company re-designated its Sterling denominated debt due in 2024 as a net investment hedge after the unwind of the cash flow hedge previously noted.
The following table presents the pre-tax impact of derivatives designated as net investment hedges on other comprehensive loss (in millions). Other than amounts excluded from effectiveness testing, there were no other material gains (losses) reclassified from accumulated other comprehensive loss to income during the three and nine months ended September 30, 2023 and 2022.
Three Months Ended September 30,
Amount of gain (loss) recognized in AOCILocation of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
2023202220232022
Cross currency swaps$$(63)Interest expense, net$$
Euro-denominated notes (foreign denominated debt)(2)13 N/A— — 
Sterling notes (foreign denominated debt)17 58 N/A— — 
Total$20 $$$
Nine Months Ended September 30,
Amount of gain (loss) recognized in AOCILocation of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
2023202220232022
Cross currency swaps$30 $Interest expense, net$18 $27 
Euro-denominated notes (foreign denominated debt)19 N/A— — 
Sterling notes (foreign denominated debt)11 112 N/A— — 
Total$44 $139 $18 $27 
Fair Value Hedges
During the three months ended March 31, 2023, the Company issued $1.5 billion of 6.412% fixed rate senior notes due March 2026. Simultaneously, the Company entered into a fixed-to-floating interest rate swap designated as a fair value hedge to allow the Company to mitigate the variability in the fair value of its senior notes due to fluctuations in the benchmark interest rate. Changes in the fair value of the senior note and the interest rate swap are recorded in interest expense, net.
The following table presents fair value hedge adjustments to hedged borrowings (in millions).
Carrying Amount of
Hedged Borrowings
Cumulative Amount of Fair Value Hedging Adjustments Included in Hedged Borrowings
Balance Sheet LocationSeptember 30, 2023December 31, 2022September 30, 2023December 31, 2022
Noncurrent portion of debt$1,497 $— $(3)$— 
The following table presents the pretax impact of derivatives designated as fair value hedges on income, including offsetting changes in fair value of the hedged items (in millions).
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Gain (loss) on changes in fair value of hedged fixed rate debt (1)
$$— $$— 
(Loss) gain on changes in the fair value of derivative contracts (1)
(4)— (3)— 
Total in interest expense, net$— $— $— $— 
(1) Accrued interest expense related to the hedged debt and derivative contracts is excluded from the amounts above and was not material as of September 30, 2023.
Derivatives Not Designated for Hedge Accounting
Prior to the Merger, the Company was exposed to interest rate risk associated with the expected issuance of debt related to the Merger. To mitigate this risk, the Company entered into interest rate swaps and subsequently unwound them prior to the Merger.
As part of the Merger, the Company acquired deferred compensation plans that have risk related to the fair value gains and losses on these investments and entered into total return swaps to mitigate this risk. The gains and losses associated with these swaps are recorded to selling, general and administrative expenses, offsetting the deferred compensation investment gains and losses.
The Company is exposed to risk of secured overnight financing rate changes in connection with securitization interest paid on the receivables securitization program. To mitigate this risk, the Company entered into $6.0 billion notional of non-designated interest rate swaps. The gains and losses on these derivatives are recorded to selling, general and administrative expenses, offsetting securitization interest expense.
Forward contracts designated as cash flow hedges are de-designated as production spend occurs or when rebate receivables are recognized. After de-designation, gains and losses on these derivatives directly impact earnings in the same line as the hedged risk.
The following table presents the pretax gains (losses) on derivatives not designated as hedges and recognized in selling, general and administrative expense and other (expense) income, net in the consolidated statements of operations (in millions).
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Interest rate swaps$18 $— $80 $— 
Total return swaps(19)— 12 — 
Total in selling, general and administrative expense(1)— 92 — 
Interest rate swaps(1)— (1)512 
Cross-currency swaps— 12 
Foreign exchange derivatives (1)(24)(70)
Total in other (expense) income, net
(2)(19)454 
Total$(3)$(19)$93 $454