Financial Instruments

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

To manage our exposure to market risks, such as changes in foreign currency exchange rates and interest rates, we have entered into various derivative transactions. We formally assess, designate and document, as a hedge of an underlying exposure, each qualifying derivative instrument that will be accounted for as an accounting hedge at inception. We also assess at least quarterly thereafter whether the financial instruments used in the hedging transaction are effective at offsetting changes in either the fair values or cash flows of the underlying exposures. Derivative cash flows are principally classified in the operating activities section of the consolidated statements of cash flows, consistent with the underlying hedged item. Further, we do not offset derivative assets and liabilities on the consolidated balance sheets. Our outstanding positions are discussed below.

Derivatives Not Designated as Hedges

We may enter into foreign exchange forward or option contracts to reduce the effect of fluctuating currency exchange rates. Foreign currency derivatives used for hedging are put in place using the same or like currencies and duration as the underlying exposures and are recorded at fair value with the gain or loss recognized in other expense, net in the consolidated statements of operations. Forward contracts generally have maturities not exceeding 12 months. As of December 31, 2023 and 2022, we had outstanding foreign exchange contracts with aggregate notional amounts of $891 million and $784 million, respectively.

The amount of net gains (losses) on derivative instruments not designated as hedging instruments, recorded in other expense, net for the years ended December 31, were as follows:



	2023		2022		2021
Foreign exchange forward contracts (1)	$	7	$	(12)	$	(35)

(1)These amounts were substantially offset in other expense, net by the effect of changing exchange rates on the underlying foreign currency exposures.

Derivatives Designated as Hedges – Net investment hedges

In September 2023 we entered into a series of cross-currency fixed interest rate swaps to help mitigate the impact of currency fluctuations on our operations in Switzerland with a combined 1,000 million CHF notional amount with tenors in 2026 and 2027. These instruments were determined to be, and were designated as, effective economic hedges of net investments in our CHF denominated net assets. The fair values of these instruments were estimated based on quoted market values of similar hedges and are classified as Level 2 in the fair value hierarchy (see Note 10. Fair Value for further information). Gains or losses related to these instruments due to spot rate fluctuations are recorded as cumulative translation adjustments as a component of other comprehensive income (loss). Gains and losses will remain in accumulated other comprehensive income (loss) until either the sale or substantial liquidation of the hedged subsidiary. The amount of losses on net investment hedges, net of tax, recorded in other comprehensive income (loss), for the year ended December 31, was as follows:



	2023
Cross-currency fixed interest rate swaps	$	(72)

For the year ended December 31, 2023, these instruments also generated $9 million of interest income, which is included as a contra interest expense, net of capitalized interest in our consolidated statements of operations.

Derivatives Designated as Hedges – Interest rate swaps

To manage our exposure to variable interest rate risk, we utilize interest rate swap contracts to effectively convert our variable-rate debt into fixed-rate debt. We recognize any differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense, net of capitalized interest over the life of the swaps. We have designated our interest rate swaps as cash flow hedges and record them at fair value on the consolidated balance sheets. Changes in the fair value of the hedges are recognized in other comprehensive income (loss) and reclassified into earnings through interest expense, net of capitalized interest at the time earnings are affected by the hedged transaction. Fair value is estimated based on quoted market values of similar hedges and is classified as Level 2 in the fair value hierarchy.

We had outstanding forward-starting interest rate swaps with aggregate notional amounts of $3,800 million and $3,050 million as of December 31, 2023 and December 31, 2022, respectively. In March 2023, we entered into new interest rate swap agreements with a combined notional amount of $1,000 million, which prior to the interest rate swap restructuring in September 2023 discussed below, were set to become effective on October 1, 2023, following the maturity of certain swaps with the same combined notional amount. Additionally, on May 1, 2023, we entered into new interest rate swap agreements with a combined notional amount of $750 million, which became effective on June 1, 2023, and mature in August 2028. As of December 31, 2023, our outstanding forward-starting interest rate swap instruments had maturities ranging between 2026 and 2028.

The amounts of gains on interest rate swap contracts, net of tax, recorded in accumulated other comprehensive loss, for the years ended December 31, were as follows:



	2023		2022		2021
Forward-starting interest rate swaps	$	—	$	209	$	58

The amounts of gains (losses) reclassified from accumulated other comprehensive loss and recognized into earnings through interest expense, net of capitalized interest for the years ended December 31, were as follows:



	2023		2022		2021
Forward-starting interest rate swaps	$	125	$	35	$	(28)

Over the next 12 months, we expect to reclassify a gain of $90 million from accumulated other comprehensive loss into interest expense, net of capitalized interest related to our interest rate swaps.

In April and September 2022, we took advantage of market opportunities to restructure our interest rate swap portfolio by unwinding the previously existing swaps and simultaneously entering into new agreements with the same notional amounts and covering the same tenors. As a result, we received cash settlements of $207 million during 2022, in aggregate. In September 2023, we took further advantage of market opportunities to restructure $3,050 million of our interest rate swap portfolio by unwinding existing swaps, including the $1,000 million of aforementioned swaps that had not yet taken effect, and simultaneously entering into new agreements with the same notional amounts and tenors extending through 2026. As a result, we received cash settlements of $57 million in the aggregate. Cash proceeds from these interest rate swap settlements were included in net cash from operating activities in the consolidated statements of cash flows for the years ended December 31, 2023 and 2022, and will continue to be reclassified to interest expense, net of capitalized interest over the remaining period of the swaps' original tenors. Additionally, as a result of the April 2022 interest rate swap settlement, we reclassified $17 million of a stranded tax benefit from accumulated other comprehensive loss to income tax expense, based on our policy to reclassify income tax effects from accumulated other comprehensive loss using the portfolio approach.

As of December 31, 2023, when factoring in the $3,800 million of variable rate debt converted to fixed-rate through the use of interest rate swaps (excluding the expected future reclassifications to interest expense, net of capitalized interest related to past interest rate swap settlements), the weighted-average effective interest rate on our outstanding indebtedness was 6.40%.