Fair Value Measurements and Financial Instruments

9 Months Ended

Sep. 30, 2024

Fair Value Measurements and Financial Instruments

7. Fair Value Measurements and Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:

•Level 1—Quoted prices for identical instruments in active markets;

•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and

•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

Assets and Liabilities

The Company bases its fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of September 30, 2024 and December 31, 2023, due to their short-term nature.

Debt

The fair value of debt was as follows:


		September 30, 2024				December 31, 2023
(In millions)	Level	Fair Value		Carrying Value		Fair Value		Carrying Value
Unsecured notes due 2026	2	$	380	$	399	$	362	$	398
Unsecured notes due 2029	2	629		593		—		—
Unsecured notes due 2031	2	338		397		326		397
Unsecured notes due 2034	2	527		490		—		—
Three-Year Term Loan due 2025	2	183		185		231		235
Five-Year Term Loan due 2027	2	396		399		493		499

Financial Instruments

The Company directly manages its exposure to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. The Company uses derivative instruments to manage the volatility related to these exposures.

The notional amount and fair value of derivative instruments were as follows:


	September 30, 2024				December 31, 2023				Balance Sheet Location
(In millions)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as net investment hedges:
Cross-currency swap agreements	$	—	$	—	$	487	$	3	Other long-term assets
Cross-currency swap agreements (1)	150		7		165		7		Other current liabilities
Cross-currency swap agreements (2)(3)	1,800		65		883		49		Other long-term liabilities
Foreign currency forward contracts (4)	111		—		—		—		Other current liabilities
Derivatives designated as cash flow hedge:
Interest rate swaps (5)	$	—	$	—	$	125	$	2	Other current assets
Interest rate swaps	125		2		125		3		Other long-term assets
Interest rate swaps (6)	125		1		—		—		Other long-term liabilities
Derivatives not designated as hedges:
Foreign currency option contracts	$	439	$	4	$	397	$	8	Other current assets
Foreign currency option contracts	68		2		—		—		Other long-term assets
Foreign currency option contracts	68		—		—		—		Other current liabilities
Foreign currency forward contracts	9		—		1		—		Other current assets
Foreign currency forward contracts	72		2		—		—		Other current liabilities

(1) In September 2024, a cross-currency swap of the Company with a notional amount of $85 million matured.

(2) In April 2024, the Company amended four cross-currency swaps with an aggregate notional amount of $315 million, scheduled to mature in 2027 and 2028. In May 2024 and in September 2024, the Company entered into cross-currency swaps with an aggregate notional amount of $300 million and $200 million, scheduled to mature in 2029 and 2025, respectively.

(3) In October 2024, the Company amended the rate of two of its cross-currency swap with a notional amount of $200 million.

(4) In September 2024, the Company entered into a foreign currency forward with a notional amount of $111 million, scheduled to mature in 2024.

(5) In June 2024, an interest rate swap of the Company with a notional amount of $125 million matured.

(6) In January 2024, the Company entered into an interest rate swap with a notional amount of $125 million, scheduled to mature in 2025.

As of September 30, 2024 and December 31, 2023, the derivatives were classified as Level 2 within the fair value hierarchy. The derivatives are valued using inputs other than quoted prices such as foreign exchange rates and yield curves.

The effect of hedges on AOCIL and in the Condensed Consolidated Statements of Operations was as follows:


	Three Months Ended September 30, 2024						Nine Months Ended September 30, 2024
(In millions)	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative		Gain (Loss) Reclassified from AOCIL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1)		Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative		Gain (Loss) Reclassified from AOCIL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1)
Derivatives designated as net investment hedges
Cross-currency swap agreements	$	(71)	$	(2)	$	1	$	(24)	$	—	$	2


Derivatives designated as cash flow hedges
Interest rate swaps	$	(5)	$	—	$	—	$	(4)	$	—	$	—

(1) Amounts reclassified to Net income are reported within Interest expense, net in the Condensed Consolidated Statements of Operations.


	Three Months Ended September 30, 2023						Nine Months Ended September 30, 2023
(In millions)	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative		Gain (Loss) Reclassified from AOCIL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1)		Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative		Gain (Loss) Reclassified from AOCIL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1)
Derivatives designated as net investment hedges
Cross-currency swap agreements	$	36	$	(3)	$	1	$	2	$	(3)	$	2

Derivatives designated as cash flow hedges
Interest rate swaps	$	1	$	—	$	—	$	2	$	—	$	—

(1) Amounts reclassified to Net income are reported within Interest expense, net in the Condensed Consolidated Statements of Operations.

Derivatives Not Designated as Hedges

Gains and losses recognized in Other income, net in the Condensed Consolidated Statements of Operations for foreign currency options and forward contracts were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2024		2023		2024		2023
Realized loss	$	(4)	$	(3)	$	(6)	$	(9)
Unrealized gain (loss)	(8)		8		(4)		12
Foreign currency gain (loss)	$	(12)	$	5	$	(10)	$	3