Derivatives and Hedging Instruments

6 Months Ended

Jun. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

In order to limit exposure to risk, the Company maintains derivative instruments with creditworthy institutions to hedge against changing interest rates and foreign currency rate fluctuations. The Company utilizes forward exchange contracts, fixed-to-fixed cross-currency rate swap contracts and other non-derivative hedging instruments to manage such risk. The Company has designated these instruments as cash flow hedges, net investment hedges, or fair value hedges, as further described below. Derivative instruments maintained by the Company are measured on a recurring basis and are recorded at fair value either as an asset or liability in the consolidated balance sheets (see Note 8).

Cash Flow Hedges

The Company maintains forward exchange contracts, designated as cash flow hedges, to hedge foreign currency exposure to the Indian Rupee. The notional amount of these derivatives was $464 million and $443 million at June 30, 2024 and December 31, 2023, respectively. Based on the amounts recorded in accumulated other comprehensive loss at June 30, 2024, the Company estimates that it will recognize gains of approximately $4 million in cost of processing and services during the next twelve months as foreign exchange forward contracts settle.

The Company previously entered into treasury lock agreements (“Treasury Locks”), designated as cash flow hedges to manage exposure to fluctuations in benchmark interest rates in anticipation of the issuance of fixed rate debt in connection with the acquisition and refinancing of certain indebtedness of First Data Corporation and its subsidiaries. In 2019, concurrent with the issuance of U.S dollar-denominated senior notes, the Treasury Locks were settled resulting in a loss, net of income taxes, and recorded in accumulated other comprehensive loss that is being amortized to earnings over the terms of the originally forecast interest payments. The unamortized balance recorded in accumulated other comprehensive loss related to the Treasury Locks was $108 million and $116 million at June 30, 2024 and December 31, 2023, respectively. Based on the amounts recorded in accumulated other comprehensive loss at June 30, 2024, the Company estimates that it will recognize approximately $13 million in net interest expense during the next twelve months related to settled interest rate hedge contracts.

Net Investment Hedges

To reduce exposure to changes in the value of the Company’s net investments in certain of its foreign currency-denominated subsidiaries due to changes in foreign currency exchange rates, the Company uses fixed-to-fixed cross-currency rate swap contracts and foreign currency-denominated debt as economic hedges of its net investments in such foreign currency-denominated subsidiaries.

The aggregate notional amount of the fixed-to-fixed cross-currency rate swap contracts were as follows:


(In millions)	June 30, 2024	December 31, 2023
Currency
Euros	475	400
Singapore Dollars	751	751
Canadian Dollars	253	—

These fixed-to-fixed cross-currency rate swaps have been designated as net investment hedges to hedge a portion of the Company’s net investment in certain subsidiaries whose functional currencies are the Euro, Singapore Dollar, and Canadian Dollar. The Company has also designated certain of its Euro- and British Pound-denominated senior notes and Euro commercial paper notes as net investment hedges to hedge a portion of its net investment in certain subsidiaries whose functional currencies are the Euro and the British Pound.

Foreign currency transaction gains or losses on the qualifying net investment hedge instruments are recorded as foreign currency translation within other comprehensive income (loss) in the consolidated statements of comprehensive income and will remain in accumulated other comprehensive loss in the consolidated balance sheets until the sale or complete liquidation of the underlying foreign currency-denominated subsidiaries.

Foreign currency transaction gains (losses), net of income tax, related to net investment hedges that were recorded as foreign currency translation within other comprehensive income (loss) in the consolidated statements of comprehensive income were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2024		2023		2024		2023
Cross-currency rate swap contracts	$	—	$	(5)	$	16	$	(7)
Foreign currency-denominated debt	24		(50)		101		(114)

The Company recorded income tax impacts of $(8) million and $18 million during the three months ended June 30, 2024 and 2023, respectively, and $(39) million and $40 million during the six months ended June 30, 2024 and 2023, respectively, in other comprehensive income (loss) from the translation of foreign currency-denominated senior notes, Euro commercial paper notes and cross-currency rate swap contracts.

Fair Value Hedges

The Company maintains fixed-to-fixed cross-currency rate swap contracts, designated as fair value hedges, to mitigate the spot foreign exchange rate risk on the principal amount of its British Pound-denominated 2.250% senior notes due in July 2025, as well as on the principal amount of a Euro-denominated intercompany note.

The aggregate notional amount of the fixed-to-fixed cross-currency rate swap contracts were as follows:


(In millions)	June 30, 2024	December 31, 2023
Currency
British Pounds	525	525
Euros	157	157

Net changes in the fair value of the cross-currency rate swaps ($2 million and $0 million for the three and six months ended June 30, 2024, respectively), along with the offsetting changes in the fair value of the hedged notes, attributable to fluctuations in the respective foreign currency spot rates are recognized in other expense, net within the consolidated statements of income.