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Financial Instruments
 9 Months Ended
Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments
Note 9. Financial Instruments

Fair Value of Derivative Instruments:
Derivative instruments were recorded at fair value in the condensed consolidated balance sheets as follows:
 As of September 30, 2022As of December 31, 2021
Asset
Derivatives		Liability
Derivatives		Asset
Derivatives		Liability
Derivatives
 (in millions)
Derivatives designated as
accounting hedges:
Currency exchange contracts$5 $13 $— $— 
Interest rate contracts173 2 27 17 
Net investment hedge derivative contracts (1)
581 14 117 45 
$759 $29 $144 $62 
Derivatives not designated as
   accounting hedges:
Currency exchange contracts$295 $155 $156 $40 
Commodity contracts224 214 387 137 
Interest rate contracts6 — — — 
Equity method investment contracts (2)
— 6 — 3 
$525 $375 $543 $180 
Total fair value$1,284 $404 $687 $242 

(1)Net investment hedge derivative contracts consist of cross-currency interest rate swaps, forward contracts and options. We also designate some of our non-U.S. dollar denominated debt to hedge a portion of our net investments in our non-U.S. operations. This debt is not reflected in the table above, but is included in long-term debt discussed in Note 8, Debt and Borrowing Arrangements. Both net investment hedge derivative contracts and non-U.S. dollar denominated debt acting as net investment hedges are also disclosed in the Derivative Volume table and the Hedges of Net Investments in International Operations section appearing later in this footnote.
(2)Equity method investment contracts consist of the bifurcated embedded derivative option that was a component of the September 20, 2021 €300 million exchangeable bonds issuance. Refer to Note 6, Equity Method Investments.

Derivatives designated as accounting hedges include cash flow and net investment hedge derivative contracts. Our currency exchange, commodity derivative and equity method investment contracts are economic hedges that are not designated as accounting hedges. We record derivative assets and liabilities on a gross basis on our condensed consolidated balance sheets. The fair value of our asset derivatives is recorded within other current assets and other assets and the fair value of our liability derivatives is recorded within other current liabilities and other liabilities.

The fair values (asset/(liability)) of our derivative instruments were determined using:
 As of September 30, 2022
 Total
Fair Value of Net
Asset/(Liability)		Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (in millions)
Currency exchange contracts$132 $— $132 $— 
Commodity contracts10 (6)16 — 
Interest rate contracts177 — 177 — 
Net investment hedge contracts567 — 567 — 
Equity method investment contracts(6)— (6)— 
Total derivatives$880 $(6)$886 $— 
 As of December 31, 2021
 Total
Fair Value of Net
Asset/(Liability)		Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (in millions)
Currency exchange contracts$116 $— $116 $— 
Commodity contracts251 161 90 — 
Interest rate contracts10 — 10 — 
Net investment hedge contracts71 — 71 — 
Equity method investment contracts(3)— (3)— 
Total derivatives$445 $161 $284 $— 

Level 1 financial assets and liabilities consist of exchange-traded commodity futures and listed options. The fair value of these instruments is determined based on quoted market prices on commodity exchanges.

Level 2 financial assets and liabilities consist primarily of over-the-counter (“OTC”) currency exchange forwards, options and swaps; commodity forwards and options; net investment hedge contracts; and interest rate swaps. Our currency exchange contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices. Our bifurcated exchange options are valued, as derivative instrument liabilities, using the Black-Scholes option pricing model. This model requires assumptions related to the market price of the underlying note and associated credit spread combined with the share of price, expected dividend yield, and expected volatility of the JDE Peet’s shares over the life of the option. Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk. Our OTC derivative transactions are governed by International Swap Dealers Association agreements and other standard industry contracts. Under these agreements, we do not post nor require collateral from our counterparties. The majority of our derivative contracts do not have a legal right of set-off. We manage the credit risk in connection with these and all our derivatives by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.

Derivative Volume:
The notional values of our hedging instruments were:
 Notional Amount
 As of September 30,
2022		As of December 31, 2021
 (in millions)
Currency exchange contracts:
Intercompany loans and forecasted interest payments
$2,393 $1,891 
Forecasted transactions
6,141 4,831 
Commodity contracts10,425 9,694 
Interest rate contracts3,850 1,850 
Net investment hedges:
Net investment hedge derivative contracts6,533 3,915 
Non-U.S. dollar debt designated as net investment hedges
Euro notes
3,122 3,622 
British pound sterling notes
294 356 
Swiss franc notes
598 811 
Canadian dollar notes
434 475 
Cash Flow Hedges:
Cash flow hedge activity, net of taxes, within accumulated other comprehensive earnings/(losses) included:
 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
 2022202120222021
 (in millions)
Accumulated (loss)/gain at beginning of period$(88)$(142)$(148)$(161)
Transfer of realized losses/(gains) in fair value
   to earnings		(122)(52)(193)(139)
Unrealized (loss)/gain in fair value127 45 258 151 
Accumulated (loss)/gain at end of period$(83)$(149)$(83)$(149)

After-tax gains/(losses) reclassified from accumulated other comprehensive earnings/(losses) to net earnings were:
 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
 2022202120222021
 (in millions)
Currency exchange contracts –
   forecasted transactions		$(4)$— $(8)$— 
Interest rate contracts126 52 201 139 
Total$122 $52 $193 $139 

After-tax gains/(losses) recognized in other comprehensive earnings/(losses) were:
 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
 2022202120222021
 (in millions)
Currency exchange contracts –
   forecasted transactions		$4 $(6)$8 $— 
Interest rate contracts123 51 250 151 
Total$127 $45 $258 $151 

Cash flow hedge ineffectiveness was not material for all periods presented.

We record pre-tax (i) gains or losses reclassified from accumulated other comprehensive earnings/(losses) into earnings, (ii) gains or losses on ineffectiveness and (iii) gains or losses on amounts excluded from effectiveness testing in interest and other expense, net for interest rate contracts.

Based on current market conditions, we would expect to transfer losses of $13 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.

Cash Flow Hedge Coverage:
As of September 30, 2022, our longest dated cash flow hedges were interest rate swaps that hedge forecasted interest rate payments over the next 3 years, 11 months.

Hedges of Net Investments in International Operations:

Net investment hedge ("NIH") derivative contracts:
We enter into cross-currency interest rate swaps, forwards and options to hedge certain investments in our non-U.S. operations against movements in exchange rates. The aggregate notional value as of September 30, 2022 was $6.5 billion.
Net investment hedge derivative contract impacts on other comprehensive earnings and net earnings were:
 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
 2022202120222021
 (in millions)
After-tax gain/(loss) on NIH contracts(1)
$440 $50 $788 $73 

(1)Amounts recorded for unsettled and settled NIH derivative contracts are recorded in the cumulative translation adjustment within other comprehensive earnings. The cash flows from the settled contracts are reported within other investing activities in the condensed consolidated statement of cash flows.
 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
 2022202120222021
 (in millions)
Amounts excluded from the assessment of
   hedge effectiveness(1)
$32 $19 $84 $58 

(1)We elected to record changes in the fair value of amounts excluded from the assessment of effectiveness in net earnings within interest and other expense, net.

Non-U.S. dollar debt designated as net investment hedges:
After-tax gains/(losses) related to hedges of net investments in international operations in the form of euro, British pound sterling, Swiss franc and Canadian dollar-denominated debt were recorded within the cumulative translation adjustment section of other comprehensive income and were:
 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
 2022202120222021
 (in millions)
Euro notes$165 $67 $381 $160 
British pound sterling notes20 7 47 4 
Swiss franc notes23 6 50 45 
Canadian notes24 9 31 (1)

Economic Hedges:
Pre-tax gains/(losses) recorded in net earnings for economic hedges were:
 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,		Location of Gain/(Loss) Recognized in Earnings
 2022202120222021
 (in millions) 
Currency exchange contracts:
Intercompany loans and forecasted interest payments$(1)$(5)$(5)$67 Interest and other expense, net
Forecasted transactions
(9)29 98 41 Cost of sales
Forecasted transactions
8 — (23)(2)Interest and other expense, net
Forecasted transactions
(5)(1)(2)— Selling, general and administrative expenses
Commodity contracts(31)151 166 362 Cost of sales
Equity method investment
   contracts		(3)2 (3)2 Gain on equity method investment transactions
Total$(41)$176 $231 $470 

In the first quarter of 2022, we had early settlements of forecasted currency exchange contracts comprised of $74 million in cost of sales, $5 million in selling, general and administrative expenses and $20 million in interest and other expense, net.
Fair Value of Contingent Consideration

The following is a summary of our contingent consideration liability activity:


 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
 2022202120222021
 (in millions)
Liability at beginning of period$173 $221 $159 $56 
Contingent consideration arising from acquisitions440 — 440 145 
Changes in fair value— (67)16 (47)
Currency— — (2)— 
Liability at end of period$613 $154 $613 $154 

Contingent consideration was recorded at fair value in the condensed consolidated balance sheets as follows:

 As of September 30, 2022
 Total
Fair Value of Net
Asset/(Liability)		Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (in millions)
Clif Bar(1)
$455 $— $— 455 
Other(2)
158 — — 158 
Total contingent consideration$613 $— $— $613 

 As of December 31, 2021
 Total
Fair Value of Net
Asset/(Liability)		Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant
Other Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (in millions)
Other(2)
$159 $— $— $159 
Total contingent consideration$159 $— $— $159 

(1) In connection with the Clif Bar acquisition, we entered into a contingent consideration arrangement that may require us to pay additional consideration to the sellers for achieving certain net revenue, gross profit and EBITDA targets in 2025 and 2026 that exceed our base financial projections for the business implied in the upfront purchase price. The estimated fair value of the contingent consideration obligation at the acquisition date was determined using a Monte Carlo simulation and recorded in other liabilities. Significant assumptions used in assessing the fair value of the liability include financial projections for net revenue, gross profit, and EBITDA, as well as discount and volatility rates. Fair value adjustments are primarily recorded in selling, general and administrative expenses in the condensed consolidated statement of earnings. Refer to Note 2, Acquisitions and Divestitures for additional information.
(2)The other contingent consideration liabilities are recorded at fair value, with $101 million classified as other current liabilities at September 30, 2022 and $57 million and $159 million classified as long term liabilities at September 30, 2022 and December 31, 2021. The fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs, including management's latest estimate of forecasted future results. Other key assumptions included discount rate and volatility. Fair value adjustments are recorded in selling, general and administrative expenses in the condensed consolidated statement of earnings. Refer to Note 2, Acquisitions and Divestitures for additional information.