XML 36 R17.htm IDEA: XBRL DOCUMENT
v3.22.0.1

Fair Value Measurements and Financial Instruments | 12 Months Ended
--- | ---
Dec. 31, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Financial Instruments | Fair Value Measurements and Financial Instruments The Company uses available market information and other valuation methodologies in assessing the fair value of financial instruments. Judgment is required in interpreting market data to develop the estimates of fair value and, accordingly, changes in assumptions or the estimation methodologies may affect the fair value estimates. The Company is exposed to the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is unlikely to be material, as it is the Company’s policy to contract only with diverse, credit-worthy counterparties based upon both strong credit ratings and other credit considerations. The Company is exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations. Volatility relating to these exposures is managed on a global basis by utilizing a number of techniques, including working capital management, sourcing strategies, selling price increases, selective borrowings in local currencies and entering into selective derivative instrument transactions, issued with standard features, in accordance with the Company’s treasury and risk management policies, which prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose. It is the Company’s policy to enter into derivative instrument contracts with terms that match the underlying exposure being hedged. Provided below are details of the Company’s exposures by type of risk and derivative instruments by type of hedge designation. Valuation Considerations The Company’s derivative instruments include interest rate swap contracts, forward-starting interest rate swaps, foreign currency contracts and commodity contracts. The Company utilizes interest rate swap contracts to manage its targeted mix of fixed and floating rate debt, and these swaps are classified as follows: Level 1: Based upon quoted market prices in active markets for identical assets or liabilities. Level 2: Based upon observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Based upon unobservable inputs reflecting the reporting entity’s own assumptions. Foreign Exchange Risk As the Company markets its products in over 200 countries and territories, it is exposed to currency fluctuations related to manufacturing and selling its products in currencies other than the U.S. dollar. The Company manages its foreign currency exposures through a combination of cost containment measures, sourcing strategies, selling price increases and the hedging of certain costs in an effort to minimize the impact on earnings of foreign currency rate movements. The Company primarily utilizes foreign currency contracts, including forward and swap contracts, option contracts, foreign and local currency deposits and local currency borrowings to hedge portions of its foreign currency purchases, assets and liabilities arising in the normal course of business and the net investment in certain foreign subsidiaries. The duration of foreign currency contracts generally does not exceed 12 months and the contracts are valued using observable market rates (Level 2 valuation). Interest Rate Risk The Company manages its targeted mix of fixed and floating rate debt with debt issuances and by entering into interest rate swaps in order to mitigate fluctuations in earnings and cash flows that may result from interest rate volatility. The Company utilizes forward-starting interest rate swaps to mitigate the risk of variability in interest rate for future debt issuances. The notional amount, interest payment and maturity date of the swaps generally match the principal, interest payment and maturity date of the related debt, and the swaps are valued using observable benchmark rates (Level 2 valuation). Commodity Price Risk The Company is exposed to price volatility related to raw materials used in production, such as essential oils, resins, tropical oils, pulp, tallow, corn, poultry and soybeans. The Company manages its raw material exposures through a combination of cost containment measures, sourcing strategies, ongoing productivity initiatives and the limited use of commodity hedging contracts. Futures contracts are used on a limited basis, primarily in the Hill’s Pet Nutrition segment, to manage volatility related to raw material inventory purchases of certain traded commodities, and these contracts are measured using quoted commodity exchange prices (Level 1 valuation). The duration of the commodity contracts generally does not exceed 12 months. Credit Risk The Company is exposed to the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is unlikely to be material as it is the Company’s policy to contract with diverse, credit-worthy counterparties based upon both strong credit ratings and other credit considerations. The following table summarizes the fair value of the Company’s derivative instruments and other financial instruments which are carried at fair value in the Company’s Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020:
| Assets |  | Liabilities
| Account |  | Fair Value |  | Account |  | Fair Value
Designated derivative instruments |  |  | December 31, 2021 |  | December 31, 2020 |  |  |  | December 31, 2021 |  | December 31, 2020
Interest rate swap contracts | Other current assets |  | $ | 5 |  |  | $ | — |  |  | Other accruals |  | $ | — |  |  | $ | — |
Interest rate swap contracts | Other assets |  | — |  |  | 14 |  |  | Other liabilities |  | — |  |  | — |
Forward-starting interest rate swaps | Other assets |  | 20 |  |  | 5 |  |  | Other liabilities |  | 21 |  |  | — |
Foreign currency contracts | Other current assets |  | 22 |  |  | 7 |  |  | Other accruals |  | 6 |  |  | 93 |
Commodity contracts | Other current assets |  | 2 |  |  | 3 |  |  | Other accruals |  | — |  |  | — |
Total designated |  |  | $ | 49 |  |  | $ | 29 |  |  |  |  | $ | 27 |  |  | $ | 93 |
Other financial instruments |  |  |  |  |  |  |  |  |  |  |
Marketable securities | Other current assets |  | 34 |  |  | 37 |  |  |  |  |  |  |
Total other financial instruments |  |  | $ | 34 |  |  | $ | 37 |  |  |  |  |  |  |
The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of December 31, 2021 and 2020. The estimated fair value of the Company’s long-term debt, including the current portion, as of December 31, 2021 and 2020, was $7,651 and $8,175, respectively, and the related carrying value was $7,206 and $7,343, respectively. The estimated fair value of long-term debt was derived principally from quoted prices on the Company’s outstanding fixed-term notes (Level 2 valuation). The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustment for fair value hedges as of:
| December 31, 2021 |  | December 31, 2020
Long-term debt: |  |  |
Carrying amount of hedged item | $ | 405 |  |  | $ | 413 |
Cumulative hedging adjustment included in the carrying amount | $ | 5 |  |  | $ | 14 |
The following tables present the notional values as of:
| December 31, 2021
| Foreign Currency Contracts |  | Foreign Currency Debt |  | Interest Rate Swaps |  | Forward-Starting Interest Rate Swaps |  | Commodity Contracts |  | Total
Fair Value Hedges | $ | 566 |  |  | $ | — |  |  | $ | 400 |  |  | $ | — |  |  | $ | — |  |  | $ | 966 |
Cash Flow Hedges | 873 |  |  | — |  |  | — |  |  | 700 |  |  | 24 |  |  | 1,597 |
Net Investment Hedges | 173 |  |  | 4,600 |  |  | — |  |  | — |  |  | — |  |  | 4,773 |
| December 31, 2020
| Foreign Currency Contracts |  | Foreign Currency Debt |  | Interest Rate Swaps |  | Forward-Starting Interest Rate Swaps |  | Commodity Contracts |  | Total
Fair Value Hedges | $ | 589 |  |  | $ | — |  |  | $ | 400 |  |  | $ | — |  |  | $ | — |  |  | $ | 989 |
Cash Flow Hedges | 854 |  |  | — |  |  | — |  |  | 300 |  |  | 17 |  |  | 1,171 |
Net Investment Hedges | 528 |  |  | 4,523 |  |  | — |  |  | — |  |  | — |  |  | 5,051 |
The following table presents the location and amount of gains (losses) on hedges recognized on the Company’s Consolidated Statements of Income:
| Twelve Months Ended December 31,
| 2021 |  | 2020
| Cost of sales |  | Selling, general and administrative expenses |  | Interest (income) expense, net |  | Cost of sales |  | Selling, general and administrative expenses |  | Interest (income) expense, net
Gain (loss) on hedges recognized in income: |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps designated as fair value hedges: |  |  |  |  |  |  |  |  |  |  |
Derivative instrument | $ | — |  |  | $ | — |  |  | $ | 8 |  |  | $ | — |  |  | $ | — |  |  | $ | (10) |
Hedged items | — |  |  | — |  |  | (8) |  |  | — |  |  | — |  |  | 10 |
Foreign currency contracts designated as fair value hedges: |  |  |  |  |  |  |  |  |  |  |
Derivative instrument | — |  |  | 6 |  |  | — |  |  | — |  |  | 29 |  |  | — |
Hedged items | — |  |  | (6) |  |  | — |  |  | — |  |  | (29) |  |  | — |
Foreign currency contracts designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |
Amount reclassified from OCI | (12) |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | — |
Commodity contracts designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |
Amount reclassified from OCI | 5 |  |  | — |  |  | — |  |  | (1) |  |  | — |  |  | — |
Total gain (loss) on hedges recognized in income | $ | (7) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The following table presents the location and amount of unrealized gains (losses) on hedges included in OCI:
| Twelve Months Ended
December 31,
2021 |  | 2020
Foreign currency contracts designated as cash flow hedges: |  |  |
Gain (loss) recognized in OCI | $ | 16 |  |  | $ | (11) |
Forward-starting interest rate swaps designated as cash flow hedges: |  |  |
Gain (loss) recognized in OCI | (6) |  |  | 5 |
Commodity contracts designated as cash flow hedges: |  |  |
Gain (loss) recognized in OCI | 3 |  |  | 3 |
Foreign currency contracts designated as net investment hedges: |  |  |
Gain (loss) on instruments | 30 |  |  | (52) |
Gain (loss) on hedged items | (30) |  |  | 52 |
Foreign currency debt designated as net investment hedges: |  |  |
Gain (loss) on instruments | 370 |  |  | (356) |
Gain (loss) on hedged items | (370) |  |  | 356 |
Total unrealized gain (loss) on hedges recognized in OCI | $ | 13 |  |  | $ | (3) |

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
Name: | us-gaap_FinancialInstrumentsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration