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Fair Value Measurements and Financial Instruments | 12 Months Ended
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Dec. 31, 2023
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 resins, essential oils, 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, 2023 and 2022:
| Assets |  | Liabilities
| Account |  | Fair Value |  | Account |  | Fair Value
Designated derivative instruments |  |  | December 31, 2023 |  | December 31, 2022 |  |  |  | December 31, 2023 |  | December 31, 2022
Foreign currency contracts | Other current assets |  | 19 |  |  | 19 |  |  | Other accruals |  | 25 |  |  | 15 |
Commodity contracts | Other current assets |  | — |  |  | 4 |  |  | Other accruals |  | 1 |  |  | — |
Total designated |  |  | $ | 19 |  |  | $ | 23 |  |  |  |  | $ | 26 |  |  | $ | 15 |
Other financial instruments |  |  |  |  |  |  |  |  |  |  |
Marketable securities | Other current assets |  | 179 |  |  | 175 |  |  |  |  |  |  |
Total other financial instruments |  |  | $ | 179 |  |  | $ | 175 |  |  |  |  |  |  |
The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of December 31, 2023 and 2022. The estimated fair value of the Company’s long-term debt, including the current portion, as of December 31, 2023 and 2022, was $7,862 and $8,184, respectively, and the related carrying value was $8,239 and $8,755, 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 tables present the notional values as of:
|  | December 31, 2023
|  | Foreign Currency Contracts |  | Foreign Currency Debt |  |  |  |  |  | Commodity Contracts |  | Total
Fair Value Hedges |  | $ | 1,625 |  |  | $ | — |  |  |  |  |  |  | $ | — |  |  | $ | 1,625 |
Cash Flow Hedges |  | 869 |  |  | — |  |  |  |  |  |  | 39 |  |  | 908 |
Net Investment Hedges |  | 280 |  |  | 3,908 |  |  |  |  |  |  | — |  |  | 4,188 |
|  | December 31, 2022
|  | Foreign Currency Contracts |  | Foreign Currency Debt |  |  |  |  |  | Commodity Contracts |  | Total
Fair Value Hedges |  | $ | 609 |  |  | $ | — |  |  |  |  |  |  | $ | — |  |  | $ | 609 |
Cash Flow Hedges |  | 840 |  |  | — |  |  |  |  |  |  | 26 |  |  | 866 |
Net Investment Hedges |  | 138 |  |  | 4,797 |  |  |  |  |  |  | — |  |  | 4,935 |
The following table presents the location and amount of gain (loss) on fair value hedges recognized in the Company’s Consolidated Statements of Income:
|  |  |  | Gain (Loss) Recognized in Income
|  | Location of Gain (Loss) Recognized in Income |  | Twelve Months Ended December 31,
Hedging instruments: |  |  | 2023 |  | 2022
Interest rate swaps |  | Interest (income) expense, net |  | $ | — |  |  | $ | (5) |
Foreign currency contracts |  | Selling, general and administrative expenses |  | 29 |  |  | 44 |
Total gain (loss) on fair value hedges |  |  |  | $ | 29 |  |  | $ | 39 |
The following tables present the amount of gain (loss) on cash flow hedges recognized in the Company’s Accumulated Other Comprehensive Income (AOCI) and location and amount of gain (loss) on reclassification from AOCI into Consolidated Statements of Income:
|  | Gain (Loss) Recognized in AOCI |  |  |  | Gain (Loss) Reclassified from AOCI Into Income
|  | Twelve Months Ended December 31, |  | Location of Gain (Loss) Recognized in Income |  | Twelve Months Ended December 31,
|  | 2023 |  | 2022 |  |  | 2023 |  | 2022
Hedging instruments: |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  | $ | (13) |  |  | $ | 9 |  |  | Cost of Sales |  | $ | (3) |  |  | $ | 13 |
Commodity contracts |  | (3) |  |  | 9 |  |  | Cost of Sales |  | (1) |  |  | 5 |
Forward Starting Swaps |  | 10 |  |  | 82 |  |  | Interest (income) expense, net |  | 8 |  |  | 2 |
Total gain (loss) on cash flow hedges |  | $ | (6) |  |  | $ | 100 |  |  |  |  | $ | 4 |  |  | $ | 20 |
The following table presents the amount of gain (loss) on net investment hedges recognized in the Company’s AOCI:
|  | Gain (Loss) Recognized in AOCI
|  | Twelve Months Ended December 31,
Hedging instruments: |  | 2023 |  | 2022
Foreign currency contracts |  | $ | (34) |  |  | $ | (5) |
Foreign currency debt |  | (124) |  |  | 218
Total gain (loss) on net investment hedges |  | $ | (158) |  |  | $ | 213 |

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- 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
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