Financial Instruments

6 Months Ended

Jun. 30, 2024

Investments, All Other Investments [Abstract]

FINANCIAL INSTRUMENTS

Fair Value

Accounting guidance on fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent

sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

•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 and significant value drivers are observable in active markets.

•Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company also considers counterparty credit risk in its assessment of fair value. The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the Secured Overnight Financing Rate (“Term SOFR”) swap curve and forward interest and exchange rates at period end. Such instruments are classified as Level 2 based on the observability of significant inputs to the model. The Company does not have any instruments classified as Level 3, other than those included in pension asset trusts as discussed in Note 15 of the Company’s 2023 Form 10-K.

The carrying values and the estimated fair values of financial instruments at June 30, 2024 and December 31, 2023 consisted of the following:


	June 30, 2024				December 31, 2023
(DOLLARS IN MILLIONS)	Carrying Value		Fair Value		Carrying Value		Fair Value
LEVEL 1
Cash and cash equivalents(1)	$	671	$	671	$	703	$	703
LEVEL 2
Credit facilities and bank overdrafts(2)	2		2		3		3
Derivatives
Derivative assets(3)	4		4		41		41
Derivative liabilities(3)	147		147		165		165
Commercial paper(2)	189		189		—		—
Long-term debt:


2024 Euro Notes(4)	—		—		552		549
2025 Notes(4)	1,000		946		1,000		924
2026 Euro Notes(4)	855		821		879		835
2027 Notes(4)	1,211		1,070		1,212		1,049
2028 Notes(4)	398		386		398		389
2030 Notes(4)	1,508		1,249		1,508		1,240
2040 Notes(4)	772		532		773		536
2047 Notes(4)	495		384		495		382
2048 Notes(4)	787		687		787		678
2050 Notes(4)	1,568		986		1,569		1,029
2024 Term Loan Facility(5)	—		—		270		270
2026 Term Loan Facility(5)	594		594		625		625

_______________________

(1)The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those instruments.

(2)The carrying amount approximates fair value as the interest rate is reset frequently based on current market rates as well as the short maturity of those instruments.

(3)The carrying amount approximates fair value as the instruments are marked-to-market and held at fair value on the Consolidated Balance Sheets.

(4)The fair value of the Note is obtained from pricing services engaged by the Company, and the Company receives one price for each security. The fair value provided by the pricing services are estimated using pricing models, where the inputs to those models are based on observable market inputs or recent trades of similar securities. The inputs to the valuation techniques applied by the pricing services

are typically benchmark yields, benchmark security prices, credit spreads, reported trades and broker-dealer quotes, all with reasonable levels of transparency.

(5)The carrying amount approximates fair value as the Term Loans were assumed at fair value and the interest rate is reset frequently based on current market rates.

Derivatives

Foreign Currency Forward Contracts

The Company periodically enters into foreign currency forward contracts with the objective of managing our exchange rate risk related to foreign currency denominated monetary assets and liabilities of our operations. These contracts generally involve the exchange of one currency for a second currency at a future date, have maturities not exceeding twelve months and are with counterparties which are major international financial institutions.

Commodity Contracts

The Company utilizes options, futures and swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as soybeans, soybean oil and soybean meal.

The Company also utilizes options, futures and swaps that are designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of natural gas used in our manufacturing process.

Hedges Related to Issuances of Debt

As of June 30, 2024, the Company designated approximately $855 million of Euro Notes as a hedge of a portion of its net European investments. Accordingly, the change in the value of the debt that is attributable to foreign exchange movements is recorded in Other comprehensive income (“OCI”) as a component of foreign currency translation adjustments in the accompanying Consolidated Statements of Income and Comprehensive Income (Loss).

Cross Currency Swaps

The Company has twelve EUR/USD cross currency swaps with a notional value of $1.400 billion that mature through November 2030. The swaps all qualified as net investment hedges in order to mitigate a portion of the Company’s net European investments from foreign currency risk. As of June 30, 2024, the twelve swaps were in a liability position with an aggregate fair value of $115 million, which were classified as Other liabilities on the Consolidated Balance Sheets. Changes in fair value related to cross currency swaps are recorded in OCI.

The following table shows the notional amount of the Company’s derivative instruments outstanding as of June 30, 2024 and December 31, 2023:


(DOLLARS IN MILLIONS)	June 30, 2024		December 31, 2023
Foreign currency contracts(1)	$	(3,318)	$	(1,400)
Commodity contracts(1)	5		7
Cross currency swaps	1,400		1,400

_______________________

(1)Foreign currency contracts and commodity contracts are presented net of contracts bought and sold.

The following tables show the Company’s derivative instruments measured at fair value (Level 2 of the fair value hierarchy), as reflected on the Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023:


	June 30, 2024
(DOLLARS IN MILLIONS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets(1)
Foreign currency contracts	$	—	$	4	$	4


Total derivative assets	$	—	$	4	$	4
Derivative liabilities(2)
Foreign currency contracts	$	—	$	32	$	32
Cross currency swaps	115		—		115

Total derivative liabilities	$	115	$	32	$	147


	December 31, 2023
(DOLLARS IN MILLIONS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets(1)
Foreign currency contracts	$	—	$	41	$	41


Total derivative assets	$	—	$	41	$	41
Derivative liabilities(2)
Foreign currency contracts	$	—	$	4	$	4
Cross currency swaps	161		—		161
Total derivative liabilities	$	161	$	4	$	165

_______________________

(1)Derivative assets are recorded to Prepaid expenses and other current assets on the Consolidated Balance Sheets.

(2)Derivative liabilities are recorded to Other current liabilities and Other liabilities on the Consolidated Balance Sheets.

The following table shows the effect of the Company’s derivative instruments which were not designated as hedging instruments on the Consolidated Statements of Income and Comprehensive Income (Loss) for the three and six months ended June 30, 2024 and 2023:


	Amount of Gain (Loss) Recognized in Income on Derivative Settlements				Amount of Gain (Loss) Recognized in Income on Changes in Fair Value				Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN MILLIONS)	Three Months Ended June 30,				Three Months Ended June 30,
	2024		2023		2024		2023
Foreign currency contracts(1)	$	(43)	$	(7)	$	4	$	7	Other expense (income), net
Commodity contracts	—		2		—		—		Cost of goods sold



Total	$	(43)	$	(5)	$	4	$	7

	Amount of Gain (Loss) Recognized in Income on Derivative Settlements				Amount of Gain (Loss) Recognized in Income on Changes in Fair Value				Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN MILLIONS)	Six Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Foreign currency contracts(1)	$	(41)	$	(7)	$	(64)	$	11	Other expense (income), net
Commodity contracts	(1)		2		—		—		Cost of goods sold



Total	$	(42)	$	(5)	$	(64)	$	11

_______________________

(1)The foreign currency contract net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.

The following table shows the effect of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedging instruments, net of tax, on the Consolidated Statements of Income and Comprehensive Income (Loss) for the three and six months ended June 30, 2024 and 2023:


	Amount of Gain (Loss) Recognized in OCI on Derivative and Non-Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (“AOCI”) into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended June 30,					Three Months Ended June 30,
(DOLLARS IN MILLIONS)	2024		2023			2024		2023
Derivatives in Cash Flow Hedging Relationships:

Commodity contracts	$	1	$	—	Cost of goods sold	$	—	$	—

Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	13		(30)		N/A	—		—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	—		(2)		N/A	—		—
2026 Euro Notes	5		(4)		N/A	—		—
Total	$	19	$	(36)		$	—	$	—

	Amount of Gain (Loss) Recognized in OCI on Derivative and Non-Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Six Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024		2023
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	(7)	$	—	Cost of goods sold	$	—	$	—
Commodity contracts	1		—		Cost of goods sold	—		—

Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	36		(33)		N/A	—		—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	3		(11)		N/A	—		—
2026 Euro Notes	20		(18)		N/A	—		—
Total	$	53	$	(62)		$	—	$	—

The ineffective portion of the above noted net investment hedges was approximately $3 million and $7 million for each of the three and six months ended June 30, 2024 and 2023 respectively, and was recorded as a reduction to Interest expense on the Consolidated Statements of Income and Comprehensive Income (Loss).

At June 30, 2024, based on current market rates, the Company does not expect any material derivative losses (net of tax), included in AOCI, to be reclassified into earnings within the next 12 months.