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Financial Instruments

9 Months Ended

Sep. 30, 2022

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 determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the London Interbank Offer Rate (“LIBOR”) 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 2021 Form 10-K.

These valuations take into consideration the Company’s credit risk and its counterparties’ credit risk. The estimated change in the fair value of these instruments due to such changes in its own credit risk (or instrument-specific credit risk) was not material as of September 30, 2022.

The carrying values and the estimated fair values of financial instruments at September 30, 2022 and December 31, 2021 consisted of the following:


	September 30, 2022				December 31, 2021
(DOLLARS IN MILLIONS)	Carrying Value		Fair Value		Carrying Value		Fair Value
LEVEL 1
Cash and cash equivalents(1)	$	538	$	538	$	711	$	711
2025 Notes(2)	1,000		878		1,001		968
2027 Notes(2)	1,216		982		1,218		1,180
2030 Notes(2)	1,510		1,150		1,511		1,466
2040 Notes(2)	774		524		775		762
2050 Notes(2)	1,571		985		1,572		1,556
LEVEL 2
Credit facilities and bank overdrafts(3)	5		5		7		7
Derivatives
Derivative assets(4)	12		12		—		—
Derivative liabilities(4)	2		2		7		7
Commercial paper(3)	204		204		324		324
Long-term debt:(5)


2022 Notes	—		—		300		300
2023 Notes	300		297		300		308
2024 Euro Notes	487		473		565		585
2026 Euro Notes	775		717		900		960
2028 Notes	398		368		397		452
2047 Notes	495		387		494		585
2048 Notes	787		672		786		1,026


2024 Term Loan Facility(6)	625		625		625		625
2026 Term Loan Facility(6)	625		625		625		625

_______________________

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

(2)The fair value of the Notes is based on market quoted price as there is an active market for the Notes and observable market data and inputs.

(3)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.

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

(5)The fair value of the Company’s long-term debt was calculated using discounted cash flows applying current interest rates and current credit spreads based on its own credit risk.

(6)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 reducing exposure to cash flow volatility associated with its intercompany loans and foreign currency receivables and payables. 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.

Cash Flow Hedges

Through the third quarter of 2021, the Company maintained several forward currency contracts which qualified as cash flow hedges. The objective of these hedges is to protect against the currency risk associated with forecasted U.S. dollar (“USD”) denominated raw material purchases made by Euro (“EUR”) functional currency entities which result from changes in the EUR/USD exchange rate. The effective portions of cash flow hedges are recorded in other comprehensive income (“OCI”) as a component of Gains on derivatives qualifying as hedges in the accompanying Consolidated Statements of (Loss) Income and Comprehensive Loss. Realized gains/(losses) in accumulated other comprehensive income (“AOCI”) related to cash flow hedges of raw material purchases are recognized as a component of Cost of goods sold in the accompanying Consolidated Statements of (Loss) Income and Comprehensive Loss in the same period as the related costs are recognized.

There were no cash flow hedges as of September 30, 2022 and December 31, 2021.

Hedges Related to Issuances of Debt

As of September 30, 2022, the Company designated approximately $1.262 billion 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 OCI as a component of foreign currency translation adjustments in the accompanying Consolidated Statements of (Loss) Income and Comprehensive Loss.

Cross Currency Swaps

During the third quarter of 2022, the Company entered into a transaction to unwind the fourteen outstanding EUR/USD cross currency swaps designated as net investment hedges issued between the third quarter of 2019 and the first quarter of 2022. The Company received proceeds of approximately $183 million, including $11 million of interest income.

Following the unwinding of the existing swaps, during the third quarter of 2022, the Company entered into twelve new EUR/USD cross currency swaps, with a notional value of $1.4 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 September 30, 2022, the twelve swaps were in a net asset position with an aggregate fair value of $10 million, which were classified as Other assets 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 September 30, 2022 and December 31, 2021:


(DOLLARS IN MILLIONS)	September 30, 2022		December 31, 2021
Foreign currency contracts(1)	$	89	$	46
Commodity contracts(1)	2		10
Cross currency swaps	1,400		300

_______________________

(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 September 30, 2022 and December 31, 2021:


	September 30, 2022
(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	$	—	$	2	$	2
Cross currency swaps	10		—		10

Total derivative assets	$	10	$	2	$	12
Derivative liabilities(2)
Foreign currency contract	$	—	$	2	$	2


	December 31, 2021
(DOLLARS IN MILLIONS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value





Derivative liabilities(2)
Foreign currency contracts	$	—	$	2	$	2
Cross currency swaps	5		—		5
Total derivative liabilities	$	5	$	2	$	7

_______________________

(1)Derivative assets are recorded to Other assets on the Consolidated Balance Sheets.

(2)Derivative liabilities are recorded to Other current 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 in the Consolidated Statements of (Loss) Income and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021:


	Amount of Gain (Loss)				Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN MILLIONS)	Three Months Ended September 30,
	2022		2021
Foreign currency contracts(1)	$	2	$	—	Other income, net




	Amount of Gain (Loss)				Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN MILLIONS)	Nine Months Ended September 30,
	2022		2021
Foreign currency contracts(1)	$	4	$	5	Other income, net

_______________________

(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, in the Consolidated Statements of (Loss) Income and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021:


	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Three Months Ended September 30,					Three Months Ended September 30,
(DOLLARS IN MILLIONS)	2022		2021			2022		2021
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	—	$	1	Cost of goods sold	$	—	$	(1)

Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	(36)		5		N/A	—		—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	30		9		N/A	—		—
2021 Euro Notes & 2026 Euro Notes	48		20		N/A	—		—
Total	$	42	$	35		$	—	$	(1)


	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Nine Months Ended September 30,					Nine Months Ended September 30,
	2022		2021			2022		2021
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	—	$	7	Cost of goods sold	$	—	$	(5)

Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	12		11		N/A	—		—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	60		23		N/A	—		—
2021 Euro Notes & 2026 Euro Notes	96		52		N/A	—		—
Total	$	168	$	93		$	—	$	(5)

The ineffective portion of the above noted cash flow hedges was not material during the three and nine months ended September 30, 2022 and 2021.

At September 30, 2022, based on current market rates, the Company does not expect any derivative losses (net of tax), included in AOCI, to be reclassified into earnings within the next 12 months.