Financial Instruments

8 Months Ended

Sep. 03, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We are exposed to market risks arising from adverse changes in:

•commodity prices, affecting the cost of our raw materials and energy;

•foreign exchange rates and currency restrictions; and

•interest rates.

There have been no material changes during the 36 weeks ended September 3, 2022 with respect to our risk management policies or strategies and valuation techniques used in measuring the fair value of the financial assets or liabilities disclosed in Note 9 to our consolidated financial statements in our 2021 Form 10-K. We continue to evaluate our hedging strategies related to our Russian business based on the impact of the Russia-Ukraine conflict on financial markets.

Certain of our agreements with our counterparties require us to post full collateral on derivative instruments in a net liability position if our credit rating is at A2 (Moody’s Investors Service, Inc.) or A (S&P Global Ratings) and we have been placed on credit watch for possible downgrade or if our credit rating falls below either of these levels. The fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of September 3, 2022 was $501 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of September 3, 2022.

The notional amounts of our financial instruments used to hedge the above risks as of September 3, 2022 and December 25, 2021 are as follows:


	Notional Amounts(a)
	9/3/2022		12/25/2021
Commodity	$	1.9	$	1.6
Foreign exchange	$	2.8	$	2.8
Interest rate	$	2.1	$	2.1
Net investment (b)	$	2.7	$	2.1

(a)In billions.

(b)The total notional of our net investment hedge consists of non-derivative debt instruments.

As of September 3, 2022, approximately 1% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to 2% as of December 25, 2021.

Debt Securities

Held-to-Maturity

Investments in debt securities that we have the positive intent and ability to hold until maturity are classified as held-to-maturity. Highly liquid debt securities with original maturities of three months or less are recorded as cash equivalents. As of September 3, 2022, we had no investments in debt securities. As of December 25, 2021, we had $130 million of investments in commercial paper recorded in cash and cash equivalents. Held-to-maturity debt securities are recorded at amortized cost, which approximates fair value, and realized gains or losses are reported in earnings. As of December 25, 2021, gross unrecognized gains and losses and the allowance for expected credit losses were not material.

Available-for-Sale

Investments in available-for-sale debt securities are reported at fair value. Unrealized gains and losses related to changes in the fair value of available-for-sale debt securities are recognized in accumulated other comprehensive loss within common shareholders’ equity. Changes in the fair value of available-for-sale debt securities impact net income only when such securities are sold or an other-than-temporary impairment is recognized. We regularly review our investment portfolio to determine if any debt security is other-than-temporarily impaired. In making this judgment, we evaluate, among other things, the duration and extent to which the fair value of a debt security is less than its amortized cost; the financial condition of the issuer and any changes thereto; and our intent to sell, or whether we will more likely than not be required to sell, the debt security before recovery of its amortized cost basis. Our assessment of whether a debt security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular debt security.

In the 12 weeks ended September 3, 2022, we entered into an agreement with Celsius to distribute Celsius energy drinks in the United States (see Note 3 for further information) and invested $550 million in Series A convertible preferred shares issued by Celsius, which included certain conversion and redemption features. The preferred shares automatically convert into Celsius common shares after six years if certain market-based conditions are met, or can be redeemed after seven years. Shares underlying the transaction were priced at $75 per share, and the preferred shares are entitled to a 5% annual dividend. Given our redemption right, we classified our investment in the convertible preferred stock as an available-for-sale debt security. There were no unrealized gains and losses on our investment as of September 3, 2022. We recorded no other-than-temporary impairment charges on our investment for the 12 weeks ended September 3, 2022.

Fair Value Measurements

The fair values of our financial assets and liabilities as of September 3, 2022 and December 25, 2021 are categorized as follows:


		9/3/2022				12/25/2021
	Fair Value Hierarchy Levels(a)	Assets(a)		Liabilities(a)		Assets(a)		Liabilities(a)

Available-for-sale debt security (b)	2	$	555	$	—	$	—	$	—
Index funds (c)	1	$	278	$	—	$	337	$	—
Prepaid forward contracts (d)	2	$	13	$	—	$	21	$	—
Deferred compensation (e)	2	$	—	$	436	$	—	$	505

Derivatives designated as cash flow hedging instruments:
Foreign exchange (f)	2	$	29	$	14	$	29	$	14
Interest rate (f)	2	6		416		14		264
Commodity (g)	2	—		77		70		5
		$	35	$	507	$	113	$	283
Derivatives not designated as hedging instruments:
Foreign exchange (f)	2	$	30	$	9	$	19	$	7
Commodity (g)	2	64		27		35		22
		$	94	$	36	$	54	$	29
Total derivatives at fair value (h)		$	129	$	543	$	167	$	312
Total		$	975	$	979	$	525	$	817

(a)Fair value hierarchy levels are categorized consistently by Level 1 (quoted prices in active markets for identical assets) and Level 2 (significant other observable inputs) in both years. Unless otherwise noted, financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets. Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities.

(b)Related to our investment in Celsius convertible preferred stock. The fair value of our investment approximates the transaction price and accrued dividends, as well as the amortized cost.

(c)Based on the price of index funds. These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability.

(d)Based primarily on the price of our common stock.

(e)Based on the fair value of investments corresponding to employees’ investment elections.

(f)Based on recently reported market transactions of spot and forward rates.

(g)Primarily based on recently reported market transactions of swap arrangements.

(h)Derivative assets and liabilities are presented on a gross basis on our balance sheet. Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on the balance sheet as of September 3, 2022 and December 25, 2021 were not material. There was no collateral received or posted against our asset or liability positions. Exchange-traded commodity futures are cash-settled on a daily basis and, therefore, not included in the table.

The carrying amounts of our cash and cash equivalents and short-term investments recorded at amortized cost approximate fair value (classified as Level 2 in the fair value hierarchy) due to their short-term maturity. The fair value of our debt obligations as of September 3, 2022 and December 25, 2021 was $36 billion and $43 billion, respectively, based upon prices of similar instruments in the marketplace, which are considered Level 2 inputs.

Losses/(gains) on our hedging instruments are categorized as follows:


	12 Weeks Ended
	Fair Value/Non- designated Hedges				Cash Flow and Net Investment Hedges
	Losses/(Gains) Recognized in Income Statement(a)				Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss				Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(b)
	9/3/2022		9/4/2021		9/3/2022		9/4/2021		9/3/2022		9/4/2021
Foreign exchange	$	(60)	$	(5)	$	(31)	$	(18)	$	1	$	27
Interest rate	—		1		81		52		94		53
Commodity	53		(31)		141		11		(51)		(66)
Net investment	—		—		(144)		(63)		—		—
Total	$	(7)	$	(35)	$	47	$	(18)	$	44	$	14


	36 Weeks Ended
	Fair Value/Non- designated Hedges				Cash Flow and Net Investment Hedges
	Losses/(Gains) Recognized in Income Statement(a)				Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss				Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(b)
	9/3/2022		9/4/2021		9/3/2022		9/4/2021		9/3/2022		9/4/2021
Foreign exchange	$	(55)	$	5	$	(13)	$	20	$	(20)	$	67
Interest rate	—		2		160		(12)		175		2
Commodity	(294)		(182)		(49)		(235)		(203)		(109)
Net investment	—		—		(283)		(71)		—		—
Total	$	(349)	$	(175)	$	(185)	$	(298)	$	(48)	$	(40)

(a)Foreign exchange derivative losses/gains are primarily included in selling, general and administrative expenses. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity.

(b)Foreign exchange derivative losses/gains are primarily included in cost of sales. Interest rate derivative losses/gains on cross-currency interest rate swaps are included in selling, general and administrative expenses. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity.

Based on current market conditions, we expect to reclassify net gains of $28 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months.