Financial Instruments

3 Months Ended

Mar. 25, 2023

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 12 weeks ended March 25, 2023 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 2022 Form 10-K.

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 March 25, 2023 was $228 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of March 25, 2023.

The notional amounts of our financial instruments used to hedge the above risks as of March 25, 2023 and December 31, 2022 are as follows:


	Notional Amounts(a)
	3/25/2023		12/31/2022
Commodity	$	1.8	$	1.8
Foreign exchange	$	2.8	$	3.0
Interest rate	$	1.3	$	1.3
Net investment (b)	$	2.9	$	2.9

(a)In billions.

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

As of March 25, 2023, approximately 4% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to 1% as of December 31, 2022.

Debt Securities

Available-for-Sale

Investments in available-for-sale debt securities are reported at fair value. Changes in the fair value of available-for-sale debt securities are generally recognized in accumulated other comprehensive loss within common shareholders’ equity. Changes in the fair value of available-for-sale debt securities impact earnings only when such securities are sold, or an allowance for expected credit losses or impairment is recognized. We regularly evaluate our investment portfolio for expected credit losses and impairment. In making this judgment, we evaluate, among other things, the extent to which the fair value of a debt security is less than its amortized cost; the financial condition of the issuer, including the credit quality, 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 has a credit loss or is impaired could change in the future due to new developments or changes in assumptions related to any particular debt security. There were no unrealized gains and losses on our investments as of March 25, 2023. There were no impairment charges related to our investments for the 12 weeks ended March 25, 2023.

Fair Value Measurements

The fair values of our financial assets and liabilities as of March 25, 2023 and December 31, 2022 are categorized as follows:


		3/25/2023				12/31/2022
	Fair Value Hierarchy Levels(a)	Assets(a)		Liabilities(a)		Assets(a)		Liabilities(a)

Available-for-sale debt securities (b)	2	$	658	$	—	$	660	$	—
Index funds (c)	1	$	250	$	—	$	257	$	—
Prepaid forward contracts (d)	2	$	14	$	—	$	14	$	—
Deferred compensation (e)	2	$	—	$	432	$	—	$	434

Derivatives designated as cash flow hedging instruments:
Foreign exchange (f)	2	$	23	$	34	$	24	$	22
Interest rate (f)	2	—		175		—		164
Commodity (g)	2	2		50		2		60
		$	25	$	259	$	26	$	246
Derivatives not designated as hedging instruments:
Foreign exchange (f)	2	$	17	$	17	$	21	$	21
Commodity (g)	2	9		45		11		51
		$	26	$	62	$	32	$	72
Total derivatives at fair value (h)		$	51	$	321	$	58	$	318
Total		$	973	$	753	$	989	$	752

(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)Primarily related to our investment in Celsius Holdings, Inc. convertible preferred stock. The fair value of our investment approximates the transaction price and any accrued dividends, as well as the amortized cost. As of March 25, 2023, $99 million and $559 million were classified as short-term investments and other assets, respectively. As of December 31, 2022, $3 million, $104 million and $553 million were classified as cash equivalents, short-term investments and other assets, respectively.

(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 our balance sheet as of March 25, 2023 and December 31, 2022 were not material. Collateral received or posted against our asset or liability positions was not material. 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 March 25, 2023 and December 31, 2022 was $39 billion and $35 billion, respectively, based upon prices of identical or similar instruments in the marketplace, which are considered Level 2 inputs.

Losses/(gains) on our cash flow and net investment hedges are categorized as follows:


		12 Weeks Ended
	Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss			Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(a)
		3/25/2023		3/19/2022		3/25/2023		3/19/2022
Foreign exchange		$	16	$	(8)	$	1	$	(4)
Interest rate		11		(3)		3		20
Commodity		65		(189)		9		(78)
Net investment		37		(51)		—		—
Total		$	129	$	(251)	$	13	$	(62)

(a)Foreign exchange derivative losses/(gains) are included in net revenue and cost of sales. Interest rate derivative losses/(gains) 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. See Note 11 for further information.

Based on current market conditions, we expect to reclassify net losses of $119 million related to our cash flow hedges from accumulated other comprehensive loss within common shareholders’ equity into net income during the next 12 months.

Losses/(gains) recognized in the income statement related to our non-designated hedges are categorized as follows:


	12 Weeks Ended
	3/25/2023						3/19/2022
	Cost of sales		Selling, general and administrative expenses		Total		Cost of sales		Selling, general and administrative expenses		Total
Foreign exchange	$	(1)	$	(5)	$	(6)	$	11	$	(27)	$	(16)
Commodity	31		50		81		(74)		(92)		(166)
Total	$	30	$	45	$	75	$	(63)	$	(119)	$	(182)