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Financial Instruments | 8 Months Ended
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Sep. 07, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments | Financial Instruments 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. In 2024, we included the use of cross-currency contracts to hedge the foreign currency risk associated with our net investment in foreign operations in our hedging strategies. In the 12 and 36 weeks ended September 7, 2024, we entered into cross-currency interest rate swaps with a total notional amount of $500 million for Chinese renminbi and maturity dates ranging from November 2025 to November 2029. The cross-currency interest rate swaps are designated as net investment hedges to hedge the net assets of certain foreign operations with Chinese renminbi functional currency. We use the spot method to assess hedge effectiveness for our net investment hedges. Changes in the fair value of the cross-currency interest rate swaps attributable to spot exchange rate changes are recorded in accumulated other comprehensive loss within common shareholders’ equity as currency translation adjustment to offset changes in the value of the net investments being hedged. These amounts will remain in accumulated other comprehensive loss until the hedged foreign operation is either sold or substantially liquidated. Excluded components in the form of interest accruals are recorded in net interest expense and other. Cash flows associated with the settlement of derivative instruments designated as net investment hedges of foreign operations are classified within investing activities. There have been no other material changes during the 36 weeks ended September 7, 2024 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 2023 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 September 7, 2024 was $171 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of September 7, 2024. The notional amounts of our financial instruments used to hedge the above risks as of September 7, 2024 and December 30, 2023 are as follows:
| Notional Amounts(a)
| 9/7/2024 |  | 12/30/2023
Commodity contracts | $ | 1.4 |  |  | $ | 1.7 |
Foreign exchange contracts | $ | 3.1 |  |  | $ | 3.8 |
Cross-currency contracts | $ | 1.2 |  |  | $ | 1.3 |
Non-derivative debt instruments | $ | 3.1 |  |  | $ | 3.0 |
(a)In billions. As of September 7, 2024 and December 30, 2023 approximately 9% of total debt was subject to variable rates. Debt Securities Held-to-Maturity As of September 7, 2024, we had $46 million of investments in foreign government treasury held-to-maturity debt securities recorded in cash and cash equivalents. As of December 30, 2023, we had $309 million of investments in commercial paper held-to-maturity debt securities 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 September 7, 2024 and December 30, 2023, gross unrecognized gains and losses and the allowance for expected credit losses were not material. Available-for-Sale There were no material impairment charges related to investments in available-for-sale debt securities in both the 36 weeks ended September 7, 2024 and September 9, 2023. There were unrealized gains of $347 million as of September 7, 2024 and no unrealized gains or losses as of September 9, 2023 related to investments in available-for-sale debt securities. Related to our Level 3 (significant unobservable inputs) investment in Celsius Holdings, Inc. (Celsius), we recorded an unrealized loss of $453 million and $265 million in other comprehensive income during the 12 and 36 weeks ended September 7, 2024, respectively. Additionally, we recorded a decrease in the investment of $7 million and $14 million due to cash dividends received during the 12 and 36 weeks ended September 7, 2024, respectively. There were no Level 3 investments in available-for-sale debt securities during the 36 weeks ended September 9, 2023. TBG Investment In the 36 weeks ended September 9, 2023, we recorded our proportionate 39% share of TBG’s impairment of indefinite-lived intangible assets, and recorded an other-than-temporary impairment of our equity method investment, both of which resulted in pre-tax impairment charges of $113 million ($86 million after-tax or $0.06 per share), recorded in selling, general and administrative expenses in our PBNA division. We estimated the fair value of our ownership in TBG using discounted cash flows and an option pricing model related to our liquidation preference in TBG, which we categorized as Level 3 in the fair value hierarchy. There were no impairment charges recorded in the 36 weeks ended September 7, 2024. Recurring Fair Value Measurements The fair values of our financial assets and liabilities as of September 7, 2024 and December 30, 2023 are categorized as follows:
|  |  | 9/7/2024 |  | 12/30/2023
| Fair Value Hierarchy Levels(a) |  | Assets(a) |  | Liabilities(a) |  | Assets(a) |  | Liabilities(a)
Available-for-sale debt securities (b) | 2,3 |  | $ | 1,061 |  |  | $ | — |  |  | $ | 1,334 |  |  | $ | — |
Index funds (c) | 1 |  | $ | 318 |  |  | $ | — |  |  | $ | 292 |  |  | $ | — |
Prepaid forward contracts (d) | 2 |  | $ | 17 |  |  | $ | — |  |  | $ | 13 |  |  | $ | — |
Deferred compensation (e) | 2 |  | $ | — |  |  | $ | 490 |  |  | $ | — |  |  | $ | 477 |
Derivatives designated as cash flow hedging instruments: |  |  |  |  |  |  |  |  |
Foreign exchange contracts (f) | 2 |  | $ | 35 |  |  | $ | 11 |  |  | $ | 3 |  |  | $ | 31 |
Cross-currency contracts (f) | 2 |  | — |  |  | 138 |  |  | 5 |  |  | 135 |
Commodity contracts (g) | 2 |  | 4 |  |  | 16 |  |  | 10 |  |  | 24 |
|  |  | $ | 39 |  |  | $ | 165 |  |  | $ | 18 |  |  | $ | 190 |
Derivatives designated as net investment hedging instruments: |  |  |  |  |  |  |  |  |
Cross-currency contracts (f) | 2 |  | $ | — |  |  | $ | 13 |  |  | $ | — |  |  | $ | — |
|  |  | $ | — |  |  | $ | 13 |  |  | $ | — |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Foreign exchange contracts (f) | 2 |  | $ | 17 |  |  | $ | 14 |  |  | $ | 33 |  |  | $ | 38 |
Commodity contracts (g) | 2 |  | 3 |  |  | 9 |  |  | 5 |  |  | 13 |
|  |  | $ | 20 |  |  | $ | 23 |  |  | $ | 38 |  |  | $ | 51 |
Total derivatives at fair value (h) |  |  | $ | 59 |  |  | $ | 201 |  |  | $ | 56 |  |  | $ | 241 |
Total |  |  | $ | 1,455 |  |  | $ | 691 |  |  | $ | 1,695 |  |  | $ | 718 |
(a)Fair value hierarchy levels are categorized consistently by Level 1 (quoted prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 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)Includes Level 2 assets of $184 million and Level 3 assets of $877 million as of September 7, 2024, and Level 2 assets of $178 million and Level 3 assets of $1,156 million as of December 30, 2023. As of September 7, 2024 and December 30, 2023, $1,061 million and $1,334 million were classified as other assets, respectively. The fair values of our Level 2 investments approximate the transaction price and any accrued returns, as well as the amortized cost. The fair value of our Level 3 investment in Celsius is estimated using probability-weighted discounted future cash flows based on a Monte Carlo simulation using significant unobservable inputs such as an 80% probability that a certain market-based condition will be met and an average estimated discount rate of 5.8% and 8.1% as of September 7, 2024 a nd December 30, 2023, respectively, based on Celsius’ estimated synthetic credit rating. An increase in the probability that certain market-based conditions will be met or a decrease in the discount rate would result in a higher fair value measurement, while a decrease in the probability that certain market-based conditions will be met or an increase in the discount rate would result in a lower fair value measurement. (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 September 7, 2024 and December 30, 2023 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 September 7, 2024 and December 30, 2023 was $42 billion and $41 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 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)
| 9/7/2024 |  | 9/9/2023 |  | 9/7/2024 |  | 9/9/2023
Foreign exchange contracts | $ | (33) |  |  | $ | 15 |  |  | $ | (3) |  |  | $ | 26 |
Cross-currency contracts | (15) |  |  | 23 |  |  | (21) |  |  | 31 |
Commodity contracts | 75 |  |  | 65 |  |  | 34 |  |  | 24 |
Total | $ | 27 |  |  | $ | 103 |  |  | $ | 10 |  |  | $ | 81 |
|  |  |  |  | 36 Weeks Ended
|  |  | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss |  | Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(a)
|  |  |  |  | 9/7/2024 |  | 9/9/2023 |  | 9/7/2024 |  | 9/9/2023
Foreign exchange contracts |  |  |  |  | $ | (48) |  |  | $ | 74 |  |  | $ | 15 |  |  | $ | 41 |
Cross-currency contracts |  |  |  |  | 19 |  |  | (3) |  |  | 14 |  |  | 4 |
Commodity contracts |  |  |  |  | 103 |  |  | 115 |  |  | 85 |  |  | 61 |
Total |  |  |  |  | $ | 74 |  |  | $ | 186 |  |  | $ | 114 |  |  | $ | 106 |
(a)Foreign exchange derivative losses/(gains) are included in net revenue and cost of sales. Cross-currency interest rate swap 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. Losses/(gains) on our net investment hedges are categorized as follows:
|  |  |  |  | 12 Weeks Ended
|  |  | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss |  | Losses/(Gains) Recognized in Net Income(a)
|  |  |  |  | 9/7/2024 |  | 9/9/2023 |  | 9/7/2024 |  | 9/9/2023
Non-derivative debt instruments |  |  |  |  | $ | 114 |  |  | $ | (68) |  |  | $ | — |  |  | $ | — |
Cross-currency contracts |  |  |  |  | 13 |  |  | — |  |  | (2) |  |  | — |
Total |  |  |  |  | $ | 127 |  |  | $ | (68) |  |  | $ | (2) |  |  | $ | — |
|  |  |  |  | 36 Weeks Ended
|  |  | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss |  | Losses/(Gains) Recognized in Net Income(a)
|  |  |  |  | 9/7/2024 |  | 9/9/2023 |  | 9/7/2024 |  | 9/9/2023
Non-derivative debt instruments |  |  |  |  | $ | 45 |  |  | $ | 40 |  |  | $ | — |  |  | $ | — |
Cross-currency contracts |  |  |  |  | 13 |  |  | — |  |  | (2) |  |  | — |
Total |  |  |  |  | $ | 58 |  |  | $ | 40 |  |  | $ | (2) |  |  | $ | — |
(a)Amount excluded from the assessment of effectiveness recognized in earnings associated with cross-currency interest rate swaps. Based on current market conditions, we expect to reclassify net losses of $62 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
| 9/7/2024 |  | 9/9/2023
| Cost of sales |  | Selling, general and administrative expenses |  | Total |  | Cost of sales |  | Selling, general and administrative expenses |  | Total
Foreign exchange contracts | $ | 1 |  |  | $ | (8) |  |  | $ | (7) |  |  | $ | — |  |  | $ | (7) |  |  | $ | (7) |
Commodity contracts | 24 |  |  | 36 |  |  | 60 |  |  | (9) |  |  | (65) |  |  | (74) |
Total | $ | 25 |  |  | $ | 28 |  |  | $ | 53 |  |  | $ | (9) |  |  | $ | (72) |  |  | $ | (81) |
| 36 Weeks Ended
| 9/7/2024 |  | 9/9/2023
| Cost of sales |  | Selling, general and administrative expenses |  | Total |  | Cost of sales |  | Selling, general and administrative expenses |  | Total
Foreign exchange contracts | $ | 1 |  |  | $ | 34 |  |  | $ | 35 |  |  | $ | (1) |  |  | $ | 32 |  |  | $ | 31 |
Commodity contracts | 9 |  |  | 16 |  |  | 25 |  |  | 27 |  |  | (12) |  |  | 15 |
Total | $ | 10 |  |  | $ | 50 |  |  | $ | 60 |  |  | $ | 26 |  |  | $ | 20 |  |  | $ | 46 |

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