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Derivative instruments | 6 Months Ended
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Jun. 29, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative instruments | Derivative instruments The Company is exposed to certain market risks such as changes in interest rates, foreign currency exchange rates, and price fluctuations, which exist as a part of its ongoing business operations. Management uses derivative and nonderivative financial and commodity instruments to manage these risks. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged. As a matter of policy, the Company does not engage in trading or speculative hedging transactions. Prior to the Spin-Off, the Company participated in Kellanova's hedging program, which uses derivative and nonderivative financial and commodity instruments, including futures, options, and swaps, where appropriate, to manage risks. Since these derivative instruments were entered into and settled by Kellanova for both the Company and Kellanova's other businesses, no asset or liability was recorded on the Company's Unaudited Consolidated Balance Sheets prior to the Spin-Off. However, an appropriate allocation of the gains/losses and fees associated with entering into derivative instruments has been included in the Company's Unaudited Consolidated Statements of Income for each period presented prior to the Spin-Off. After the Spin-Off, the Company has entered into its own derivative instruments. Derivative instruments are classified on the Unaudited Consolidated Balance Sheet based on the contractual maturity of the instrument or the timing of the underlying cash flows of the instrument for derivatives with contractual maturities beyond one year. Any collateral associated with derivative instruments is classified as Other assets or Other current liabilities on the Unaudited Consolidated Balance Sheet depending on whether the counterparty collateral is in an asset or liability position. Margin deposits related to exchange-traded commodities are recorded in accounts receivable, net on the Unaudited Consolidated Balance Sheet. On the Unaudited Consolidated Statement of Cash Flows, cash flows associated with derivative instruments are classified according to the nature of the underlying hedged item. Cash flows associated with collateral and margin deposits on exchange-traded commodities are classified as investing cash flows when the collateral account is in an asset position and as financing cash flows when the collateral account is in a liability position. Total notional amounts of the Company’s derivative instruments as of June 29, 2024 and December 30, 2023 were as follows:
(millions) | June 29, 2024 | December 30, 2023
Foreign currency exchange contracts | $ | 251 |  | $ | — |
Commodity contracts | 77 |  | — |
Total | $ | 328 |  | $ | — |
Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that were included in each category at June 29, 2024 and December 30, 2023, measured on a recurring basis. Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market. For the Company, level 1 financial assets and liabilities consist primarily of commodity derivative contracts. Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. For the Company, level 2 financial assets and liabilities consist of over-the-counter commodity and currency contracts. The Company’s calculation of the fair value of over-the-counter commodity derivatives are valued using an income approach based on the commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on forward rates less the contract rate multiplied by the notional amount. The Company’s calculation of the fair value of level 2 financial assets and liabilities takes into consideration the risk of nonperformance, including counterparty credit risk. The Company does not have any derivatives designated as hedging instruments. The following table presents assets and liabilities that were measured at fair value in the Unaudited Consolidated Balance Sheet on a recurring basis as of June 29, 2024 and December 30, 2023:
| June 29, 2024 |  | December 30, 2023
(millions) | Level 1 | Level 2 | Total |  | Level 1 | Level 2 | Total
Liabilities: |  |  |  |  |  |  |
Foreign currency exchange contracts: |  |  |  |  |  |  |
Other current liabilities | $ | — |  | $ | 1 |  | $ | 1 |  |  | $ | — |  | $ | — |  | $ | — |
Commodity contracts: |  |  |  |  |  |  |
Other current liabilities | 1 |  | — |  | 1 |  |  | — |  | — |  | — |
Total liabilities | $ | 1 |  | $ | 1 |  | $ | 2 |  |  | $ | — |  | $ | — |  | $ | — |
The effect of derivative instruments on the Company's Unaudited Consolidated Statement of Income for the quarters ended June 29, 2024 and July 1, 2023 was as follows:
| Gain (loss) recognized in cost of goods sold | Gain (loss) recognized in other income (expense), net
(millions) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023
Commodity contracts | $ | (1) |  | $ | (7) |  | $ | — |  | $ | — |
Foreign currency derivatives | $ | (2) |  | $ | (1) |  | $ | — |  | $ | — |
The effect of derivative instruments on the Company's Unaudited Consolidated Statement of Income for the year-to-date periods ended June 29, 2024 and July 1, 2023 was as follows:
| Gain (loss) recognized in cost of goods sold | Gain (loss) recognized in other income (expense), net
(millions) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023
Commodity contracts | $ | (1) |  | $ | (13) |  | $ | — |  | $ | — |
Foreign currency derivatives | $ | (2) |  | $ | 1 |  | $ | — |  | $ | — |
Counterparty credit risk concentration and collateral requirements The Company could incur losses in the event of nonperformance by counterparties to over-the-counter (OTC) financial and commodity derivatives contracts. Management believes risk of loss with respect to derivative contracts is limited due to the use of master netting agreements with credit-ratings based collateralization requirements for OTC derivatives and the use of exchange-traded commodity contracts. As of June 29, 2024, the Company was not in a material net asset position with any OTC derivatives counterparties.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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