Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 6 Months Ended
Jun. 28, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following tables summarize assets and liabilities measured at fair value on a recurring basis (in millions):
June 28, 2024 Level 1 Level 2 Level 3
Other3
Netting
Adjustment
4
 Fair Value
Measurements
Assets:          
Equity securities with readily determinable values1
$ 1,890  $ 150  $ 6  $ 88  $ —  $ 2,134 
Debt securities1
—  1,583  — 

—  —  1,583 
Derivatives2
—  425  —  —  (317)
6
 108 
8
Total assets $ 1,890  $ 2,158  $ 6  $ 88  $ (317) $ 3,825 
Liabilities:          
Contingent consideration liability $ —  $ —  $ 5,119 
5
 $ —  $ —  $ 5,119 
Derivatives2
2  1,434  —  —  (1,377)
7
 59 
8
Total liabilities $ 2  $ 1,434  $ 5,119  $ —  $ (1,377) $ 5,178 
1Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.
2Refer to Note 6 for additional information related to the composition of our derivatives portfolio.
3Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.
4Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties. There were no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements. Refer to Note 6.
5Represents the fair value of the remaining milestone payment related to our acquisition of fairlife in 2020, which is contingent on fairlife achieving certain financial targets through 2024 and, if achieved, is payable in 2025. This milestone payment is based on agreed-upon formulas related to fairlife’s operating results, the resulting value of which is not subject to a ceiling. The fair value was determined using discounted cash flow analyses. We are required to remeasure this liability to fair value quarterly, with any changes in the fair value recorded in income until the final milestone payment is made.
6The Company is obligated to return $4 million in cash collateral it has netted against its derivative position.
7The Company has the right to reclaim $1,065 million in cash collateral it has netted against its derivative position.
8The Company’s derivative financial instruments were recorded at fair value in our consolidated balance sheet as follows: $54 million in the line item prepaid expenses and other current assets, $54 million in the line item other noncurrent assets, and $59 million in the line item other noncurrent liabilities. Refer to Note 6 for additional information related to the composition of our derivatives portfolio.
December 31, 2023 Level 1 Level 2 Level 3
Other3
Netting
Adjustment
4
 Fair Value
Measurements
Assets:  
 
      
Equity securities with readily determinable values1
$ 1,727  $ 188  $ 6  $ 85  $ —  $ 2,006 
Debt securities1
—  1,172  3  —  —  1,175 
Derivatives2
—  275  —  —  (222)
6
 53 
8
Total assets $ 1,727  $ 1,635  $ 9  $ 85  $ (222) $ 3,234 
Liabilities:          
Contingent consideration liability $ —  $ —  $ 3,017 
5
 $ —  $ —  $ 3,017 
Derivatives2
3  1,445  —  —  (1,256)
7
 192 
8
Total liabilities $ 3  $ 1,445  $ 3,017  $ —  $ (1,256) $ 3,209 
1Refer to Note 4 for additional information related to the composition of our equity securities with readily determinable values and debt securities.
2Refer to Note 6 for additional information related to the composition of our derivatives portfolio.
3Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in Note 4.
4Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle net positive and negative positions and also cash collateral held or placed with the same counterparties. There were no amounts subject to legally enforceable master netting agreements that management has chosen not to offset or that do not meet the offsetting requirements. Refer to Note 6.
5Represents the fair value of the remaining milestone payment related to our acquisition of fairlife in 2020, which is contingent on fairlife achieving certain financial targets through 2024 and, if achieved, is payable in 2025. This milestone payment is based on agreed-upon formulas related to fairlife’s operating results, the resulting value of which is not subject to a ceiling. The fair value was determined using a Monte Carlo valuation model. We are required to remeasure this liability to fair value quarterly, with any changes in the fair value recorded in income until the final milestone payment is made. The Company made a milestone payment of $275 million during 2023.
6The Company was obligated to return $4 million in cash collateral it had netted against its derivative position.
7The Company had the right to reclaim $1,039 million in cash collateral it had netted against its derivative position.
8The Company’s derivative financial instruments were recorded at fair value in our consolidated balance sheet as follows: $53 million in the line item other noncurrent assets and $192 million in the line item other noncurrent liabilities. Refer to Note 6 for additional information related to the composition of our derivatives portfolio.
Gross realized and unrealized gains and losses on Level 3 assets and liabilities, excluding the contingent consideration liability, were not significant for the three and six months ended June 28, 2024 and June 30, 2023.
The Company recognizes transfers between levels within the hierarchy as of the beginning of the reporting period. Gross transfers between levels within the hierarchy were not significant for the three and six months ended June 28, 2024 and June 30, 2023.
Nonrecurring Fair Value Measurements
During the three and six months ended June 28, 2024, the Company recorded an other-than-temporary impairment charge of $34 million related to an equity method investee in Latin America. This impairment charge was derived using Level 3 inputs and was primarily driven by revised projections of future operating results.
During the six months ended June 28, 2024, the Company recorded an asset impairment charge of $760 million related to our BodyArmor trademark in North America, which was primarily driven by revised projections of future operating results and higher discount rates resulting from changes in macroeconomic conditions since the acquisition date. The fair value of this trademark was derived using discounted cash flow analyses based on Level 3 inputs. This charge was recorded in the line item other operating charges in our consolidated statement of income. The remaining carrying value of the trademark is $3,400 million.
During the three and six months ended June 30, 2023, the Company recorded an asset impairment charge of $25 million related to the discontinuation of certain manufacturing operations in Asia Pacific. This impairment charge was derived using Level 3 inputs and was primarily driven by management’s best estimate of the potential proceeds from the disposal of the related assets.
Other Fair Value Disclosures
The carrying values of cash and cash equivalents, short-term investments, trade accounts receivable, accounts payable and accrued expenses, and loans and notes payable approximate their fair values because of the relatively short-term maturities of these financial instruments. The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for those instruments. Where quoted prices are not available, the fair value is estimated using discounted cash flows and market-based expectations for interest rates, credit risk and the contractual terms of the debt instruments. As of June 28, 2024, the
carrying value and fair value of our long-term debt, including the current portion, were $40,024 million and $35,137 million, respectively. As of December 31, 2023, the carrying value and fair value of our long-term debt, including the current portion, were $37,507 million and $33,445 million, respectively.