Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2022
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):
September 30, 2022 Level 1 Level 2 Level 3
Other3
Netting
Adjustment
4
 Fair Value
Measurements
Assets:          
Equity securities with readily determinable values1
$ 1,719  $ 185  $ 17  $ 91  $ —  $ 2,012 
Debt securities1
—  1,881  9 

—  —  1,890 
Derivatives2
72  648  —  —  (537)

183 
7
Total assets $ 1,791  $ 2,714  $ 26  $ 91  $ (537) $ 4,085 
Liabilities:          
Contingent consideration liability $ —  $ —  $ 1,561 
5
 $ —  $ —  $ 1,561 
Derivatives2
6  1,891  —  —  (1,817)
6
 80 
7
Total liabilities $ 6  $ 1,891  $ 1,561  $ —  $ (1,817) $ 1,641 
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 are 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 future milestone payments related to our acquisition of fairlife in 2020, which are contingent on fairlife achieving certain financial targets through 2024 and, if achieved, are payable in 2023 and 2025. These milestone payments are based on agreed-upon formulas related to fairlife’s operating results, the resulting values of which are not subject to a ceiling. The fair value was determined using a Monte Carlo valuation model.
6The Company has the right to reclaim $1,325 million in cash collateral it has netted against its derivative positions.
7The Company’s derivative financial instruments are recorded at fair value in our consolidated balance sheet as follows: $90 million in the line item prepaid expenses and other current assets, $93 million in the line item other noncurrent assets and $80 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, 2021 Level 1 Level 2 Level 3
Other3
Netting
Adjustment
4
 Fair Value
Measurements
Assets:  
 
      
Equity securities with readily determinable values1
$ 2,372  $ 230  $ 17  $ 104  $ —  $ 2,723 
Debt securities1
—  1,556  33  —  —  1,589 
Derivatives2
69  588  —  —  (459)
6
 198 
8
Total assets $ 2,441  $ 2,374  $ 50  $ 104  $ (459) $ 4,510 
Liabilities:          
Contingent consideration liability $ —  $ —  $ 590 
5
 $ —  $ —  $ 590 
Derivatives2
—  96  —  —  (82)
7
 14 
8
Total liabilities $ —  $ 96  $ 590  $ —  $ (82) $ 604 
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 are 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 future milestone payments related to our acquisition of fairlife in 2020, which are contingent on fairlife achieving certain financial targets through 2024 and, if achieved, are payable in 2023 and 2025. These milestone payments are based on agreed-upon formulas related to fairlife’s operating results, the resulting values of which are not subject to a ceiling. The fair value was determined using a Monte Carlo valuation model.
6The Company is obligated to return $331 million in cash collateral it has netted against its derivative positions.
7The Company does not have the right to reclaim any cash collateral it has netted against its derivative positions.
8The Company’s derivative financial instruments are recorded at fair value in our consolidated balance sheet as follows: $198 million in the line item other noncurrent assets and $14 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 were not significant for the three and nine months ended September 30, 2022 and October 1, 2021.
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 nine months ended September 30, 2022 and October 1, 2021.
Nonrecurring Fair Value Measurements
The gains and losses on assets measured at fair value on a nonrecurring basis are summarized in the following table (in millions):
Gains (Losses)  
 
Three Months Ended Nine Months Ended
 
September 30,
2022		   October 1,
2021		 September 30,
2022		   October 1,
2021
 
Assets held for sale $ —  $ (266)
2
 $ —  $ (266)
2
Other-than-temporary impairment charges —  —  (96)
3
 — 
Impairment of intangible assets (57)
1
 —  (57)
1
 — 
Valuation of shares in equity method investee —  —  (24)
4
 — 
Total $ (57)   $ (266)   $ (177) $ (266)
1During the three and nine months ended September 30, 2022, the Company recorded an impairment charge of $57 million related to a trademark in Asia Pacific, which was primarily driven by a change in brand strategy resulting in revised projections of future operating results for the trademark. The fair value of this trademark was derived using discounted cash flow analyses based on Level 3 inputs.
2The Company is required to record assets and liabilities that are held for sale at the lower of carrying value or fair value less any costs to sell based on the agreed-upon sale price. During the three and nine months ended October 1, 2021, the Company recorded charges of $266 million in the line item other income (loss) — net related to the restructuring of our manufacturing operations in the United States. These charges, which were calculated based on Level 3 inputs, primarily impacted the line item property, plant and equipment in our consolidated balance sheet.
3The Company recorded an other-than-temporary impairment charge of $96 million during the nine months ended September 30, 2022 related to an equity method investee in Russia. This impairment charge was derived using Level 3 inputs and was primarily driven by revised projections of future operating results.
4During the nine months ended September 30, 2022, we recognized a net loss of $24 million on assets measured at fair value on a nonrecurring basis. The net loss was recorded as a result of an equity method investee issuing additional shares of its stock. Accordingly, the Company is required to treat this type of transaction as if the Company had sold a proportionate share of its investment. This net loss was determined using Level 2 inputs and primarily resulted from the recognition of cumulative translation losses.
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 September 30, 2022, the carrying value and fair value of our long-term debt, including the current portion, were $36,191 million and $30,942 million, respectively. As of December 31, 2021, the carrying value and fair value of our long-term debt, including the current portion, were $39,454 million and $40,311 million, respectively.