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Market Risks
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 the normal course of business, we manage commodity price, foreign exchange and interest rate risks
through a variety of strategies, including productivity initiatives, global purchasing programs and hedging.
Ongoing productivity initiatives involve the identification and effective implementation of meaningful cost-
saving opportunities or efficiencies, including the use of derivatives. Our global purchasing programs include
fixed-price contracts and purchase orders and pricing agreements. See “Item 1A. Risk Factors” for further
discussion of our market risks, and see “Our Liquidity and Capital Resources” for further information on
our non-cancelable purchasing commitments.
The fair value of our derivatives fluctuates based on market rates and prices. The sensitivity of our derivatives
to these market fluctuations is discussed below. See Note 9 to our consolidated financial statements for further
discussion of these derivatives and our hedging policies. See “Our Critical Accounting Policies” for a
discussion of the exposure of our pension and retiree medical plan assets and liabilities to risks related to
market fluctuations.
Inflationary, deflationary and recessionary conditions impacting these market risks also impact the demand
for and pricing of our products. See “Item 1A. Risk Factors” for further discussion.
Commodity Prices
Our commodity derivatives had a total notional value of $1.1 billion as of December 28, 2019 and
December 29, 2018. At the end of 2019, the potential change in fair value of commodity derivative
instruments, assuming a 10% decrease in the underlying commodity price, would have increased our net
unrealized losses in 2019 by $106 million.
Foreign Exchange
Our operations outside of the United States generated 42% of our consolidated net revenue in 2019, with
Mexico, Russia, Canada, the United Kingdom, China and Brazil, collectively, comprising approximately
22% of our consolidated net revenue in 2019. As a result, we are exposed to foreign exchange risks in the
international markets in which our products are made, manufactured, distributed or sold. Additionally, we
are exposed to foreign exchange risk from net investments in foreign subsidiaries, foreign currency purchases,
foreign currency assets and liabilities created in the normal course of business, as well as the proposed
acquisition of Pioneer Foods. During 2019, unfavorable foreign exchange reduced net revenue growth by 2
percentage points, reflecting declines in the euro, Turkish lira, Brazilian real, Russian ruble and Argentine
peso. Currency declines against the U.S. dollar which are not offset could adversely impact our future financial
results.
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In addition, volatile economic, political and social conditions and civil unrest in certain markets in which
our products are made, manufactured, distributed or sold, including in Argentina, Brazil, China, Mexico, the
Middle East, Russia and Turkey, and currency controls or fluctuations in certain of these international markets,
continue to, and the threat or imposition of new or increased tariffs or sanctions or other impositions in or
related to these international markets may, result in challenging operating environments. We also continue
to monitor the economic and political developments related to the United Kingdom’s withdrawal from the
European Union, including how the United Kingdom will interact with other European Union countries
following its departure, as well as the economic, operating and political environment in Russia and the
potential impact for the Europe segment and our other businesses.
Our foreign currency derivatives had a total notional value of $1.9 billion as of December 28, 2019 and $2.0
billion as of December 29, 2018. At the end of 2019, we estimate that an unfavorable 10% change in the
underlying exchange rates would have increased our net unrealized losses in 2019 by $135 million.
The total notional amount of our debt instruments designated as net investment hedges was $2.5 billion as
of December 28, 2019 and $0.9 billion as of December 29, 2018.
Interest Rates
Our interest rate derivatives had a total notional value of $5.0 billion as of December 28, 2019 and $10.5
billion as of December 29, 2018.
Assuming year-end 2019 investment levels and variable rate debt, a 1-
percentage-point increase in interest rates would have decreased our net interest expense in 2019 by $25
million due to higher cash and cash equivalents as compared with our variable rate debt.
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