Venezuela - Foreign Currency and Inflation (Notes)

9 Months Ended

Oct. 02, 2016

Venezuela - Foreign Currency and Inflation

We apply highly inflationary accounting to the results of our Venezuelan subsidiary and include these results in our condensed consolidated financial statements. Our results of operations in Venezuela reflect a controlled subsidiary. We continue to have sufficient currency liquidity and pricing flexibility to run our operations. However, the continuing economic uncertainty, strict labor laws, and evolving government controls over imports, prices, currency exchange and payments present a challenging operating environment. Increased restrictions imposed by the Venezuelan government or further deterioration of the economic environment could impact our ability to control our Venezuelan operations and could lead us to deconsolidate our Venezuelan subsidiary in the future.

At October 2, 2016, there were two exchange rates legally available to us for converting Venezuelan bolivars to U.S. dollars, including:


•	the official exchange rate of BsF10 per U.S. dollar available through the Sistema de Divisa Protegida (“DIPRO”), which is available for purchases and sales of essential items, including food products, and


•	an alternative exchange rate available through the Sistema de Divisa Complementaria (“DICOM”), which is available for all transactions not covered by DIPRO and is a free-floating exchange rate format.

The DICOM rate (formerly SIMADI) averaged BsF646 per U.S. dollar for the three months and BsF441 per U.S. dollar for the nine months ended October 2, 2016, and was BsF659 per U.S. dollar at October 2, 2016. During the three and nine months ended October 2, 2016, we have had access to U.S. dollars at DICOM rates. As of October 2, 2016, we believe that the DICOM rate is the most appropriate legally available rate at which to translate the results of our Venezuelan subsidiary.

We have had limited access to, and settlements at, the former official exchange rate of BsF6.30 per U.S. dollar during the three and nine months ended October 2, 2016 (as of March 10, 2016, the official exchange rate was devalued to BsF10 per U.S. dollar). We have had no settlements at the current official exchange rate of BsF10 per U.S. dollar during the three and nine months ended October 2, 2016. We had outstanding requests of $26 million at October 2, 2016 for payment of invoices for the purchase of ingredients and packaging materials for the years 2012 through 2015, all of which were requested for payment at BsF6.30 per U.S. dollar.

We remeasured the net monetary assets and operating results of our Venezuelan subsidiary, resulting in a nonmonetary currency devaluation gain of $6 million for the three months and loss of $1 million for the nine months ended October 2, 2016, which was recorded in other expense/(income), net, in the condensed consolidated statements of income for such periods. During the second quarter of 2016, the DICOM rate deteriorated significantly, from BsF276 per U.S. dollar as of April 3, 2016 to BsF628 per U.S. dollar as of July 3, 2016. Accordingly, as of July 3, 2016, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, resulting in a $53 million loss to write down property, plant and equipment, net, and prepaid spare parts, which was recorded within cost of products sold in the condensed consolidated statements of income for that period.

Prior to June 28, 2015, we used the official exchange rate of BsF6.30 per U.S. dollar to translate the results of our Venezuelan subsidiary. In June 2015, due to the continued lack of liquidity and increasing economic uncertainty, we reevaluated the rate used to remeasure the monetary assets and liabilities of our Venezuelan subsidiary. We determined that the DICOM rate was the most appropriate legally available rate. At June 28, 2015, we remeasured the net monetary assets of our Venezuelan subsidiary at the then SIMADI rate of BsF197.7 per U.S. dollar, resulting in a nonmonetary currency devaluation of $234 million, which was recorded in other expense/(income), net, in the condensed consolidated statements of income for the second quarter of 2015. Additionally, we assessed the nonmonetary assets of our Venezuelan subsidiary for impairment, which resulted in a $49 million loss to write down inventory to the lower of cost or market, which was recorded in cost of products sold in the condensed consolidated statements of income for the second quarter of 2015.

- Definition

The entire disclosure for foreign currency transactions and translation. This may include description of foreign currency transactions, foreign currency gains and losses, explanation of change in cumulative translation adjustment, description of effect of subsequent foreign currency exchange rate change, cumulative translation adjustment movement, foreign currency translation adjustment by component movement, translation adjustment for net investment hedge movement, adjustment for long-term intercompany transactions, schedule of long-term intercompany balances and any other foreign currency transactions and translation related items.

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