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Financial Instruments
 8 Months Ended
Sep. 09, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments
Financial Instruments
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.
There have been no material changes during the 36 weeks ended September 9, 2017 with respect to our risk management policies or strategies and valuation techniques used in measuring the fair value of the financial assets or liabilities disclosed in Note 9 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
The notional amounts of our financial instruments used to hedge the above risks as of September 9, 2017 and December 31, 2016 are as follows:
 
Notional Amounts(a)
 
9/9/2017

 
12/31/2016

Foreign exchange
$
1.7

 
$
1.6

Interest rate
$
13.2

 
$
11.2

Commodity
$
0.8

 
$
0.8

Net investment
$
1.5

 
$
0.8

(a)
In billions.
Ineffectiveness for all derivatives and non-derivatives that qualify for hedge accounting treatment was not material for all periods presented.
As of September 9, 2017, approximately 45% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to approximately 38% as of December 31, 2016.
Fair Value Measurements
The fair values of our financial assets and liabilities as of September 9, 2017 and December 31, 2016 are categorized as follows:
 
9/9/2017
 
12/31/2016
 
Assets(a)
 
Liabilities(a)
 
Assets(a)
 
Liabilities(a)
Available-for-sale securities:


 


 


 


Equity securities (b)
$
—

 
$
—

 
$
82

 
$
—

Debt securities (c)
13,886

 
—

 
11,369

 
—

 
$
13,886

 
$
—

 
$
11,451

 
$
—

Short-term investments (d)
$
210

 
$
—

 
$
193

 
$
—

Prepaid forward contracts (e)
$
25

 
$
—

 
$
25

 
$
—

Deferred compensation (f)
$
—

 
$
486

 
$
—

 
$
472

Derivatives designated as fair value hedging instruments:
 
 
 
 
 
 
 
Interest rate (g)
$
71

 
$
39

 
$
66

 
$
71

Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
 
 
Foreign exchange (h)
$
15

 
$
73

 
$
51

 
$
8

Interest rate (h)
—

 
252

 
—

 
408

Commodity (i)
1

 
3

 
2

 
1

 
$
16

 
$
328

 
$
53

 
$
417

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange (h)
$
10

 
$
8

 
$
2

 
$
15

Commodity (i)
50

 
26

 
61

 
26

 
$
60

 
$
34

 
$
63

 
$
41

Total derivatives at fair value (j)
$
147

 
$
401

 
$
182

 
$
529

Total
$
14,268

 
$
887

 
$
11,851

 
$
1,001

(a)
Unless otherwise noted, financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets. Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities. Unless specifically indicated, all financial assets and liabilities are categorized as Level 2 assets or liabilities.
(b)
Based on the price of common stock. Categorized as a Level 1 asset. These equity securities were classified as investments in noncontrolled affiliates. In the second quarter of 2017, we recognized a pre-tax gain of $95 million ($85 million after-tax or $0.06 per share), net of discount and fees, associated with the sale of our minority stake in Britvic. As of December 31, 2016, the pre-tax unrealized gain on these available-for-sale equity securities was $72 million.
(c)
Based on quoted broker prices or other significant inputs derived from or corroborated by observable market data. As of September 9, 2017, $6.1 billion and $7.8 billion of debt securities were classified as cash equivalents and short-term investments, respectively. As of December 31, 2016, $4.6 billion and $6.8 billion of debt securities were classified as cash equivalents and short-term investments, respectively. Unrealized gains and losses on our investments in debt securities as of September 9, 2017 and December 31, 2016 were not material. All of our available-for-sale debt securities have maturities of one year or less.
(d)
Based on the price of index funds. Categorized as a Level 1 asset. These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability.
(e)
Based primarily on the price of our common stock.
(f)
Based on the fair value of investments corresponding to employees’ investment elections.
(g)
Based on LIBOR forward rates.
(h)
Based on recently reported market transactions of spot and forward rates.
(i)
Based on recently reported market transactions, primarily swap arrangements.
(j)
Unless otherwise noted, derivative assets and liabilities are presented on a gross basis on our balance sheet. Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on the balance sheet as of September 9, 2017 and December 31, 2016 were not material. Collateral received against any of our asset positions was not material.
The carrying amounts of our cash equivalents and short-term investments approximate fair value due to their short-term maturity. The fair value of our debt obligations as of September 9, 2017 and December 31, 2016 was $41 billion and $38 billion, respectively, based upon prices of similar instruments in the marketplace, which are considered Level 2 inputs.
Losses/(gains) on our hedging instruments are categorized as follows:
 
12 Weeks Ended
 
Fair Value/Non-
designated Hedges
 
Cash Flow and Net Investment Hedges
 
Losses/(Gains)
Recognized in
Income Statement(a)
 
Losses/(Gains)
Recognized in
Accumulated Other
Comprehensive Loss
 
Losses/(Gains)
Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Statement(b)
 
9/9/2017

 
9/3/2016

 
9/9/2017

 
9/3/2016

 
9/9/2017

 
9/3/2016

Foreign exchange
$
16

 
$
22

 
$
47

 
$
(31
)
 
$
5

 
$
(4
)
Interest rate
(18
)
 
39

 
(102
)
 
36

 
(102
)
 
73

Commodity
(32
)
 
59

 
2

 
9

 
—

 
2

Net investment
—

 
—

 
118

 
8

 
—

 
—

Total
$
(34
)
 
$
120

 
$
65

 
$
22

 
$
(97
)
 
$
71

 
36 Weeks Ended
 
Fair Value/Non-
designated Hedges
 
Cash Flow and Net Investment Hedges
 
Losses/(Gains)
Recognized in
Income Statement(a)
 
Losses/(Gains)
Recognized in
Accumulated Other
Comprehensive Loss
 
Losses/(Gains)
Reclassified from
Accumulated Other
Comprehensive Loss
into Income
Statement(b)
 
9/9/2017

 
9/3/2016

 
9/9/2017

 
9/3/2016

 
9/9/2017

 
9/3/2016

Foreign exchange
$
4

 
$
60

 
$
83

 
$
9

 
$
(6
)
 
$
(37
)
Interest rate
(37
)
 
(40
)
 
(156
)
 
33

 
(180
)
 
71

Commodity
(12
)
 
4

 
3

 
4

 
3

 
8

Net investment
—

 
—

 
184

 
8

 
—

 
—

Total
$
(45
)
 
$
24

 
$
114

 
$
54

 
$
(183
)
 
$
42


(a)
Foreign exchange derivative losses/gains are primarily included in selling, general and administrative expenses. Interest rate derivative losses/gains are primarily from fair value hedges and are included in interest expense. These losses/gains are substantially offset by decreases/increases in the value of the underlying debt, which are also included in interest expense. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity.
(b)
Foreign exchange derivative losses/gains are primarily included in cost of sales. Interest rate derivative losses/gains are included in interest expense. Commodity derivative losses/gains are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity.
Based on current market conditions, we expect to reclassify net losses of $72 million related to our cash flow hedges from accumulated other comprehensive loss into net income during the next 12 months.
Tingyi-Asahi Beverages Holding Co. Ltd.
During the first quarter of 2016, we concluded that the decline in estimated fair value of our 5% indirect equity interest in TAB was other than temporary based on significant negative economic trends in China and changes in assumptions associated with TAB’s future financial performance arising from the disclosure by TAB’s parent company, Tingyi, regarding the operating results of its beverage business. As a result, we recorded a pre- and after-tax impairment charge of $373 million ($0.26 per share) in the first quarter of 2016 in the AMENA segment. This charge was recorded in selling, general and administrative expenses on our income statement and reduced the value of our 5% indirect equity interest in TAB to its estimated fair value. The estimated fair value was derived using both an income and market approach, and is considered a non-recurring Level 3 measurement within the fair value hierarchy. The carrying value of the investment in TAB was $166 million as of September 9, 2017. We continue to monitor the impact of economic and other developments on the remaining value of our investment in TAB.
See further unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.