XML 36 R21.htm IDEA: XBRL DOCUMENT v3.6.0.2
Derivative Instruments (Notes)
 12 Months Ended
Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block] Derivative Instruments

We use derivative instruments to manage certain of our market risks related to fluctuations in interest rates and foreign currency exchange rates.

Interest Rate Swaps

We enter into interest rate swaps with the objective of reducing our exposure to interest rate risk for a portion of our variable-rate debt interest payments. On July 25, 2016, we agreed with multiple counterparties to swap the variable LIBOR-based component of the interest payments related to $1.55 billion of our $2.0 billion Term Loan B Facility, resulting in a fixed rate of 3.92% on the swapped portion of the Term Loan B Facility. These interest rate swaps will expire in July 2021 and the notional amount, maturity date and variable rate of these swaps match those of the related debt. These interest rate swaps are designated cash flow hedges as the changes in the future cash flows of the swaps are expected to offset changes in interest payments on the related variable-rate debt. There were no other interest rate swaps outstanding as of December 31, 2016.

The effective portion of gains or losses on the interest rate swaps is reported as a component of Accumulated other comprehensive income ("AOCI") and reclassified into Interest expense, net in our Consolidated Statement of Income in the same period or periods during which the related hedged interest payments affect earnings. Gains or losses on the swaps representing hedge ineffectiveness are recognized in current earnings. As of December 31, 2016, the swaps were highly effective cash flow hedges and no ineffectiveness has been recorded.

Foreign Currency Contracts

We enter into foreign currency forward and swap contracts with the objective of reducing our exposure to earnings volatility arising from foreign currency fluctuations associated with certain foreign currency denominated intercompany receivables and payables. The notional amount, maturity date, and currency of these contracts match those of the underlying intercompany receivables or payables. Our foreign currency contracts are designated cash flow hedges as the future cash flows of the contracts are expected to offset changes in intercompany receivables and payables due to foreign currency exchange rate fluctuations.

The effective portion of gains or losses on the foreign currency contracts is reported as a component of AOCI. Amounts are reclassified from AOCI each quarter to offset foreign currency transaction gains or losses recorded within Other (income) expense when the related intercompany receivables and payables affect earnings due to their functional currency remeasurements. Gains or losses on the foreign currency contracts representing hedge ineffectiveness are recognized in current earnings. As of December 31, 2016, all foreign currency contracts were highly effective cash flow hedges and no ineffectiveness has been recorded.

As of December 31, 2016 and December 26, 2015, foreign currency forward and swap contracts outstanding had total notional amounts of $437 million and $470 million, respectively. As of December 31, 2016 we have foreign currency forward and swap contracts with durations expiring as early as January 2017 and as late as 2020.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we only enter into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. At December 31, 2016, all of the counterparties to our interest rate swaps and foreign currency contracts had investment grade ratings according to the three major ratings agencies. To date, all counterparties have performed in accordance with their contractual obligations.

Gains and losses on derivative instruments designated as cash flow hedges recognized in OCI and reclassifications from AOCI into Net Income:

 
Gains/(Losses) Recognized in OCI
 
(Gains)/Losses Reclassified from AOCI into Net Income
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Interest rate swaps
$
47

 
$
—

 
$
(4
)
 
$
—

Foreign currency contracts
1

 
32

 
(4
)
 
(41
)
Income tax benefit/(expense)
(19
)
 
(4
)
 
3

 
5



As of December 31, 2016, the estimated net gain included in AOCI related to our cash flow hedges that will be reclassified into earnings in the next 12 months is $3 million, based on current LIBOR interest rates.

See Note 14 for the fair value of our derivative assets and liabilities.