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Derivative Instruments and Fair Value Measurements | 9 Months Ended
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Oct. 02, 2021
Derivative Instruments and Fair Value Measurements [Abstract] |
Derivative Instruments and Fair Value Measurements | Derivative instruments and fair value measurements The Company is exposed to certain market risks such as changes in interest rates, foreign currency exchange rates, and commodity prices, which exist as a part of its ongoing business operations. Management uses derivative and nonderivative financial instruments and commodity instruments, including futures, options, and swaps, where appropriate, to manage these risks. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged. The Company designates derivatives and nonderivative hedging instruments as cash flow hedges, fair value hedges, net investment hedges, and uses other contracts to reduce volatility in interest rates, foreign currency and commodities. As a matter of policy, the Company does not engage in trading or speculative hedging transactions. Derivative instruments are classified on the Consolidated Balance Sheet based on the contractual maturity of the instrument or the timing of the underlying cash flows of the instrument for derivatives with contractual maturities beyond one year. Any collateral associated with derivative instruments is classified as other assets or other current liabilities on the Consolidated Balance Sheet depending on whether the counterparty collateral is in an asset or liability position. Margin deposits related to exchange-traded commodities are recorded in accounts receivable, net on the Consolidated Balance Sheet. On the Consolidated Statement of Cash Flows, cash flows associated with derivative instruments are classified according to the nature of the underlying hedged item. Cash flows associated with collateral and margin deposits on exchange-traded commodities are classified as investing cash flows when the collateral account is in an asset position and as financing cash flows when the collateral account is in a liability position. Total notional amounts of the Company’s derivative instruments as of October 2, 2021 and January 2, 2021 were as follows:
(millions) | October 2, 2021 | January 2, 2021
Foreign currency exchange contracts | $ | 3,104 |  | $ | 2,856 |
Cross-currency contracts | 1,360 |  | 1,411 |
Interest rate contracts | 2,836 |  | 2,632 |
Commodity contracts | 393 |  | 314 |
Total | $ | 7,693 |  | $ | 7,213 |
Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that were included in each category at October 2, 2021 and January 2, 2021, measured on a recurring basis. Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market. For the Company, level 1 financial assets and liabilities consist primarily of commodity derivative contracts. Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. For the Company, level 2 financial assets and liabilities consist of interest rate swaps, cross-currency swaps and over-the-counter commodity and currency contracts. The Company’s calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve. Over-the-counter commodity derivatives are valued using an income approach based on the commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on forward rates less the contract rate multiplied by the notional amount. Cross-currency contracts are valued based on changes in the spot rate at the time of valuation compared to the spot rate at the time of execution, as well as the change in the interest differential between the two currencies. The Company’s calculation of the fair value of level 2 financial assets and liabilities takes into consideration the risk of nonperformance, including counterparty credit risk. Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. The Company did not have any level 3 financial assets or liabilities as of October 2, 2021 or January 2, 2021. The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of October 2, 2021 and January 2, 2021: Derivatives designated as hedging instruments
| October 2, 2021 |  | January 2, 2021
(millions) | Level 1 | Level 2 | Total |  | Level 1 | Level 2 | Total
Assets: |  |  |  |  |  |  |
Cross-currency contracts: |  |  |  |  |  |  |
Other current assets | $ | — |  | $ | 27 |  | $ | 27 |  |  | $ | — |  | $ | 14 |  | $ | 14 |
Other assets | — |  | 15 |  | 15 |  |  | — |  | 16 |  | 16 |
Interest rate contracts(a): |  |  |  |  |  |  |
Other current assets | — |  | 46 |  | 46 |  |  | — |  | — |  | — |
Other assets | — |  | 51 |  | 51 |  |  | — |  | 60 |  | 60 |
Total assets | $ | — |  | $ | 139 |  | $ | 139 |  |  | $ | — |  | $ | 90 |  | $ | 90 |
Liabilities: |  |  |  |  |  |  |
Cross-currency contracts: |  |  |  |  |  |  |
Other current liabilities | $ | — |  | $ | — |  | $ | — |  |  | $ | — |  | $ | (13) |  | $ | (13) |
Other Liabilities | — |  | (7) |  | (7) |  |  | — |  | (21) |  | (21) |
Interest rate contracts: |  |  |  |  |  |  |
Other current liabilities | — |  | — |  | — |  |  | — |  | (3) |  | (3) |
Total liabilities | $ | — |  | $ | (7) |  | $ | (7) |  |  | $ | — |  | $ | (37) |  | $ | (37) |
(a) The fair value of the related hedged portion of the Company's long-term debt, a level 2 liability, was $1.2 billion as of October 2, 2021 and $0.8 billion as of January 2, 2021. Derivatives not designated as hedging instruments
| October 2, 2021 |  | January 2, 2021
(millions) | Level 1 | Level 2 | Total |  | Level 1 | Level 2 | Total
Assets: |  |  |  |  |  |  |
Foreign currency exchange contracts: |  |  |  |  |  |  |
Other current assets | $ | — |  | $ | 30 |  | $ | 30 |  |  | $ | — |  | $ | 48 |  | $ | 48 |
Other assets | — |  | 3 |  | 3 |  |  | — |  | — |  | — |
Interest rate contracts: |  |  |  |  |  |  |
Other current assets | — |  | 4 |  | 4 |  |  | — |  | 4 |  | 4 |
Other assets | — |  | 4 |  | 4 |  |  | — |  | 13 |  | 13 |
Commodity contracts: |  |  |  |  |  |  |
Other current assets | 17 |  | — |  | 17 |  |  | 9 |  | — |  | 9 |
Total assets | $ | 17 |  | $ | 41 |  | $ | 58 |  |  | $ | 9 |  | $ | 65 |  | $ | 74 |
Liabilities: |  |  |  |  |  |  |
Foreign currency exchange contracts: |  |  |  |  |  |  |
Other current liabilities | $ | — |  | $ | (41) |  | $ | (41) |  |  | $ | — |  | $ | (73) |  | $ | (73) |
Other liabilities | — |  | (5) |  | (5) |  |  | — |  | (4) |  | (4) |
Interest rate contracts: |  |  |  |  |  |  |
Other current liabilities | — |  | (7) |  | (7) |  |  | — |  | (6) |  | (6) |
Other liabilities | — |  | (11) |  | (11) |  |  | — |  | (22) |  | (22) |
Commodity contracts: |  |  |  |  |  |  |
Other current liabilities | (1) |  | — |  | (1) |  |  | (1) |  | — |  | (1) |
Total liabilities | $ | (1) |  | $ | (64) |  | $ | (65) |  |  | $ | (1) |  | $ | (105) |  | $ | (106) |
The Company has designated its outstanding foreign currency denominated debt as a net investment hedge of a portion of the Company’s investment in its subsidiaries’ foreign currency denominated net assets. The carrying value of this debt, including current and long-term, was approximately $2.4 billion as of October 2, 2021 and $2.8 billion as of January 2, 2021. The following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for existing fair value hedges as of October 2, 2021 and January 2, 2021.
(millions) |  | Line Item in the Consolidated Balance Sheet in which the hedged item is included |  | Carrying amount of the hedged liabilities |  | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)
|  |  |  | October 2, 2021 | January 2, 2021 |  | October 2, 2021 | January 2, 2021
Interest rate contracts |  | Long-term debt |  | $ | 2,940 |  | $ | 2,568 |  |  | $ | 22 |  | $ | 25 |
(a) The hedged long-term debt includes $14 million and $16 million of hedging adjustment on discontinued hedging relationships as of October 2, 2021 and January 2, 2021, respectively. The Company has elected to not offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if the Company were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheet as of October 2, 2021 and January 2, 2021 would be adjusted as detailed in the following table:
As of October 2, 2021: |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |
| Amounts Presented in the Consolidated Balance Sheet | Financial Instruments | Cash Collateral Received/ Posted | Net Amount
Total asset derivatives | $ | 197 |  | $ | (59) |  | $ | — |  | $ | 138 |
Total liability derivatives | $ | (72) |  | $ | 59 |  | $ | 7 |  | $ | (6) |
As of January 2, 2021: |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |
| Amounts Presented in the Consolidated Balance Sheet | Financial Instruments | Cash Collateral Received/ Posted | Net Amount
Total asset derivatives | $ | 164 |  | $ | (116) |  | $ | — |  | $ | 48 |
Total liability derivatives | $ | (143) |  | $ | 116 |  | $ | 5 |  | $ | (22) |
The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the quarters ended October 2, 2021 and September 26, 2020 was as follows: Derivatives and non-derivatives in net investment hedging relationships
(millions) | Gain (loss) recognized in AOCI |  | Gain (loss) excluded from assessment of hedge effectiveness | Location of gain (loss) in income of excluded component
| October 2, 2021 |  | September 26, 2020 |  | October 2, 2021 |  | September 26, 2020 |
Foreign currency denominated long-term debt | $ | 57 |  |  | $ | (94) |  |  | $ | — |  |  | $ | — |  |
Cross-currency contracts | 30 |  |  | (61) |  |  | 5 |  |  | 8 |  | Interest expense
Total | $ | 87 |  |  | $ | (155) |  |  | $ | 5 |  |  | $ | 8 |  |
Derivatives not designated as hedging instruments
(millions) | Location of gain (loss) recognized in income | Gain (loss) recognized in income
|  | October 2, 2021 |  | September 26, 2020
Foreign currency exchange contracts | COGS | $ | 13 |  |  | $ | (3) |
Foreign currency exchange contracts | Other income (expense), net | (1) |  |  | (1) |
Foreign currency exchange contracts | SG&A | 1 |  |  | (1) |
Commodity contracts | COGS | 29 |  |  | 17 |
Total |  | $ | 42 |  |  | $ | 12 |
The effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the year-to-date periods ended October 2, 2021 and September 26, 2020 was as follows: Derivatives and non-derivatives in net investment hedging relationships
(millions) | Gain (loss) recognized in AOCI |  | Gain (loss) excluded from assessment of hedge effectiveness | Location of gain (loss) in income of excluded component
| October 2, 2021 |  | September 26, 2020 |  | October 2, 2021 |  | September 26, 2020 |
Foreign currency denominated long-term debt | $ | 128 |  |  | $ | (103) |  |  | $ | — |  |  | $ | — |  |
Cross-currency contracts | 47 |  |  | 1 |  |  | 15 |  |  | 26 |  | Interest expense
Total | $ | 175 |  |  | $ | (102) |  |  | $ | 15 |  |  | $ | 26 |  |
Derivatives not designated as hedging instruments
(millions) | Location of gain (loss) recognized in income | Gain (loss) recognized in income
|  | October 2, 2021 |  | September 26, 2020
Foreign currency exchange contracts | COGS | $ | (13) |  |  | $ | 43 |
Foreign currency exchange contracts | Other income (expense), net | (2) |  |  | 5 |
Foreign currency exchange contracts | SGA | 6 |  |  | 3 |
Interest rate contracts | Interest expense | 1 |  |  | 1 |
Commodity contracts | COGS | 96 |  |  | (33) |
Total |  | $ | 88 |  |  | $ | 19 |
The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the quarters ended October 2, 2021 and September 26, 2020:
|  |  |  |  |  | October 2, 2021 |  |  |  | September 26, 2020
(millions) |  |  |  | Interest Expense |  |  |  | Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded |  |  |  | $ | 55 |  |  |  |  | $ | 63 |
| Gain (loss) on fair value hedging relationships: |  |  |  |  |  |  |  |
| Interest contracts: |  |  |  |  |  |  |  |
| Hedged items |  |  |  | 3 |  |  |  |  | (2) |
| Derivatives designated as hedging instruments |  |  |  | (2) |  |  |  |  | 2 |
| Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |
| Interest contracts: |  |  |  |  |  |  |  |
| Amount of gain (loss) reclassified from AOCI into income |  |  |  | (4) |  |  |  |  | (4) |
The effect of fair value and cash flow hedge accounting on the Consolidated Income Statement for the year-to-date periods ended October 2, 2021 and September 26, 2020:
|  |  |  |  |  | October 2, 2021 |  |  |  | September 26, 2020
(millions) |  |  |  | Interest Expense |  |  |  | Interest Expense
Total amounts of income and expense line items presented in the Consolidated Income Statement in which the effects of fair value or cash flow hedges are recorded |  |  |  | $ | 172 |  |  |  |  | $ | 196 |
| Gain (loss) on fair value hedging relationships: |  |  |  |  |  |  |  |
| Interest contracts: |  |  |  |  |  |  |  |
| Hedged items |  |  |  | 3 |  |  |  |  | (5) |
| Derivatives designated as hedging instruments |  |  |  | (2) |  |  |  |  | 6 |
| Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |
| Interest contracts: |  |  |  |  |  |  |  |
| Amount of gain (loss) reclassified from AOCI into income |  |  |  | (19) |  |  |  |  | (11) |
During the next 12 months, the Company expects $17 million of net deferred losses reported in AOCI at October 2, 2021 to be reclassified to income, assuming market rates remain constant through contract maturities. Certain of the Company’s derivative instruments contain provisions requiring the Company to post collateral on those derivative instruments that are in a liability position if the Company’s credit rating is at or below BB+ (S&P), or Baa1 (Moody’s). The fair value of all derivative instruments with credit-risk-related contingent features in a liability position on October 2, 2021 was not material. In addition, certain derivative instruments contain provisions that would be triggered in the event the Company defaults on its debt agreements. There were no collateral posting as of October 2, 2021 triggered by credit-risk-related contingent features. Other fair value measurements Marketable Securities During the quarter and year-to-date periods ended September 26, 2020, the Company invested $50 million and $250 million, respectively, in a mutual fund holding short term debt securities. The investment was measured at fair value using the net asset value (NAV) per share as a practical expedient and as a result, this investment has not been classified in the fair value hierarchy. As of September 26, 2020, fair value using NAV was $250 million. Available for sale securities
| October 2, 2021 |  | January 2, 2021
|  | Unrealized |  |  |  | Unrealized |
(millions) | Cost | Gain (Loss) | Market Value |  | Cost | Gain (Loss) | Market Value
Corporate bonds | $ | 51 |  | $ | — |  | $ | 51 |  |  | $ | 62 |  | $ | 3 |  | $ | 65 |
During the year-to-date period ended October 2, 2021, the Company's investments in level 2 corporate bonds were sold for approximately $69 million resulting in a gain of $2 million, recorded in Other income and (expense). Also during the year-to-date period ended October 2, 2021, the Company invested approximately $56 million in level 2 corporate bonds. The market values of the Company's investments in level 2 corporate bonds are based on matrices or models from pricing vendors. Unrealized gains and losses are included in the Consolidated Statement of Comprehensive Income. Additionally, these investments are recorded within Other current assets and Other assets on the Consolidated Balance Sheet, based on the maturity of the individual security. The maturity dates of the securities range from 2022 to 2036. The Company reviews its investment portfolio for any unrealized losses that would be deemed other-than-temporary and requires the recognition of an impairment loss in earnings. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than its cost, the Company's intent to hold the investment, and whether it is more likely than not that the Company will be required to sell the investment before recovery of the cost basis. The Company also considers the type of security, related industry and sector performance, and published investment ratings. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. If conditions within individual markets, industry segments, or macro-economic environments deteriorate, the Company could incur future impairments. Financial instruments The carrying values of the Company’s short-term items, including cash, cash equivalents, accounts receivable, accounts payable, notes payable and current maturities of long-term debt approximate fair value. The fair value of the Company’s long-term debt, which are level 2 liabilities, is calculated based on broker quotes. The fair value and carrying value of the Company's long-term debt was $7.8 billion and $7.0 billion, respectively, as of October 2, 2021. The fair value and carrying value of the Company's long-term debt was $7.7 billion and $6.7 billion, respectively, as of January 2, 2021. Counterparty credit risk concentration and collateral requirements The Company is exposed to credit loss in the event of nonperformance by counterparties on derivative financial and commodity contracts. Management believes a concentration of credit risk with respect to derivative counterparties is limited due to the credit ratings and use of master netting and reciprocal collateralization agreements with the counterparties and the use of exchange-traded commodity contracts. Master netting agreements apply in situations where the Company executes multiple contracts with the same counterparty. Certain counterparties represent a concentration of credit risk to the Company. If those counterparties fail to perform according to the terms of derivative contracts, this would result in a loss to the Company of approximately $101 million, net of collateral already received from those counterparties, as of October 2, 2021. For certain derivative contracts, reciprocal collateralization agreements with counterparties call for the posting of collateral in the form of cash, treasury securities or letters of credit if a fair value loss position to the Company or its counterparties exceeds a certain amount. In addition, the Company is required to maintain cash margin accounts in connection with its open positions for exchange-traded commodity derivative instruments executed with the counterparty that are subject to enforceable netting agreements. As of October 2, 2021, the Company posted $7 million in margin deposits for exchange-traded commodity derivative instruments, which was reflected as an increase in accounts receivable, net on the Consolidated Balance Sheet. Management believes concentrations of credit risk with respect to accounts receivable is limited due to the generally high credit quality of the Company’s major customers, as well as the large number and geographic dispersion of smaller customers. However, the Company conducts a disproportionate amount of business with a small number of large multinational grocery retailers, with the five largest accounts encompassing approximately 22% of consolidated trade receivables at October 2, 2021.

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- Definition Derivative instruments and fair value measurements + References No definition available. + Details
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- Definition The entire disclosure for derivatives and fair value of assets and liabilities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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