Pepsi 2015 Annual Report Download - page 129

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Our foreign currency derivatives had a total notional value of $2.1 billion as of December 26, 2015 and $2.7
billion as of December 27, 2014. Ineffectiveness for derivatives that qualify for hedge accounting treatment
was not material for all periods presented. For foreign currency derivatives that do not qualify for hedge
accounting treatment, all losses and gains were offset by changes in the underlying hedged items, resulting
in no material net impact on earnings.
Interest Rates
We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax
consequences and overall financing strategies. We use various interest rate derivative instruments including,
but not limited to, interest rate swaps, cross-currency interest rate swaps, Treasury locks and swap locks to
manage our overall interest expense and foreign exchange risk. These instruments effectively change the
interest rate and currency of specific debt issuances. Certain of our fixed rate indebtedness has been swapped
to floating rates. The notional amount, interest payment and maturity date of the interest rate and cross-
currency interest rate swaps match the principal, interest payment and maturity date of the related debt. Our
Treasury locks and swap locks are entered into to protect against unfavorable interest rate changes relating
to forecasted debt transactions.
The notional values of the interest rate derivative instruments outstanding as of December 26, 2015 and
December 27, 2014 were $12.5 billion and $9.3 billion, respectively. Ineffectiveness for derivatives that
qualify for cash flow hedge accounting treatment was not material for all periods presented.
As of December 26, 2015, approximately 33% of total debt, after the impact of the related interest rate
derivative instruments, was exposed to variable rates, compared to approximately 25% as of December 27,
2014.
Available-for-Sale Securities
Investments in debt and marketable equity securities, other than investments accounted for under the equity
method, are classified as available-for-sale. All highly liquid investments with original maturities of three
months or less are classified as cash equivalents. Our investments in available-for-sale securities are reported
at fair value. Unrealized gains and losses related to changes in the fair value of available-for-sale securities
are recognized in accumulated other comprehensive loss within common shareholders’ equity. Unrealized
gains and losses on our investments in debt securities as of December 26, 2015 were not material. The pre-
tax unrealized gains on our investments in marketable equity securities were $115 million and $111 million
as of December 26, 2015 and December 27, 2014, respectively.
Changes in the fair value of available-for-sale securities impact net income only when such securities are
sold or an other-than-temporary impairment is recognized. We regularly review our investment portfolio to
determine if any security is other-than-temporarily impaired. In making this judgment, we evaluate, among
other things, the duration and extent to which the fair value of a security is less than its cost; the financial
condition of the issuer and any changes thereto; and our intent to sell, or whether we will more likely than
not be required to sell, the security before recovery of its amortized cost basis. Our assessment of whether
a security is other-than-temporarily impaired could change in the future due to new developments or changes
in assumptions related to any particular security. We recorded no other-than-temporary impairment charges
for the years ended December 26, 2015 and December 27, 2014.