Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 29, 2013

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

The Company is exposed to fluctuations in foreign currency exchange rates on the earnings, cash flows and financial position of its international operations. Although this currency risk is partially mitigated by the natural hedge arising from the Company's local manufacturing in many markets, a strengthening U.S. dollar generally has a negative impact on the Company. In response to this fact, the Company uses financial instruments to hedge certain of its exposures and to manage the foreign exchange impact to its financial statements. At its inception, a derivative financial instrument used for hedging is designated as a fair value, cash flow or net equity hedge.

Fair value hedges are entered into with financial instruments such as forward contracts, with the objective of limiting exposure to certain foreign exchange risks primarily associated with accounts payable and non-permanent intercompany transactions. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings. In assessing hedge effectiveness, the Company excludes forward points, which are considered to be a component of interest expense. The forward points on fair value hedges resulted in pretax gains of $2.2 million and $2.7 million in the second quarters of 2013 and 2012, respectively, and pretax gains of $4.2 million and $5.6 million for the respective year-to-date periods.

The Company also uses derivative financial instruments to hedge foreign currency exposures resulting from certain forecasted purchases and classifies these as cash flow hedges. The Company's cash flow hedge contracts are for periods ranging from one to twelve months. The effective portion of the gain or loss on the hedging instrument is recorded in other comprehensive loss and is reclassified into earnings as the transactions being hedged are recorded. As such, the balance at the end of the reporting period in other comprehensive loss will be reclassified into earnings within the next twelve months. The associated asset or liability on the open hedges is recorded in other current assets or accrued liabilities, as applicable. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense. Forward points on cash flow hedges resulted in pretax expenses of $0.8 million and $0.4 million in the second quarters of 2013 and 2012, respectively, and in pretax expenses of $1.3 million for each of the respective year-to-date periods.

The Company also uses financial instruments, such as forward contracts, to hedge a portion of its net equity investment in international operations and classifies these as net equity hedges. Changes in the value of these derivative instruments, excluding any ineffective portion of the hedges, are included in foreign currency translation adjustments within accumulated other comprehensive loss. The Company recorded a net gain associated with these hedges, in other comprehensive income, net of tax, of $16.4 million and $18.9 million in the second quarters of 2013 and 2012, respectively and a net gain of $11.1 million and $4.6 million for the respective year-to-date periods. Due to the permanent nature of the investments, the Company does not anticipate reclassifying any portion of these amounts to the income statement in the next 12 months. In assessing hedge effectiveness, the Company excludes forward points, which are included as a component of interest expense. For the second quarters of 2013 and 2012, forward points on net equity hedges resulted in pretax expenses of $2.7 million and $3.4 million, respectively, and pretax expenses of $5.6 million and $7.2 million for the respective year-to-date periods.

While the Company's net equity and fair value hedges of non-permanent intercompany balances mitigate its exposure to foreign exchange gains or losses, they result in an impact to operating cash flows as they are settled, whereas the hedged items may not generate offsetting cash flows. The net cash flow impact of these currency hedges was an inflow of $4.5 million and$0.8 million for the year-to-date periods ended June 29, 2013 and June 30, 2012, respectively.

Following is a listing of the Company's outstanding derivative financial instruments at fair value as of June 29, 2013 and December 29, 2012. Related to the forward contracts, the “buy” amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the “sell” amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies, all translated at the period-end market exchange rates for the U.S. dollar. All forward contracts are hedging net investments in certain foreign subsidiaries, cross-currency intercompany loans that are not permanent in nature, cross-currency external payables and receivables or forecasted purchases. Some amounts are between two foreign currencies:

Forward Contracts	June 29, 2013				December 29, 2012
(in millions)	Buy		Sell		Buy		Sell
Euro	$	42.1			$	66.6
U.S. dollar	36.0				69.9
Philippine peso	12.8				9.9
South Korean won	7.6				3.0
Indonesian rupiah	3.2				11.3
Malaysian ringgit	3.1				17.2
South African rand	2.9						$	6.8
Uruguayan peso	2.7				0.9
Turkish lira	2.6						12.3
New Zealand dollar	2.0				1.4
Japanese yen			$	32.6			32.8
Mexican peso			15.6				22.0
Swiss franc			12.7				53.8
Canadian dollar			7.0				3.5
Russian ruble			6.2				5.7
Thai baht			3.9				3.3
Polish zloty			3.6				3.3
Indian rupee			3.2				3.7
Brazilian real			3.1				1.7
Australian dollar			3.0				15.5
Czech koruna			2.7				3.3
Danish krone			2.6		0.4
Argentine peso			2.5				—
Croatian kuna			2.5				2.5
Hungarian forint			2.3				3.3
Norwegian krone			1.4				1.9
Swedish krona			1.2				1.7
British pound			1.0				4.8
Other currencies (net)			2.9				2.6
	$	115.0	$	110.0	$	180.6	$	184.5

In agreements to sell foreign currencies in exchange for U.S. dollars, for example, an appreciating dollar versus the opposing currency would generate a cash inflow for the Company at settlement, with the opposite result in agreements to buy foreign currencies for U.S. dollars. The above noted notional amounts change based upon changes in the Company's outstanding currency exposures.

The following table summarizes the Company's derivative positions and the impact they have on the Company's financial position as of June 29, 2013 and December 29, 2012:

Derivatives designated as hedging instruments (in millions)	Asset derivatives					Liability derivatives
		Fair Value					Fair Value
	Balance sheet location	Jun 29, 2013		Dec 29, 2012		Balance sheet location	Jun 29, 2013		Dec 29, 2012
Foreign exchange contracts	Non-trade amounts receivable	$	22.7	$	13.1	Accrued liabilities	$	22.4	$	15.7

The following table summarizes the impact of the Company's derivative positions on the results of operations for the second quarters of 2013 and 2012:

Derivatives designated as fair value hedges (in millions)	Location of gain or (loss) recognized in income on derivatives	Amount of gain or (loss) recognized in income on derivatives						Location of gain or (loss) recognized in income on related hedged items	Amount of gain or (loss) recognized in income on related hedged items
		2013			2012				2013		2012
Foreign exchange contracts	Other expense	$	(23.9	)	$	(30.1	)	Other expense	$	23.8	$	29.9

The following table summarizes the impact of Company's derivative positions on comprehensive income for the second quarters of 2013 and 2012:

Derivatives designated as cash flow and net equity hedges (in millions)	Amount of gain or (loss) recognized in OCI on derivatives (effective portion)				Location of gain or (loss) reclassified from accumulated OCI into income (effective portion)	Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion)					Location of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)	Amount of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
Cash flow hedging relationships	2013		2012			2013		2012				2013			2012
Foreign exchange contracts	$	3.6	$	4.3	Cost of products sold	$	0.6	$	(0.6	)	Interest expense	$	(0.8	)	$	(0.4	)
Net equity hedging relationships
Foreign exchange contracts	25.6		29.7		Other expense	—		—			Interest expense	(2.7		)	(3.4		)

The following table summarizes the impact of the Company's derivative positions on the results of operations for the year-to-date periods ended June 29, 2013 and June 30, 2012:

Derivatives designated as fair value hedges (in millions)	Location of gain or (loss) recognized in income on derivatives	Amount of gain or (loss) recognized in income on derivatives						Location of gain or (loss) recognized in income on related hedged items	Amount of gain or (loss) recognized in income on related hedged items
		2013			2012				2013		2012
Foreign exchange contracts	Other expense	$	(12.1	)	$	(10.1	)	Other expense	$	12.1	$	10.1

The following table summarizes the impact of Company's derivative positions on comprehensive income for the year-to-date periods ended June 29, 2013 and June 30, 2012:

Derivatives designated as cash flow and net equity hedges (in millions)	Amount of gain or (loss) recognized in OCI on derivatives (effective portion)				Location of gain or (loss) reclassified from accumulated OCI into income (effective portion)	Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion)				Location of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)	Amount of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
Cash flow hedging relationships	2013		2012			2013		2012			2013			2012
Foreign exchange contracts	$	3.4	$	1.4	Cost of products sold	$	0.6	$	0.3	Interest expense	$	(1.3	)	$	(1.3	)
Net equity hedging relationships
Foreign exchange contracts	17.3		7.4		Other expense	—		—		Interest expense	(5.6		)	(7.2		)