Derivative Financial Instruments

12 Months Ended

Dec. 27, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Our derivative financial instruments reduce our exposure to fluctuations in foreign exchange rates and bunker fuel prices. We predominantly designate our derivative financial instruments as cash flow hedges.

Counterparties expose us to credit loss in the event of non-performance on hedges.  We monitor our exposure to counterparty non-performance risk both at inception of the hedge and at least quarterly thereafter.  However, because the contracts are entered into with highly rated financial institutions, we do not anticipate non-performance by any of these counterparties.  The exposure is usually the amount of the unrealized gains, if any, in such contracts.

Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the cash flows or fair value of the underlying exposures being hedged.  In addition, we perform an assessment of hedge effectiveness, both at inception and at least quarterly thereafter, to determine whether the financial instruments that are used in hedging transactions are effective at offsetting changes in the cash flows or fair value of the related underlying exposures. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized in earnings.

Certain of our derivative instruments contain provisions that require the current credit relationship between us and our counterparty to be maintained throughout the term of the derivative instruments.  If that credit relationship changes, certain provisions could be triggered, and the counterparty could request immediate collateralization of derivative instruments in net liability position above a certain threshold.  The aggregate fair value of all derivative instruments with a credit-risk-related contingent feature that are in a liability position on December 27, 2013 is $0.4 million.  As of December 27, 2013, no triggering event has occurred and thus we are not required to post collateral.  If the credit-risk-related contingent features underlying these agreements were triggered on December 27, 2013, we would not be required to post collateral to its counterparty because the collateralization threshold has not been met.

Foreign Currency Hedges

We are exposed to fluctuations in currency exchange rates against the U.S. dollar on our results of operations and financial condition and we mitigate that exposure by entering into foreign currency forward contracts. Certain of our subsidiaries periodically enter into foreign currency forward contracts in order to hedge portions of forecasted sales or cost of sales denominated in foreign currencies with forward contracts and options, which generally expire within 1 year. At December 27, 2013, certain of our foreign currency forward contracts will hedge our 2014 and 2015 foreign currency exposure.

We designate our foreign currency forward contracts as single-purpose cash flow hedges of forecasted cash flows.  Based on our formal assessment of hedge effectiveness of our foreign currency forward contracts, we determined that the impact of hedge ineffectiveness was de minimis for the years ended December 27, 2013, December 28, 2012 and December 30, 2011.

Bunker Fuel Hedges

We are exposed to fluctuations in bunker fuel prices on our results of operations and financial condition and can mitigate that exposure by entering into bunker fuel swap agreements, which permit us to lock in bunker fuel purchase prices. We had no bunker fuel hedges outstanding as of December 27, 2013. We had $0.1 million in bunker fuel hedges outstanding as of December 28, 2012.

Other Derivative Instruments

We entered into derivative instruments not designated as hedging instruments, also referred to as economic hedges, in order to minimize the impact of fluctuation in foreign exchange relative to the Korean won in 2011 and recognized a gain of $0.2 million for the year then ended, related to these derivative instruments included in other income (expense), net in our Consolidated Statements of Income. We did not have economic hedges for the years ended December 27, 2013 and December 28, 2012.  

18.  Derivative Financial Instruments (continued)

We had the following outstanding foreign currency forward contracts as of December 27, 2013:

Foreign Currency Contracts Qualifying as Cash Flow Hedges:		Notional Amount
Euro	€	243.6	million
British pound	£	16.4	million
Japanese yen	JPY	1,181.2	million
Costa Rican colon	CRC	18,298.0	million
Philippine peso	PHP	23.7	million
Korean won	KRW	37,695.0	million
Poland zloty	PLN	9.5	million
Chilean peso	CLP	5,445.6	million

The following table reflects the fair values of derivative instruments as of December 27, 2013 (U.S. dollars in millions):

Derivatives Designated as Hedging Instruments (1)
	Foreign exchange contracts				Bunker fuel swap agreements
Balance Sheet Location:	December 27, 2013 (2)		December 28, 2012		December 27, 2013		December 28, 2012
Asset derivatives:
Prepaid expenses and other current assets	$	2.8	$	4.6	$	—	$	0.1
Other noncurrent assets	—		—		—		—
Total asset derivatives	$	2.8	$	4.6	$	—	$	0.1
Liability derivatives:
Accounts payable and accrued expenses	$	5.3	$	18.4	$	—	$	0.1
Other noncurrent liabilities	0.8		0.1		—		—
Total liability derivatives	$	6.1	$	18.5	$	—	$	0.1

⁽¹⁾ See Note 19, "Fair Value Measurements", for fair value disclosures.

⁽²⁾ We expect that $(2.5) million and $(0.8) million of the net fair value of hedges recognized as a net loss in accumulated other comprehensive income ("AOCI") will be transferred to earnings during the next 12 months and in 2015, respectively, along with the effect of the related forecasted transaction.

The fair value of our derivatives changed from a net liability of $(13.8) million as of December 28, 2012 to a net liability of $(3.3) million as of December 27, 2013, related to our foreign currency cash flow hedges and bunker fuel swap hedges.  For foreign currency hedges, these fluctuations were primarily driven by the strengthening or weakening of the U.S. dollar compared to currencies being hedged relative to the contracted exchange rates and the settling of a number of contracts throughout 2013. During 2013, we predominately entered into derivative contracts to hedge the British pound, euro, Japanese yen and Polish zloty relative to our sales. We also entered into contracts to hedge the Costa Rican colon, Philippine peso, Korean won and Chilean peso, in order to hedge our production and procurement costs. The change in 2013 was primarily related to the weaker U.S. dollar relative to the euro and Costa Rican colon offset by the stronger U.S. dollar relative to the Japanese yen being hedged when compared to the contracted exchange rates.

18.  Derivative Financial Instruments (continued)

The following table reflects the effect of derivative instruments on the Consolidated Statements of Income for the years ended December 27, 2013 and December 28, 2012 (U.S. dollars in millions):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion)					Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Year ended						Year ended
	December 27, 2013		December 28, 2012				December 27, 2013			December 28, 2012
Foreign exchange contracts	$	8.6	$	(18.6	)	Net sales	$	(6.0	)	$	12.1
Foreign exchange contracts	1.6		(2.4		)	Cost of products sold	4.6			5.2
Bunker fuel swap agreements (1)	0.1		(0.1		)	Cost of products sold	1.0			(0.1		)
Total	$	10.3	$	(21.1	)		$	(0.4	)	$	17.2

⁽¹⁾ The bunker fuel swap agreements had an ineffective portion of less than $0.1 million for the years ended December 27, 2013 and December 28, 2012.