Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 25, 2011

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

13. Derivative Instruments and Hedging Activities

        Our risk management and derivative accounting policies are presented in Note 18 of the Notes and did not significantly change during the first half of 2011.

Derivative Fair Value Measurements

        We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk adjustments to account for our counterparties' credit risk, as well as our own non-performance risk. As of June 25, 2011 and December 25, 2010 these adjustments resulted in deferred net gains in accumulated other comprehensive income ("AOCI") of $2.5 million and $2.7 million, respectively, as the fair value of our derivatives were in net liability positions at both period ends.

        The table below summarizes our derivative assets and liabilities that were measured at fair value as of June 25, 2011 and December 25, 2010.

					Fair Value Measurements at June 25, 2011 Using
		Total carrying value at June 25, 2011			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
		(In millions)
Cross currency swaps		$	(437.6	)	$	—	$	(437.6	)	$	—
Foreign currency forwards			(16.7	)		—		(16.7	)		—
Commodity swaps			0.5			—		0.5			—
	Total	$	(453.8	)	$	—	$	(453.8	)	$	—

					Fair Value Measurements at December 25, 2010 Using
		Total carrying value at December 25, 2010			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
		(In millions)
Cross currency swaps		$	(412.2	)	$	—	$	(412.2	)	$	—
Foreign currency forwards			(16.3	)		—		(16.3	)		—
Commodity swaps			(2.0	)		—		(2.0	)		—
Total return swaps			1.2			—		1.2			—
Option contracts			2.9			—		—			2.9
	Total	$	(426.4	)	$	—	$	(429.3	)	$	2.9

        The table below summarizes derivative valuation activity using significant unobservable inputs (Level 3):

		Rollforward of Level 3 Inputs
		(In millions)
Balance at December 25, 2010		$	2.9
Total gains or losses (realized/unrealized)
	Included in earnings (or change in net assets)		1.5
	Included in AOCI
Purchases			—
Sales			—
Issuances			—
Settlements			(4.4	)
Transfers in/out of Level 3			—
Balance at June 25, 2011		$	—

        During the first quarter of 2011, we settled all of our option contracts that were classified as Level 3 as of December 25, 2010. As of June 25, 2011, we had no significant transfers between Level 1 and 2. New derivative contracts transacted during the first half of 2011 are all included in Level 2.

Results of Period Derivative Activity

        The tables below include the year to date results of our derivative activity in the Condensed Consolidated Balance Sheets as of June 25, 2011 and December 25, 2010 and the Condensed Consolidated Statements of Operations for the second quarters and first half ended June 25, 2011 and June 26, 2010.

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheet (in millions)

	As of June 25, 2011
		Asset derivatives
					Liability derivatives
	Notional amount	Balance sheet location	Fair value
					Balance sheet location	Fair value
Derivatives designated as hedging instruments:
Cross currency swaps	USD 1,691.7	Other current assets	$	—	Current derivative liability	$	(437.6	)
		Other assets		—	Long term derivative liability		—
Foreign currency forwards	USD 427.2	Other current assets		0.5	Current derivative liability		(13.3	)
		Other assets		0.7	Long term derivative liability		(4.6	)
Commodity swaps	Gigajoules 2.0	Other current assets		1.0	Current derivative liability		(0.6	)
		Other assets		0.2	Long term derivative liability		(0.1	)
Total derivatives designated as hedging instruments			$	2.4		$	(456.2	)

        As of June 25, 2011, all derivatives were designated as hedging instruments.

	As of December 25, 2010
		Asset derivatives			Liability derivatives
	Notional amount	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivatives designated as hedging instruments:
Cross currency swaps	USD 1,637.1	Other current assets	$	—	Current derivative liability	$	(11.2	)
		Other assets		—	Long term derivative liability		(401.0	)
Foreign currency forwards	USD 426.0	Other current assets		0.3	Current derivative liability		(12.4	)
		Other assets		0.1	Long term derivative liability		(3.4	)
Commodity swaps	Gigajoules 2.2	Other current assets		0.1	Current derivative liability		(1.8	)
		Other assets		—	Long term derivative liability		(0.4	)
Total derivatives designated as hedging instruments			$	0.5		$	(430.2	)
Derivatives not designated as hedging instruments:
Foreign currency forwards	USD 13.9	Other current assets		—	Current derivative liability		(0.8	)
Total return swaps	Australian dollar ("AUD") 42.1	Other current assets	$	1.2	Current derivative liability	$	—
Option contracts	FGL.ASX Shares 7.6	Other current assets	$	3.1	Current derivative liability	$	(0.2	)
Total derivatives not designated as hedging instruments			$	4.3		$	(1.0	)

        We allocate the current and non-current portion of each contract to the corresponding derivative account above.

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations (in millions)

Cash Flow Hedges

For the Thirteen Weeks Ended June 25, 2011

Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Cross currency swaps(1)	$	1.3		Other income (expense), net	$	6.6		Other income (expense), net	$	—
				Interest expense, net		(3.6	)	Interest expense, net		—
Forward starting interest rate swaps		0.3		Interest expense, net		(0.3	)	Interest expense, net		—
Foreign currency forwards		8.8		Other income (expense), net		(2.9	)	Other income (expense), net		—
				Cost of goods sold		(4.0	)	Cost of goods sold		—
				Marketing, general and administrative expenses		—		Marketing, general and administrative expenses		—
Commodity swaps		(1.3	)	Cost of goods sold		—		Cost of goods sold		—
Total	$	9.1			$	(4.2	)		$	—

For the Thirteen Weeks Ended June 26, 2010

Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Cross currency swaps(1)	$	1.9		Other income (expense), net	$	9.9		Other income (expense), net	$	—
				Interest expense, net		(3.3	)	Interest expense, net		—
Forward starting interest rate swaps		(4.5	)	Interest expense, net		—		Interest expense, net		—
Foreign currency forwards		4.8		Other income (expense), net		(1.1	)	Other income (expense), net		—
				Cost of goods sold		(0.3	)	Cost of goods sold		—
				Marketing, general and administrative expenses		0.1		Marketing, general and administrative expenses		—
Commodity swaps		2.7		Cost of goods sold		(0.7	)	Cost of goods sold		—
Total	$	4.9			$	4.6			$	—

For the Twenty-Six Weeks Ended June 25, 2011

Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Cross currency swaps(1)	$	(1.8	)	Other income (expense), net	$	(16.9	)	Other income (expense), net	$	—
				Interest expense, net		(7.0	)	Interest expense, net		—
Forward starting interest rate swaps		0.6		Interest expense, net		(0.6	)	Interest expense, net		—
Foreign currency forwards		0.1		Other income (expense), net		(4.6	)	Other income (expense), net		—
				Cost of goods sold		(6.4	)	Cost of goods sold		—
				Marketing, general and administrative expenses		—		Marketing, general and administrative expenses		—
Commodity swaps		2.6		Cost of goods sold		0.2		Cost of goods sold		—
Total	$	1.5			$	(35.3	)		$	—

For the Twenty-Six Weeks Ended June 26, 2010

Derivatives in cash flow hedge relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI into income (effective portion)	Amount of gain (loss) recognized from AOCI on derivative (effective portion)			Location of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
Cross currency swaps(1)	$	10.2		Other income (expense), net	$	(15.3	)	Other income (expense), net	$	—
				Interest expense, net		(5.9	)	Interest expense, net		—
Forward starting interest rate swaps		(6.7	)	Interest expense, net		—		Interest expense, net		—
Foreign currency forwards		0.3		Other income (expense), net		(2.4	)	Other income (expense), net		—
				Cost of goods sold		(1.0	)	Cost of goods sold		—
				Marketing, general and administrative expenses		0.1		Marketing, general and administrative expenses		—
Commodity swaps		1.3		Cost of goods sold		(1.2	)	Cost of goods sold		—
Total	$	5.1			$	(25.7	)		$	—

Note:    Amounts recognized in AOCI are gross of taxes. Refer to Note 16, "Comprehensive Income (Loss)", for amount net of tax.

(1)

The foreign exchange gain (loss) component of these cross currency swaps is offset by the corresponding gain (loss) on the hedged forecasted transactions in Other income (expense), net and Interest expense, net.

        During the period we recorded no significant income or expense due to ineffectiveness of these cash flow hedges. We expect net losses of approximately $7.2 million (pre-tax) recorded in AOCI at June 25, 2011 will be reclassified into earnings within the next 12 months. The maximum length of time over which forecasted transactions are hedged is 3 years, and such transactions relate to foreign exchange, interest rate and commodity exposures.

Other Derivatives (in millions)

        There was no activity for the thirteen weeks ended June 25, 2011 related to derivatives not in hedging relationships.

For the Thirteen Weeks Ended June 26, 2010

Derivatives Not In Hedging Relationship	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
Cash settled total return swaps	Other income (expense), net	$	21.9
		$	21.9

For the Twenty-Six Weeks Ended June 25, 2011

Derivatives Not In Hedging Relationship	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
Cash settled total return swaps	Other income (expense), net	$	(0.6	)
Option contracts	Other income (expense), net		1.5
Foreign currency forwards	Other income (expense), net		(0.1	)
		$	0.8

For the Twenty-Six Weeks Ended June 26, 2010

Derivatives Not In Hedging Relationship	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
Cash settled total return swaps	Other income (expense), net	$	15.0
		$	15.0