Derivative Instruments and Hedging Activities

Our risk management and derivative accounting policies are presented in Note 18 of the Notes to the Audited Consolidated Financial Statements in our Annual Report and did not significantly change during the first three quarters of 2011, except as described below.

Significant Derivative/Hedge Positions

Cross Currency Swaps

In September 2011, we cash settled approximately 25% of our British pound ("GBP") 530 million/$774 million and CAD 1.2 billion/GBP 530 million cross currency swaps. The swaps are designated as cash flow hedges of the changes in value of the future GBP cash flows related to GBP 530 million intercompany notes. Simultaneously with the settlement of the swaps, we paid down an equal portion of the outstanding principal of the intercompany notes in the amount of GBP 132.4 million. Prior to settlement, the swaps were in a net liability position of $394.2 million. As a result of the settlement, we extinguished $98.7 million of the outstanding liability, resulting in a net liability of $295.5 million at September 24, 2011, of which $98.5 million is current and $197.0 million is non-current. Cash flow hedge accounting was discontinued on the settled swaps and losses of $0.9 million were reclassified from Accumulated other comprehensive income ("AOCI") to Other income (expense), net related to the hedge termination.

Subsequent to September 24, 2011, we simultaneously extended both the terms of approximately half of the original intercompany notes and cross currency swaps, such that the new maturities are March 2014. Following the refinancing, the extended swaps were in a net liability position of approximately $218.9 million and remain designated as cash flow hedges of the extended intercompany notes. The remaining approximate 25%, due in May 2012, was left unadjusted.

Commodity Swaps

In June 2011, we entered into financial commodity swap contracts to hedge our exposure to changes in the prices of aluminum. These contracts allow us to swap our floating exposure to changes in aluminum prices for a fixed rate. These contracts are not designated in a hedge accounting relationship. As such, changes in fair value of these swaps are recorded in Cost of goods sold in our Condensed Consolidated Statement of Operations. We hedge forecasted purchases of aluminum up to 36 months in the future for use in our supply chain. For purposes of measuring segment operating performance, the unrealized changes in fair value of the aluminum swaps are reported in our non-reportable Corporate business activities outside of segment specific operating results until such time that the exposure we are managing is realized. At that time we will reclassify the gain or loss from Corporate to the operating segment, allowing our operating segments to realize the economic effects of the derivative without the resulting unrealized mark-to-market volatility.

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 September 24, 2011, and December 25, 2010, these adjustments resulted in deferred net gains in AOCI of $0.4 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 September 24, 2011 and December 25, 2010.



				September 24, 2011
	Total carrying value at September 24, 2011			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
	(In millions)
Cross currency swaps	$	(295.5	)	$	—	$	(295.5	)	$	—
Foreign currency forwards	5.5			—		5.5			—
Commodity swaps	(2.0		)	—		(2.0		)	—
Total	$	(292.0	)	$	—	$	(292.0	)	$	—



				December 25, 2010
	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 September 24, 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 September 24, 2011, we had no significant transfers between Level 1 and 2. New derivative contracts transacted during the first three quarters 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 September 24, 2011, and December 25, 2010, and the Condensed Consolidated Statements of Operations for the third quarters and first three quarters ended September 24, 2011, and September 25, 2010.

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



	September 24, 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 1,228.6	Other current assets	$	—	Current derivative liability	$	(98.5	)
		Other assets	—		Long term derivative liability	(197.0		)
Foreign currency forwards	USD 465.8	Other current assets	2.4		Current derivative liability	(3.4		)
		Other assets	6.5		Long term derivative liability	—
Commodity swaps	Gigajoules 2.0	Other current assets	1.1		Current derivative liability	(0.3		)
		Other assets	0.2		Long term derivative liability	—
Total derivatives designated as hedging instruments			$	10.2		$	(299.2	)
Derivatives not designated as hedging instruments:
Commodity swaps	Metric Tonnes 0	Other current assets	$	—	Current derivative liability	$	(1.8	)
		Other assets	—		Long term derivative liability	(1.2		)
Total derivatives not designated as hedging instruments			$	—		$	(3.0	)



	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 September 24, 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)	$	(3.8	)	Other income (expense), net	$	33.3		Other income (expense), net	$	—
				Interest expense, net	(3.9		)	Interest expense, net	—
Forward starting interest rate swaps	0.6			Interest expense, net	(0.6		)	Interest expense, net	—
Foreign currency forwards	21.2			Other income (expense), net	(2.4		)	Other income (expense), net	—
				Cost of goods sold	(3.1		)	Cost of goods sold	—
				Marketing, general and administrative expenses	—			Marketing, general and administrative expenses	—
Commodity swaps	0.4			Cost of goods sold	—			Cost of goods sold	—
Total	$	18.4			$	23.3			$	—



For the Thirteen Weeks Ended September 25, 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)	$	1.3		Other income (expense), net	$	(10.5	)	Other income (expense), net	$	—
				Interest expense, net	(3.0		)	Interest expense, net	—
Forward starting interest rate swaps	(7.4		)	Interest expense, net	—			Interest expense, net	—
Foreign currency forwards	(2.2		)	Other income (expense), net	(1.1		)	Other income (expense), net	—
				Cost of goods sold	0.2			Cost of goods sold	—
				Marketing, general and administrative expenses	—			Marketing, general and administrative expenses	—
Commodity swaps	(1.0		)	Cost of goods sold	(0.2		)	Cost of goods sold	—
Total	$	(9.3	)		$	(14.6	)		$	—



For the Thirty-Nine Weeks Ended September 24, 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)	$	(5.6	)	Other income (expense), net	$	16.4		Other income (expense), net	$	—
				Interest expense, net	(10.9		)	Interest expense, net	—
Forward starting interest rate swaps	1.2			Interest expense, net	(1.2		)	Interest expense, net	—
Foreign currency forwards	21.3			Other income (expense), net	(7.0		)	Other income (expense), net	—
				Cost of goods sold	(9.5		)	Cost of goods sold	—
				Marketing, general and administrative expenses	—			Marketing, general and administrative expenses	—
Commodity swaps	3.0			Cost of goods sold	0.2			Cost of goods sold	—
Total	$	19.9			$	(12.0	)		$	—



For the Thirty-Nine Weeks Ended September 25, 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)		$	11.5		Other income (expense), net	$	(25.8	)	Other income (expense), net	$	—
					Interest expense, net	(8.9		)	Interest expense, net	—
Forward starting interest rate swaps		(14.1		)	Interest expense, net	—			Interest expense, net	—
Foreign currency forwards		(1.9		)	Other income (expense), net	(3.5		)	Other income (expense), net	—
					Cost of goods sold	(0.8		)	Cost of goods sold	—
					Marketing, general and administrative expenses	0.1			Marketing, general and administrative expenses	—
Commodity swaps		0.3			Cost of goods sold	(1.4		)	Cost of goods sold	—
Total		$	(4.2	)		$	(40.3	)		$	—

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 $0.4 million (pre-tax) recorded in AOCI at September 24, 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)



For the Thirteen Weeks Ended September 24, 2011
Derivatives Not In Hedging Relationship	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
Commodity swaps	Cost of goods sold	$	(3.0	)
Cash settled total return swaps	Other income (expense), net	$	—
Option contracts	Other income (expense), net	—
Foreign currency forwards	Other income (expense), net	—
		$	(3.0	)



For the Thirteen Weeks Ended September 25, 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	$	43.2
Option contracts	Other income (expense), net	(0.9		)
Foreign currency forwards	Other income (expense), net	(1.3		)
		$	41.0



For the Thirty-Nine Weeks Ended September 24, 2011
Derivatives Not In Hedging Relationship	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
Commodity swaps	Cost of goods sold	$	(3.0	)
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		)
		$	(2.2	)



For the Thirty-Nine Weeks Ended September 25, 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	$	58.2
Option contracts	Other income (expense), net	(0.9		)
Foreign currency forwards	Other income (expense), net	(1.3		)
		$	56.0