Financial Instruments and Foreign Currency

6 Months Ended

Jul. 02, 2011

Financial Instruments and Foreign Currency [Abstract]

Financial Instruments and Foreign Currency

Note 9. Financial Instruments and Foreign Currency

The Company enters into certain foreign exchange hedge contracts to reduce its risk from exchange rate fluctuations associated with receivables, payables, loans and firm commitments denominated in certain foreign currencies that arise primarily as a result of its operations outside the U.S. The Company enters into certain interest rate contracts to help manage its exposure to interest rate fluctuations. The Company also enters into certain natural gas and other commodity futures contracts to hedge price fluctuations for a portion of its anticipated domestic purchases. The maximum length of time for which the Company hedges its exposure to the variability in future cash flows for forecasted transactions is 12 to 24 months.

As of July 2, 2011, the aggregate U.S. dollar equivalent notional value of the Company’s outstanding commodity contracts and foreign exchange contracts was $9.8 million and $1.28 billion, respectively.

The Company recognizes all derivative instruments as either assets or liabilities at fair value in the unaudited Condensed Consolidated Balance Sheets. The Company designates commodity forward contracts on forecasted purchases of commodities and foreign exchange contracts on forecasted transactions as cash flow hedges and foreign exchange contracts on existing balance sheet items as fair value hedges.

The following table provides the balances and locations of derivatives as of July 2, 2011:

	Asset			Liability
(In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign exchange contracts	Other current assets	$	6.0	Other current liabilities	$	7.1
Commodity contracts	Other current assets		—	Other current liabilities		1.5
		$	6.0		$	8.6

The following table provides the balances and locations of derivatives as of January 1, 2011:

	Asset			Liability
(In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign exchange contracts	Other current assets	$	16.8	Other current liabilities	$	7.9
Commodity contracts	Other current assets		.1	Other current liabilities		2.4
		$	16.9		$	10.3

Fair Value Hedges

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings, resulting in no net material impact to income.

The following table provides the components of the gain (loss) recognized in income related to fair value hedge contracts. The corresponding gains or losses on the underlying hedged items approximated the net gain (loss) on these fair value hedge contracts.

		Three Months Ended						Six Months Ended
(In millions)	Location of Gain (Loss) in Income	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010
Foreign exchange contracts	Cost of products sold	$	.1		$	(1.1	)	$	.8		$	(1.9	)
Foreign exchange contracts	Marketing, general and administrative expense		(6.8	)		17.4			(2.0	)		33.3
		$	(6.7	)	$	16.3		$	(1.2	)	$	31.4

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of “Accumulated other comprehensive loss” and reclassified into earnings in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Amounts recognized in “Accumulated other comprehensive loss” (effective portion) on derivatives related to cash flow hedge contracts were as follows:

	Three Months Ended						Six Months Ended
(In millions)	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010
Foreign exchange contracts	$	(.6	)	$	(2.3	)	$	(.4	)	$	(3.3	)
Commodity contracts		(.4	)		(.2	)		(.6	)		(2.5	)
Interest rate contract		—			(1.5	)		—			(0.3	)
	$	(1.0	)	$	(4.0	)	$	(1.0	)	$	(6.1	)

Amounts reclassified from “Accumulated other comprehensive loss” (effective portion) related to cash flow hedge contracts were as follows:

		Three Months Ended						Six Months Ended
(In millions)	Location of Loss in Income	July 2, 2011			July 3, 2010			July 2, 2011			July 3, 2010
Foreign exchange contracts	Cost of products sold	$	(.1	)	$	(.2	)	$	(.6	)	$	(.9	)
Commodity contracts	Cost of products sold		(.5	)		(1.1	)		(1.5	)		(2.7	)
Interest rate contracts	Interest expense		(1.0	)		(.8	)		(1.9	)		(1.8	)
		$	(1.6	)	$	(2.1	)	$	(4.0	)	$	(5.4	)

As of July 2, 2011, a net loss of approximately $7 million is expected to be reclassified from “Accumulated other comprehensive loss” to earnings within the next 12 months. See Note 12, “Comprehensive Income,” for more information.

Foreign Currency

Transactions in foreign currencies (including receivables, payables and loans denominated in currencies other than the functional currency) decreased net income by $.8 million and $3.5 million for the three and six months ended July 2, 2011, respectively, and $1.9 million and $3 million for the three and six months ended July 3, 2010, respectively. These amounts exclude the effects from translation of foreign currencies on the Company’s unaudited condensed consolidated financial statements.

In the three and six months ended July 2, 2011 and July 3, 2010, no translation gains or losses for hyperinflationary economies were recognized in net income since the Company had no operations in hyperinflationary economies.