Financial Instruments

6 Months Ended

Jul. 04, 2015

Financial Instruments

Financial Instruments

Note 10.  Financial Instruments

We enter into foreign exchange hedge contracts to reduce our 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 our operations outside the U.S.  We enter into interest rate contracts to help manage our exposure to certain interest rate fluctuations.  We also enter into futures contracts to hedge certain price fluctuations for a portion of our anticipated domestic purchases of natural gas. The maximum length of time for which we hedge our exposure to the variability in future cash flows for forecasted transactions is 36 months.

As of July 4, 2015, the aggregate U.S. dollar equivalent notional value of our outstanding commodity contracts and foreign exchange contracts was $3.4 million and $1.2 billion, respectively.

We recognize all derivative instruments as either assets or liabilities at fair value in the unaudited Condensed Consolidated Balance Sheets. We designate 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 fair value and balance sheet locations of derivatives as of July 4, 2015:

	Asset			Liability
(In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign exchange contracts	Other current assets	$	4.5	Other accrued liabilities	$	2.9
Commodity contracts	Other current assets	–		Other accrued liabilities	.6
				Long-term retirement benefits and other liabilities	.1
		$	4.5		$	3.6

The following table provides the fair value and balance sheet locations of derivatives as of January 3, 2015:

	Asset			Liability
(In millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Foreign exchange contracts	Other current assets	$	10.3	Other accrued liabilities	$	10.5
Commodity contracts	Other current assets	–		Other accrued liabilities	1.0
				Long-term retirement benefits and other liabilities	.2
		$	10.3		$	11.7

Fair Value Hedges

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

The following table provides the components of net 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 Net Gains (Losses) in Income	July 4, 2015			June 28, 2014			July 4, 2015		June 28, 2014
Foreign exchange contracts	Cost of products sold	$	(.4	)	$	(2.1	)	$	1.0	$	(3.0	)
Foreign exchange contracts	Marketing, general and administrative expense	(7.7		)	(3.5		)	4.0		(2.5		)
		$	(8.1	)	$	(5.6	)	$	5.0	$	(5.5	)

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 impacts 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.

Gains (losses) 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 4, 2015			June 28, 2014			July 4, 2015			June 28, 2014
Foreign exchange contracts	$	(1.8	)	$	(1.9	)	$	(1.5	)	$	(2.2	)
Commodity contracts	1.5			(.2		)	1.2			.2
	$	(.3	)	$	(2.1	)	$	(.3	)	$	(2.0	)

The amount of gain or loss recognized in income related to the ineffective portion of, and the amount excluded from, effectiveness testing for cash flow hedges and derivatives not designated as hedging instruments were not material for the three and six months ended July 4, 2015 and June 28, 2014, respectively.

As of July 4, 2015, we expected a net gain of approximately $1 million to be reclassified from “Accumulated other comprehensive loss” to earnings within the next 12 months.  See Note 13, “Comprehensive Income,” for more information.