Financial Instruments | 3 Months Ended |
Mar. 29, 2014 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Financial Instruments | ' |
Financial Instruments |
See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 28, 2013, for additional information on our accounting and purpose for entering into derivatives and our overall risk management strategies. |
Fair Value of Derivative Instruments: |
The fair values of derivative instruments recorded in the consolidated balance sheets as of March 29, 2014 and December 28, 2013 were: |
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| March 29, | | December 28, |
2014 | 2013 |
| Assets | | Liabilities | | Assets | | Liabilities |
| (in millions) |
Derivatives designated as hedging instruments: | | | | | | | |
Commodity contracts | $ | 28 | | | $ | 4 | | | $ | 5 | | | $ | 4 | |
|
Foreign exchange contracts | 59 | | | — | | | 48 | | | — | |
|
| $ | 87 | | | $ | 4 | | | $ | 53 | | | $ | 4 | |
|
Derivatives not designated as hedging instruments: | | | | | | | |
Commodity contracts | $ | 82 | | | $ | 18 | | | $ | 40 | | | $ | 21 | |
|
Total fair value | $ | 169 | | | $ | 22 | | | $ | 93 | | | $ | 25 | |
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The fair value of our asset derivatives is recorded within other current assets and other assets. The fair value of our liability derivatives is recorded within other current liabilities. |
The fair value (asset / (liability)) of our derivative instruments at March 29, 2014 was determined using: |
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| Total | | Quoted Prices in | | Significant | | Significant |
Fair Value | Active Markets | Other Observable | Unobservable |
| for Identical | Inputs | Inputs |
| Assets | (Level 2) | (Level 3) |
| (Level 1) | | |
| (in millions) |
Commodity contracts | $ | 88 | | | $ | 90 | | | $ | (2 | ) | | $ | — | |
|
Foreign exchange contracts | 59 | | | — | | | 59 | | | — | |
|
Total derivatives | $ | 147 | | | $ | 90 | | | $ | 57 | | | $ | — | |
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The fair value (asset / (liability)) of our derivative instruments at December 28, 2013 was determined using: |
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| | | | | | | | | | | | | | | |
| Total | | Quoted Prices in | | Significant | | Significant |
Fair Value | Active Markets | Other Observable | Unobservable |
| for Identical | Inputs | Inputs |
| Assets | (Level 2) | (Level 3) |
| (Level 1) | | |
| (in millions) |
Commodity contracts | $ | 20 | | | $ | 20 | | | $ | — | | | $ | — | |
|
Foreign exchange contracts | 48 | | | — | | | 48 | | | — | |
|
Total derivatives | $ | 68 | | | $ | 20 | | | $ | 48 | | | $ | — | |
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Level 1 financial assets and liabilities consist of commodity futures and options contracts and are valued using quoted prices in active markets for identical assets and liabilities. |
Level 2 financial assets and liabilities consist of commodity forwards and foreign exchange forwards. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk. |
Derivative Volume: |
The net notional values of our derivative instruments as of March 29, 2014 and December 28, 2013 were: |
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| Notional Amount | | | | | | | | |
| March 29, | | December 28, | | | | | | | | |
2014 | 2013 | | | | | | | | |
| (in millions) | | | | | | | | |
Commodity contracts | $ | 1,444 | | | $ | 1,349 | | | | | | | | | |
| | | | | | | |
Foreign exchange contracts | 864 | | | 901 | | | | | | | | | |
| | | | | | | |
Cash Flow Hedges: |
Cash flow hedge activity, net of income taxes, within accumulated other comprehensive losses included: |
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| For the Three Months Ended | | | | | | | | |
| March 29, | | March 30, | | | | | | | | |
2014 | 2013 | | | | | | | | |
| (in millions) | | | | | | | | |
Accumulated other comprehensive losses at beginning of period | $ | (129 | ) | | $ | (152 | ) | | | | | | | | |
Unrealized gains / (losses) | 33 | | | (2 | ) | | | | | | | | |
| | | | | | | |
Transfer of realized (gains) / losses to earnings | (10 | ) | | 6 | | | | | | | | | |
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Accumulated other comprehensive losses at end of period | $ | (106 | ) | | $ | (148 | ) | | | | | | | | |
The unrealized gains / (losses), net of income taxes, recognized in other comprehensive earnings were: |
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| | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | | | | | |
| March 29, | | March 30, | | | | | | | | |
2014 | 2013 | | | | | | | | |
| (in millions) | | | | | | | | |
Commodity contracts | $ | 21 | | | $ | (12 | ) | | | | | | | | |
| | | | | | | |
Foreign exchange contracts | 12 | | | 10 | | | | | | | | | |
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Total | $ | 33 | | | $ | (2 | ) | | | | | | | | |
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The gains / (losses), net of income taxes, reclassified from accumulated other comprehensive losses into net earnings were: |
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| | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | | | | | |
| March 29, | | March 30, | | | | | | | | |
2014 | 2013 | | | | | | | | |
| (in millions) | | | | | | | | |
Commodity contracts | $ | (3 | ) | | $ | (11 | ) | | | | | | | | |
Foreign exchange contracts | 15 | | | 7 | | | | | | | | | |
| | | | | | | |
Interest rate contracts | (2 | ) | | (2 | ) | | | | | | | | |
Total | $ | 10 | | | $ | (6 | ) | | | | | | | | |
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The gains / (losses) on ineffectiveness recognized in pre-tax earnings were: |
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| | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | | | | | |
| March 29, | | March 30, | | | | | | | | |
2014 | 2013 | | | | | | | | |
| (in millions) | | | | | | | | |
Commodity contracts | $ | 41 | | | $ | (4 | ) | | | | | | | | |
| | | | | | | |
We record the pre-tax gain or loss reclassified from accumulated other comprehensive losses and the gain or loss on ineffectiveness in: |
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• | cost of sales for commodity contracts; | | | | | | | | | | | | | | |
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• | cost of sales for foreign exchange contracts related to forecasted transactions; and | | | | | | | | | | | | | | |
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• | interest and other expense, net for interest rate contracts and foreign exchange contracts related to intercompany loans. | | | | | | | | | | | | | | |
Based on our valuation at March 29, 2014, we would expect to transfer unrealized gains of $21 million (net of taxes) for commodity cash flow hedges, unrealized gains of $12 million (net of taxes) for foreign currency cash flow hedges, and unrealized losses of $8 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months. |
Hedge Coverage: |
As of March 29, 2014, we had hedged forecasted transactions for the following durations: |
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• | commodity transactions for periods not exceeding the next ten months; | | | | | | | | | | | | | | |
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• | foreign currency transactions for periods not exceeding the next five years; and | | | | | | | | | | | | | | |
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• | interest rate transactions for periods not exceeding the next 29 years. | | | | | | | | | | | | | | |
Economic Hedges: |
Gains recorded in net earnings for economic hedges which are not designated as hedging instruments included: |
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| For the Three Months Ended | | Location of | | | | | | |
Gain/(Loss) | | | | | | |
Recognized | | | | | | |
| March 29, | | March 30, | | Earnings | | | | | | |
2014 | 2013 | | | | | | | |
| (in millions) | | | | | | | | |
Commodity contracts | $ | 32 | | | $ | 4 | | | Cost of sales | | | | | | |
| | | | | |
Foreign exchange contracts | 4 | | | — | | | Selling, general and administrative expenses | | | | | | |
| | | | | |
| $ | 36 | | | $ | 4 | | | | | | | | | |
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