Derivative Instruments and Hedging Activities | 9 Months Ended |
Sep. 28, 2013 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Derivative Instruments and Hedging Activities | ' |
Derivative Instruments and Hedging Activities |
Our risk management and derivative accounting policies are presented in Notes 1 and 18 of the Notes included in our Annual Report and did not significantly change during the first three quarters of 2013. As noted in Note 18 of the Notes included in our Annual Report, due to the nature of our counterparty agreements, and that we are not subject to master netting arrangements, we are not able to net positions with the same counterparty and therefore present our derivative positions gross in our condensed consolidated balance sheets. Our significant derivative/hedge positions have not changed significantly since year-end, except as noted below. |
Significant Derivative/Hedge Positions |
Derivative Activity Related to the Acquisition |
In the first quarter of 2013, we began executing a series of financial foreign exchange forward contracts to hedge our risk associated with payments of our Euro-denominated Convertible Note issued to the Seller simultaneous with the closing of the Acquisition in June 2012. The Convertible Note was put to us in the third quarter of 2013. The related conversion feature was settled in full and therefore is no longer outstanding as of September 28, 2013. As a result of the settlement all existing foreign exchange forward contracts related to the Convertible Note were settled in the third quarter of 2013. These contracts were not designated in hedge accounting relationships. As such, changes in fair value of these swaps were recorded in other income (expense) in our condensed consolidated statement of operations. |
On April 3, 2012, we entered into a 4-year, €120 million term loan agreement, which was funded upon close of the Acquisition on June 15, 2012. In the third quarter of 2012, we designated the term loan as a net investment hedge of our Central European operations. In the third quarter of 2013, we repaid the outstanding balance on this term loan. |
Cross Currency Swaps |
In each of the second and third quarters of 2013, we cash settled CAD 100 million notional of our outstanding cross currency swaps designated as a net investment hedge of our Canadian operations for $31.4 million and $31.1 million, respectively. The remaining outstanding cross currency swaps are due to mature March 31, 2014, and were in a net liability position of $134.0 million as of September 28, 2013. Early in the fourth quarter of 2013 we cash settled an additional CAD 161 million notional of this remaining position for $51.4 million. |
Commodity Swaps |
In 2013 we entered into financial commodity swap contracts to hedge our exposure to changes in the prices of corn and aluminum, including surcharges relating to our aluminum exposures. These contracts allow us to swap our floating exposure to changes in these commodity prices for a fixed rate. These contracts are not designated in hedge accounting relationships. As such, changes in fair value of these swaps are recorded in cost of goods sold in the condensed consolidated statements of operations. |
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. The table below summarizes our derivative assets and liabilities that were measured at fair value as of September 28, 2013, and December 29, 2012. |
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| | | Fair value measurements as of September 28, 2013 Using | |
| Total at September 28, 2013 | | Quoted prices in | | Significant other | | Significant | |
active markets | observable inputs | unobservable | |
(Level 1) | (Level 2) | inputs (Level 3) | |
| (In millions) | |
Cross currency swaps | $ | (134.0 | ) | | $ | — | | | $ | (134.0 | ) | | $ | — | | |
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Foreign currency forwards | 8 | | | — | | | 8 | | | — | | |
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Commodity swaps | (4.4 | ) | | — | | | (4.4 | ) | | — | | |
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Total | $ | (130.4 | ) | | $ | — | | | $ | (130.4 | ) | | $ | — | | |
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| | | Fair value measurements as of December 29, 2012 Using | |
| Total at December 29, 2012 | | Quoted prices in | | Significant other | | Significant | |
active markets | observable inputs | unobservable | |
(Level 1) | (Level 2) | inputs (Level 3) | |
| (In millions) | |
Cross currency swaps | $ | (220.4 | ) | | $ | — | | | $ | (220.4 | ) | | $ | — | | |
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Foreign currency forwards | (1.7 | ) | | — | | | (1.7 | ) | | — | | |
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Commodity swaps | (2.5 | ) | | — | | | (2.5 | ) | | — | | |
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Equity conversion feature of debt | (7.9 | ) | | — | | | — | | | (7.9 | ) | |
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Total | $ | (232.5 | ) | | $ | — | | | $ | (224.6 | ) | | $ | (7.9 | ) | |
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The following tables present additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the quarter ended September 28, 2013. Both observable and unobservable inputs may be used to determine the fair value of positions that we have classified within the Level 3 category. As a result, the unrealized gains (losses) during the period for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value during the period that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs. |
The table below summarizes derivative valuation activity using significant unobservable inputs (Level 3): |
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| Rollforward of Level 3 Inputs | | | | | | | | | | | | | |
| (In millions) | | | | | | | | | | | | | |
Total at December 29, 2012 | $ | (7.9 | ) | | | | | | | | | | | | | |
Total losses (realized/unrealized) | | | | | | | | | | | | | | |
Included in earnings | (6.5 | ) | | | | | | | | | | | | | |
Included in other comprehensive income | — | | | | | | | | | | | | | | |
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Purchases | — | | | | | | | | | | | | | | |
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Sales | — | | | | | | | | | | | | | | |
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Issuances | — | | | | | | | | | | | | | | |
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Settlements | 14.4 | | | | | | | | | | | | | | |
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Net transfers in/out of Level 3 | — | | | | | | | | | | | | | | |
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Total at September 28, 2013 | $ | — | | | | | | | | | | | | | | |
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Unrealized losses for Level 3 assets/liabilities settled in the third quarter 2013 | $ | (6.5 | ) | | | | | | | | | | | | | |
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We had no significant transfers between Level 1 and 2 during the third quarter or first three quarters of 2013. As of December 29, 2012, the conversion feature related to the Convertible Note was classified as a Level 3 derivative due to valuations based upon significant unobservable inputs. The Convertible Note was put to us in the third quarter of 2013 and as a result, we settled the remaining balance associated with the conversion feature which was historically included within Level 3 derivatives. As of September 28, 2013, we have no outstanding derivatives classified as Level 3. New derivative contracts transacted during the third quarter and first half of 2013 were all included in Level 2. |
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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 28, 2013, and December 29, 2012, and the condensed consolidated statements of operations for the third quarter and first three quarters ended September 28, 2013, and September 29, 2012. |
Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheet (in millions, except for certain commodity swaps with notional amounts measured in Metric Tonnes, as noted) |
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| September 28, 2013 | |
| | | | Asset derivatives | | Liability derivatives | |
| Notional amount | | Balance sheet location | | Fair value | | Balance sheet location | | Fair value | |
Derivatives designated as hedging instruments: | | | | | | | | | |
Cross currency swaps | CAD | 401.2 | | | Other current assets | | $ | — | | | Current derivative hedging instruments | | $ | (134.0 | ) | |
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Foreign currency forwards | USD | 432.1 | | | Other current assets | | 5.7 | | | Current derivative hedging instruments | | (0.3 | ) | |
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| | | | Other non-current assets | | 3.2 | | | Non-current derivative hedging instruments | | (0.5 | ) | |
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Commodity swaps | kWh | 963.6 | | | Other current assets | | 0.1 | | | Current derivative hedging instruments | | (0.7 | ) | |
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| | | | Other non-current assets | | — | | | Non-current derivative hedging instruments | | (0.7 | ) | |
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Total derivatives designated as hedging instruments | | | | | $ | 9 | | | | | $ | (136.2 | ) | |
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Derivatives not designated as hedging instruments: | | | | | | | | | |
Commodity swaps | Metric tonnes (actual) | 61,735 | | | Other current assets | | 0.1 | | | Current derivative hedging instruments | | (1.7 | ) | |
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| | | | Other non-current assets | | — | | | Non-current derivative hedging instruments | | (1.6 | ) | |
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Total derivatives not designated as hedging instruments | | | | | $ | 0.1 | | | | | $ | (3.3 | ) | |
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| December 29, 2012 | |
| | | | Asset derivatives | | Liability derivatives | |
| Notional amount | | Balance sheet location | | Fair value | | Balance sheet location | | Fair value | |
Derivatives designated as hedging instruments: | | | | | | | | | |
Cross currency swaps | CAD | 601.3 | | | Other non-current assets | | $ | — | | | Non-current derivative hedging instruments | | $ | (220.4 | ) | |
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Foreign currency forwards | USD | 507.3 | | | Other current assets | | 2 | | | Current derivative hedging instruments | | (3.4 | ) | |
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| | | | Other non-current assets | | 1.4 | | | Non-current derivative hedging instruments | | (1.7 | ) | |
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Commodity swaps | kWh | 486.1 | | | Other current assets | | — | | | Current derivative hedging instruments | | (1.0 | ) | |
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| | | | Other non-current assets | | 0.2 | | | Non-current derivative hedging instruments | | (0.1 | ) | |
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Total derivatives designated as hedging instruments | | | | | $ | 3.6 | | | | | $ | (226.6 | ) | |
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Derivatives not designated as hedging instruments: | | | | | | | | | |
Equity conversion feature of debt | EUR | 500 | | | | | | | Current portion of long-term debt and short-term borrowings | | $ | (7.9 | ) | |
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Commodity swaps | Metric tonnes (actual) | 8,343 | | | Other current assets | | $ | — | | | Current derivative hedging instruments | | (1.6 | ) | |
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Total derivatives not designated as hedging instruments | | | | | $ | — | | | | | $ | (9.5 | ) | |
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Non-derivative financial instruments in net investment hedge relationships: | | | | | | | |
€120 million term loan due 2016 | EUR | 93.7 | | | | | | | Long-term debt | | $ | (123.9 | ) | |
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Total non-derivative financial instruments in net investment hedge relationships | | | | | | $ | (123.9 | ) | |
MCBC allocates 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) |
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For the Thirteen Weeks Ended September 28, 2013 |
Derivatives in cash flow hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized | reclassified from AOCI into | (loss) recognized | recognized in income on | recognized in income |
in OCI on | income (effective portion) | from AOCI on | derivative (ineffective portion | on derivative |
derivative | | derivative | and amount excluded from | (ineffective portion and |
(effective | | (effective portion) | effectiveness testing) | amount excluded from |
portion) | | | | effectiveness testing) |
Forward starting interest rate swaps | | $ | — | | | Interest expense, net | | $ | (0.4 | ) | | Interest expense, net | | $ | — | |
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Foreign currency forwards | | (9.0 | ) | | Other income (expense), net | | 0.7 | | | Other income (expense), net | | — | |
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| | | | | Cost of goods sold | | 1.7 | | | Cost of goods sold | | — | |
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Commodity swaps | | (0.7 | ) | | Cost of goods sold | | (0.2 | ) | | Cost of goods sold | | — | |
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Total | | $ | (9.7 | ) | | | | $ | 1.8 | | | | | $ | — | |
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For the Thirteen Weeks Ended September 28, 2013 |
Derivatives and non-derivative financial instruments in net investment hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized in | reclassified from AOCI into | (loss) recognized | recognized in income | recognized in income |
OCI (effective portion) | income (effective portion) | from AOCI | (ineffective portion | (ineffective portion and |
| | (effective portion) | and amount excluded from | amount excluded from |
| | | effectiveness testing) | effectiveness testing) |
Cross currency swaps | | $ | (9.3 | ) | | Other income (expense), net | | $ | — | | | Other income (expense), net | | $ | — | |
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€120 million term loan due 2016 | | (1.9 | ) | | Other income (expense), net | | — | | | Other income (expense), net | | — | |
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Total | | $ | (11.2 | ) | | | | $ | — | | | | | $ | — | |
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Note: Amounts recognized in AOCI related to cash flow and net investment hedges are presented gross of taxes |
During the period we recorded no significant ineffectiveness related to these cash flow and net investment hedges. |
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For the Thirteen Weeks Ended September 29, 2012 |
Derivatives in cash flow hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized | reclassified from AOCI into | (loss) recognized | recognized in income on | recognized in income |
in OCI on | income (effective portion) | from AOCI on | derivative (ineffective portion | on derivative |
derivative | | derivative | and amount excluded from | (ineffective portion and |
(effective | | (effective portion) | effectiveness testing) | amount excluded from |
portion) | | | | effectiveness testing) |
Forward starting interest rate swaps | | $ | — | | | Interest expense, net | | $ | (0.4 | ) | | Interest expense, net | | $ | — | |
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Foreign currency forwards | | (14.9 | ) | | Other income (expense), net | | (0.7 | ) | | Other income (expense), net | | — | |
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| | | | | Cost of goods sold | | (1.6 | ) | | Cost of goods sold | | — | |
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Commodity swaps | | (0.6 | ) | | Cost of goods sold | | (0.5 | ) | | Cost of goods sold | | — | |
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Total | | $ | (15.5 | ) | | | | $ | (3.2 | ) | | | | $ | — | |
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For the Thirteen Weeks Ended September 29, 2012 |
Derivatives and non-derivative financial instruments in net investment hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized in | reclassified from AOCI into | (loss) recognized | recognized in income | recognized in income |
OCI (effective portion) | income (effective portion) | from AOCI | (ineffective portion | (ineffective portion and |
| | (effective portion) | and amount excluded from | amount excluded from |
| | | effectiveness testing) | effectiveness testing) |
Cross currency swaps | | $ | (13.3 | ) | | Other income (expense), net | | $ | — | | | Other income (expense), net | | $ | — | |
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€120 million term loan due 2016 | | (4.7 | ) | | Other income (expense), net | | — | | | Other income (expense), net | | — | |
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Total | | $ | (18.0 | ) | | | | $ | — | | | | | $ | — | |
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Note: Amounts recognized in AOCI are presented gross of taxes |
During the period we recorded no significant ineffectiveness related to these cash flow and net investment hedges. |
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For the Thirty-Nine Weeks Ended September 28, 2013 |
Derivatives in cash flow hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized | reclassified from AOCI into | (loss) recognized | recognized in income on | recognized in income |
in OCI on | income (effective portion) | from AOCI on | derivative (ineffective portion | on derivative |
derivative | | derivative | and amount excluded from | (ineffective portion and |
(effective | | (effective portion) | effectiveness testing) | amount excluded from |
portion) | | | | effectiveness testing) |
Forward starting interest rate swaps | | $ | — | | | Interest expense, net | | $ | (1.2 | ) | | Interest expense, net | | $ | — | |
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Foreign currency forwards | | 14.7 | | | Other income (expense), net | | 1.1 | | | Other income (expense), net | | — | |
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| | | | | Cost of goods sold | | 3.4 | | | Cost of goods sold | | — | |
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Commodity swaps | | (0.7 | ) | | Cost of goods sold | | (0.2 | ) | | Cost of goods sold | | — | |
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Total | | $ | 14 | | | | | $ | 3.1 | | | | | $ | — | |
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For the Thirty-Nine Weeks Ended September 28, 2013 |
Derivatives and non-derivative financial instruments in net investment hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized in OCI | reclassified from AOCI into | (loss) recognized | recognized in income | recognized in income |
(effective portion) | income (effective portion) | from AOCI | (ineffective portion | (ineffective portion and |
| | (effective portion) | and amount excluded from | amount excluded from |
| | | effectiveness testing) | effectiveness testing) |
Cross currency swaps | | $ | 20.2 | | | Other income (expense), net | | $ | — | | | Other income (expense), net | | $ | — | |
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€120 million term loan due 2016 | | 0.1 | | | Other income (expense), net | | — | | | Other income (expense), net | | — | |
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Total | | $ | 20.3 | | | | | $ | — | | | | | $ | — | |
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Note: Amounts recognized in AOCI related to cash flow and net investment hedges are presented gross of taxes |
During the period we recorded no significant ineffectiveness related to these cash flow and net investment hedges. |
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For the Thirty-Nine Weeks Ended September 29, 2012 |
Derivatives in cash flow hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized | reclassified from AOCI into | (loss) recognized | recognized in income on | recognized in income |
in OCI on | income (effective portion) | from AOCI on | derivative (ineffective portion | on derivative |
derivative | | derivative | and amount excluded from | (ineffective portion and |
(effective | | (effective portion) | effectiveness testing) | amount excluded from |
portion) | | | | effectiveness testing) |
Forward starting interest rate swaps | | $ | — | | | Interest expense, net | | $ | (1.2 | ) | | Interest expense, net | | $ | — | |
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Foreign currency forwards | | (17.7 | ) | | Other income (expense), net | | (1.7 | ) | | Other income (expense), net | | — | |
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| | | | | Cost of goods sold | | (4.0 | ) | | Cost of goods sold | | — | |
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Commodity swaps | | 0.1 | | | Cost of goods sold | | (1.2 | ) | | Cost of goods sold | | — | |
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Total | | $ | (17.6 | ) | | | | $ | (8.1 | ) | | | | $ | — | |
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For the Thirty-Nine Weeks Ended September 29, 2012 |
Derivatives and non-derivative financial instruments in net investment hedge relationships | | Amount of gain | | Location of gain (loss) | | Amount of gain | | Location of gain (loss) | | Amount of gain (loss) |
(loss) recognized in OCI | reclassified from AOCI into | (loss) recognized | recognized in income | recognized in income |
(effective portion) | income (effective portion) | from AOCI | (ineffective portion | (ineffective portion and |
| | (effective portion) | and amount excluded from | amount excluded from |
| | | effectiveness testing) | effectiveness testing) |
Cross currency swaps | | $ | (26.5 | ) | | Other income (expense), net | | $ | — | | | Other income (expense), net | | $ | — | |
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€120 million term loan due 2016 | | (4.7 | ) | | Other income (expense), net | | — | | | Other income (expense), net | | — | |
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Total | | $ | (31.2 | ) | | | | $ | — | | | | | $ | — | |
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Note: Amounts recognized in AOCI are presented gross of taxes |
During the period we recorded no significant ineffectiveness related to these cash flow and net investment hedges. |
We expect net gains of approximately $4.9 million (pre-tax) recorded in AOCI at September 28, 2013, will be reclassified into earnings within the next 12 months. The maximum length of time over which forecasted transactions are hedged at September 28, 2013, is 3.3 years, and such transactions relate to foreign exchange, interest rate and commodity exposures. |
Other Derivatives (in millions) |
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For the Thirteen Weeks Ended September 28, 2013 | | | | | | | | | | |
Derivatives not in hedging relationships | | Location of gain (loss) recognized in | | Amount of gain (loss) recognized in | | | | | | | | | | |
income on derivative | income on derivative | | | | | | | | | | |
Equity conversion feature of debt | | Interest expense, net | | $ | 21.1 | | | | | | | | | | | |
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| | Other income (expense), net | | (0.8 | ) | | | | | | | | | | |
Commodity swaps | | Cost of goods sold | | (1.5 | ) | | | | | | | | | | |
Foreign currency forwards | | Other income (expense), net | | 10.6 | | | | | | | | | | | |
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Total | | | | $ | 29.4 | | | | | | | | | | | |
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For the Thirteen Weeks Ended September 29, 2012 | | | | | | | | | | |
Derivatives not in hedging relationships | | Location of gain (loss) recognized in | | Amount of gain (loss) recognized in | | | | | | | | | | |
income on derivative | income on derivative | | | | | | | | | | |
Equity conversion feature of debt | | Interest expense, net | | $ | (7.7 | ) | | | | | | | | | | |
| | Other income (expense), net | | (0.5 | ) | | | | | | | | | | |
Commodity swaps | | Cost of goods sold | | (0.6 | ) | | | | | | | | | | |
Total | | | | $ | (8.8 | ) | | | | | | | | | | |
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For the Thirty-Nine Weeks Ended September 28, 2013 | | | | | | | | | | |
Derivatives not in hedging relationships | | Location of gain (loss) recognized in | | Amount of gain (loss) recognized in | | | | | | | | | | |
income on derivative | income on derivative | | | | | | | | | | |
Equity conversion feature of debt | | Interest expense, net | | $ | (5.4 | ) | | | | | | | | | | |
| | Other income (expense), net | | (1.1 | ) | | | | | | | | | | |
Commodity swaps | | Cost of goods sold | | (3.0 | ) | | | | | | | | | | |
Foreign currency forwards | | Other income (expense), net | | 3.9 | | | | | | | | | | | |
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| | | | $ | (5.6 | ) | | | | | | | | | | |
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For the Thirty-Nine Weeks Ended September 29, 2012 | | | | | | | | | | |
Derivatives not in hedging relationships | | Location of gain (loss) recognized in | | Amount of gain (loss) recognized in | | | | | | | | | | |
income on derivative | income on derivative | | | | | | | | | | |
Equity conversion feature of debt | | Interest expense, net | | $ | (13.3 | ) | | | | | | | | | | |
| | Other income (expense), net | | (0.5 | ) | | | | | | | | | | |
Treasury locks(1) | | Interest expense, net | | (39.2 | ) | | | | | | | | | | |
| | | | $ | (53.0 | ) | | | | | | | | | | |
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-1 | Entered into to remove a portion of our interest rate market risk in connection with debt issued to fund the Acquisition. | | | | | | | | | | | | | | | |