FINANCIAL INSTRUMENTS, RISK MANAGEMENT ACTIVITIES, AND FAIR VALUES | 9 Months Ended |
Feb. 23, 2014 |
Financial Instruments, Risk Management Activities, and Fair Values [Abstract] | ' |
Financial Instruments, Risk Management Activities, and Fair Values | ' |
(6) Financial Instruments, Risk Management Activities, and Fair Values |
Financial Instruments. The carrying values of cash and cash equivalents, receivables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable securities are carried at fair value. As of February 23, 2014, and May 26, 2013, a comparison of cost and market values of our marketable debt and equity securities is as follows: |
| Cost | | Market Value | | Gross Gains | | Gross Losses | |
In Millions | | Feb. 23, 2014 | | 26-May-13 | | | Feb. 23, 2014 | | 26-May-13 | | | Feb. 23, 2014 | | 26-May-13 | | | Feb. 23, 2014 | | 26-May-13 | |
Available-for-sale: | | | | | | | | | | | | | | | | | | | | |
Debt securities | $ | 252 | $ | 134 | | $ | 252.2 | $ | 134.1 | | $ | 0.2 | $ | 0.1 | | $ | - | $ | - | |
Equity securities | | 1.8 | | 1.8 | | | 7.1 | | 6.4 | | | 5.3 | | 4.6 | | | - | | - | |
Total | $ | 253.8 | $ | 135.8 | | $ | 259.3 | $ | 140.5 | | $ | 5.5 | $ | 4.7 | | $ | - | $ | - | |
For the third quarter of fiscal 2014, there were no gains or losses from sales of available-for-sale marketable securities. Gains and losses are determined by specific identification. Classification of marketable securities as current or noncurrent is dependent upon our intended holding period, the security's maturity date, or both. The aggregate unrealized gains and losses on available-for-sale securities, net of tax effects, are classified in accumulated other comprehensive loss (AOCI) within stockholders' equity. Scheduled maturities of our marketable securities are as follows: |
| | Available-for-Sale | | | | | | | | | | | | | | | | |
In Millions | | Cost | | Market Value | | | | | | | | | | | | | | | | |
Under 1 year (current) | $ | 249.6 | $ | 249.8 | | | | | | | | | | | | | | | | |
From 1 to 3 years | | 1.1 | | 1.1 | | | | | | | | | | | | | | | | |
From 4 to 7 years | | 1.3 | | 1.3 | | | | | | | | | | | | | | | | |
Equity securities | | 1.8 | | 7.1 | | | | | | | | | | | | | | | | |
Total | $ | 253.8 | $ | 259.3 | | | | | | | | | | | | | | | | |
Marketable securities with a market value of $2.3 million as of February 23, 2014, were pledged as collateral for certain derivative contracts. As of February 23, 2014, $56.8 million of certain accounts receivable were pledged as collateral against a foreign uncommitted line of credit. |
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The fair values and carrying amounts of long-term debt, including the current portion, were $8,824.7 million and $8,383.4 million, respectively, as of February 23, 2014. The fair value of long-term debt was estimated using market quotations and discounted cash flows based on our current incremental borrowing rates for similar types of instruments. Long-term debt is a Level 2 liability in the fair value hierarchy. |
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Risk Management Activities. As a part of our ongoing operations, we are exposed to market risks such as changes in interest and foreign currency exchange rates and commodity and equity prices. To manage these risks, we may enter into various derivative transactions (e.g., futures, options, and swaps) pursuant to our established policies. |
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Commodity Price Risk. Many commodities we use in the production and distribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), non-fat dry milk, natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. We manage our exposures through a combination of purchase orders, long-term contracts with suppliers, exchange-traded futures and options, and over-the-counter options and swaps. We offset our exposures based on current and projected market conditions and generally seek to acquire the inputs at as close to our planned cost as possible. |
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We use derivatives to manage our exposure to changes in commodity prices. We do not perform the assessments required to achieve hedge accounting for commodity derivative positions. Accordingly, the changes in the values of these derivatives are recorded currently in cost of sales in our Consolidated Statements of Earnings. |
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Although we do not meet the criteria for cash flow hedge accounting, we nonetheless believe that these instruments are effective in achieving our objective of providing certainty in the future price of commodities purchased for use in our supply chain. Accordingly, for purposes of measuring segment operating performance these gains and losses are reported in unallocated corporate items outside of segment operating results until such time that the exposure we are managing affects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items. |
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Unallocated corporate items for the quarterly and nine-month periods ended February 23, 2014, and February 24, 2013, included: |
| Quarter Ended | | Nine-Month Period Ended | | | | | | | | | |
In Millions | | Feb. 23, 2014 | | | Feb. 24, 2013 | | | Feb. 23, 2014 | | | Feb. 24, 2013 | | | | | | | | | |
Net gain (loss) on mark-to-market valuation of commodity positions | $ | 6.4 | | $ | -21.9 | | $ | -9.6 | | $ | 14.4 | | | | | | | | | |
Net loss (gain) on commodity positions reclassified from unallocated corporate items to segment operating profit | | 8.6 | | | 2.1 | | | 43.1 | | | -1.3 | | | | | | | | | |
Net mark-to-market revaluation of certain grain inventories | | 7.8 | | | -5.3 | | | 9.5 | | | -4.5 | | | | | | | | | |
Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items | $ | 22.8 | | $ | -25.1 | | $ | 43 | | $ | 8.6 | | | | | | | | | |
As of February 23, 2014, the net notional value of commodity derivatives was $382.1 million, of which $174.3 million related to energy inputs and $207.8 million related to agricultural inputs. These contracts relate to inputs that generally will be utilized within the next 12 months. |
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Interest Rate Risk. We are exposed to interest rate volatility with regard to future issuances of fixed-rate debt, and existing and future issuances of floating-rate debt. Primary exposures include U.S. Treasury rates, LIBOR, Euribor, and commercial paper rates in the United States and Europe. We use interest rate swaps, forward-starting interest rate swaps, and treasury locks to hedge our exposure to interest rate changes, to reduce the volatility of our financing costs, and to achieve a desired proportion of fixed versus floating-rate debt, based on current and projected market conditions. Generally under these swaps, we agree with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed upon notional principal amount. |
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Floating Interest Rate Exposures — Floating-to-fixed interest rate swaps are accounted for as cash flow hedges, as are all hedges of forecasted issuances of debt. Effectiveness is assessed based on either the perfectly effective hypothetical derivative method or changes in the present value of interest payments on the underlying debt. Effective gains and losses deferred to AOCI are reclassified into earnings over the life of the associated debt. Ineffective gains and losses are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million for the quarter and nine-month period ended February 23, 2014. |
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Fixed Interest Rate Exposures — Fixed-to-floating interest rate swaps are accounted for as fair value hedges with effectiveness assessed based on changes in the fair value of the underlying debt and derivatives, using incremental borrowing rates currently available on loans with similar terms and maturities. Ineffective gains and losses on these derivatives and the underlying hedged items are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million for the quarter and nine-month period ended February 23, 2014. |
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In advance of a planned debt financing, we entered into $250.0 million of treasury locks with an average fixed rate of 1.99 percent. All of these treasury locks were cash settled for $17.9 million during the third quarter of fiscal 2014, coincident with the issuance of our $500.0 million 10-year fixed-rate notes. As of February 23, 2014, a $17.8 million pre-tax gain remained in AOCI, which will be reclassified to earnings over the term of the underlying debt. |
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During the third quarter of fiscal 2013, we entered into swaps to convert $250.0 million of 0.875 percent fixed-rate notes due January 29, 2016, to floating rates. |
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During the fourth quarter of fiscal 2011, we entered into swaps to convert $300.0 million of 1.55 percent fixed-rate notes due May 16, 2014, to floating rates. |
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During the second quarter of fiscal 2013, in advance of a planned debt refinancing, we entered into $200.0 million of treasury locks with an average fixed rate of 2.82 percent. All of these treasury locks were cash settled for $11.8 million during the third quarter of fiscal 2013, coincident with the issuance of our $500.0 million 30-year fixed-rate notes. As of February 23, 2014, an $11.4 million pre-tax gain remained in AOCI, which will be reclassified to earnings over the term of the underlying debt. |
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During the fourth quarter of fiscal 2011, first quarter of fiscal 2012, and second quarter of fiscal 2012, we entered into $500.0 million, $300.0 million, and $200.0 million of forward starting swaps with average fixed rates of 3.9 percent, 2.7 percent, and 2.4 percent, respectively, in advance of a planned debt financing. All of these forward starting swaps were cash settled for $100.4 million coincident with the issuance of our $1.0 billion 10-year fixed rate notes in the second quarter of fiscal 2012. As of February 23, 2014, a $77.4 million pre-tax loss remained in AOCI, which will be reclassified to earnings over the term of the underlying debt. |
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As of February 23, 2014, a $14.7 million pre-tax loss on cash settled interest rate derivatives for our $500.0 million 30-year fixed rate notes issued June 1, 2010 remained in AOCI, which will be reclassified to earnings over the term of the underlying debt. |
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As of February 23, 2014, a $6.6 million pre-tax loss on cash settled interest rate swaps for our $1.0 billion 10-year fixed rate notes issued January 24, 2007 remained in AOCI, which will be reclassified to earnings over the term of the underlying debt. |
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The following table summarizes the notional amounts and weighted-average interest rates of our interest rate swaps. Average floating rates are based on rates as of the end of the reporting period. |
In Millions | | Feb. 23, 2014 | | | 26-May-13 | | | | | | | | | | | | | | | |
Pay-floating swaps - notional amount | $ | 550 | | $ | 550 | | | | | | | | | | | | | | | |
Average receive rate | | 1.1 | % | | 1.1 | % | | | | | | | | | | | | | | |
Average pay rate | | 0.4 | % | | 0.4 | % | | | | | | | | | | | | | | |
Treasury locks - notional amount | $ | - | | $ | 250 | | | | | | | | | | | | | | | |
The swap contracts mature at various dates from fiscal 2014 to 2016 as follows: |
In Millions | | Pay Floating | | | | | | | | | | | | | | | | | | |
2014 | $ | 300 | | | | | | | | | | | | | | | | | | |
2015 | | - | | | | | | | | | | | | | | | | | | |
2016 | | 250 | | | | | | | | | | | | | | | | | | |
Total | $ | 550 | | | | | | | | | | | | | | | | | | |
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The following tables reconcile the net fair values of assets and liabilities subject to offsetting arrangements that are recorded in the Consolidated Balance Sheets to the net fair values that could be reported in the Consolidated Balance Sheets: |
| Feb. 23, 2014 | | | | | | | |
| | | Assets | | | | | | | Liabilities | | | | | | | | | | |
| | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | | | |
In Millions | Gross Amounts of Recognized Assets | Gross Liabilities Offset in the Balance Sheet (a) | Net Amounts of Assets (b) | Financial Instruments | Cash Collateral Received | Net Amount (c) | | Gross Amounts of Recognized Liabilities | Gross Assets Offset in the Balance Sheet (a) | Net Amounts of Liabilities (b) | Financial Instruments | Cash Collateral Received | Net Amount (d) | | | | | | | |
Commodity contracts | $17.50 | $ - | $17.50 | ($6.10) | $ - | $11.40 | | ($12.20) | $ - | ($12.20) | $6.10 | $ - | ($6.10) | | | | | | | |
Interest rate contracts | 1.3 | - | 1.3 | - | - | 1.3 | | - | - | - | - | - | - | | | | | | | |
Foreign exchange contracts | 19.1 | - | 19.1 | -8 | - | 11.1 | | -19.3 | - | -19.3 | 8 | - | -11.3 | | | | | | | |
Total | $37.90 | $ - | $37.90 | ($14.10) | $ - | $23.80 | | ($31.50) | $ - | ($31.50) | $14.10 | $ - | ($17.40) | | | | | | | |
(a) Includes related collateral offset in the Consolidated Balance Sheets. |
(b) Net fair value as recorded in the Consolidated Balance Sheets. |
(c) Fair value of assets that could be reported net in the Consolidated Balance Sheets. |
(d) Fair value of liabilities that could be reported net in the Consolidated Balance Sheets. |
(e) Fair value of assets and liabilities reported on a gross basis in the Consolidated Balance Sheets. |
| 26-May-13 | | | | | | | |
| | | Assets | | | | | | | Liabilities | | | | | | | | | | |
| | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | Gross Amounts Not Offset in the Balance Sheet (e) | | | | | | | | |
In Millions | Gross Amounts of Recognized Assets | Gross Liabilities Offset in the Balance Sheet (a) | Net Amounts of Assets (b) | Financial Instruments | Cash Collateral Received | Net Amount (c) | | Gross Amounts of Recognized Liabilities | Gross Assets Offset in the Balance Sheet (a) | Net Amounts of Liabilities (b) | Financial Instruments | Cash Collateral Received | Net Amount (d) | | | | | | | |
Commodity contracts | $33.00 | ($19.60) | $13.40 | $ - | $ - | $13.40 | | ($23.50) | $19.60 | ($3.90) | $ - | $ - | ($3.90) | | | | | | | |
Interest rate contracts | 10.3 | - | 10.3 | - | - | 10.3 | | - | - | - | - | - | - | | | | | | | |
Foreign exchange contracts | 22.5 | - | 22.5 | -1.7 | - | 20.8 | | -1.7 | - | -1.7 | 1.7 | - | - | | | | | | | |
Total | $65.80 | ($19.60) | $46.20 | ($1.70) | $ - | $44.50 | | ($25.20) | $19.60 | ($5.60) | $1.70 | $ - | ($3.90) | | | | | | | |
(a) Includes related collateral offset in the Consolidated Balance Sheets. |
(b) Net fair value as recorded in the Consolidated Balance Sheets. |
(c) Fair value of assets that could be reported net in the Consolidated Balance Sheets. |
(d) Fair value of liabilities that could be reported net in the Consolidated Balance Sheets. |
(e) Fair value of assets and liabilities reported on a gross basis in the Consolidated Balance Sheets. |
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Foreign Exchange Risk. Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency cash flows related to third party purchases, intercompany loans, product shipments, and foreign-denominated commercial paper. We are also exposed to the translation of foreign currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Mexican peso, and Swiss franc. We mainly use foreign currency forward contracts to selectively hedge our foreign currency cash flow exposures. We also generally swap our foreign-denominated commercial paper borrowings and nonfunctional currency intercompany loans back to U.S. dollars or the functional currency of the entity with foreign exchange exposure; the gains or losses on these derivatives offset the foreign currency revaluation gains or losses recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months forward. |
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As of February 23, 2014, the net notional value of foreign exchange derivatives was $1.1Â billion. The amount of hedge ineffectiveness was less than $1 million for the quarter and nine-month periods ended February 23, 2014. |
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We also have many net investments in foreign subsidiaries that are denominated in euros. We previously hedged a portion of these net investments by issuing euro-denominated commercial paper and foreign exchange forward contracts. During the second quarter of fiscal 2014, we entered into a net investment hedge for a portion of our net investment in foreign operations denominated in euros by issuing €500.0 million of euro-denominated bonds. As of February 23, 2014, we had deferred net foreign currency losses of $109.8 million in AOCI associated with hedging activity. |
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During the fourth quarter of fiscal 2010, Venezuela became a highly inflationary economy and we remeasure the value of assets and liabilities of our Venezuelan subsidiary based on the exchange rate at which we expect to remit dividends in U.S. dollars at the end of each reporting period. Beginning in December 2013, the government in Venezuela has announced a series of changes to the regulations governing the currency exchange markets. Because there is considerable uncertainty with respect to these markets, we continued to remeasure our Venezuela assets and liabilities at the rate of 6.3 bolivars per U.S. dollar as of February 23, 2014. |
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Equity Instruments. Equity price movements affect our compensation expense as certain investments made by our employees in our deferred compensation plan are revalued. We use equity swaps to manage this risk. As of February 23, 2014, the net notional value of our equity swaps was $92.8 million. These swap contracts mature in fiscal 2015. |
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Fair Value Measurements and Financial Statement Presentation |
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The fair values of our assets, liabilities, and derivative positions recorded at fair value and their respective levels in the fair value hierarchy as of February 23, 2014 and May 26, 2013, were as follows: |
| | Feb. 23, 2014 | | |
| | Fair Values of Assets | | Fair Values of Liabilities | | |
In Millions | | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts (a) (b) | | $ | - | $ | 1.3 | $ | - | $ | 1.3 | | $ | - | $ | - | $ | - | $ | - | | |
Foreign exchange contracts (c) (d) | | | - | | 17.3 | | - | | 17.3 | | | - | | -7.9 | | - | | -7.9 | | |
Total | | | - | | 18.6 | | - | | 18.6 | | | - | | -7.9 | | - | | -7.9 | | |
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Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts (c) (d) | | | - | | 1.8 | | - | | 1.8 | | | - | | -11.4 | | - | | -11.4 | | |
Commodity contracts (c) (e) | | | 3.2 | | 14.3 | | - | | 17.5 | | | - | | -12.2 | | - | | -12.2 | | |
Grain contracts (c) (e) | | | - | | 21.2 | | - | | 21.2 | | | - | | -18.5 | | - | | -18.5 | | |
Total | | | 3.2 | | 37.3 | | - | | 40.5 | | | - | | -42.1 | | - | | -42.1 | | |
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Other assets and liabilities reported at fair value: | | | | | | | | | | | | | | | | | | | | |
Marketable investments (a) (f) | | | 7.1 | | 252.2 | | - | | 259.3 | | | - | | - | | - | | - | | |
Total | | | 7.1 | | 252.2 | | - | | 259.3 | | | - | | - | | - | | - | | |
Total assets, liabilities, and derivative positions recorded at fair value | | $ | 10.3 | $ | 308.1 | $ | - | $ | 318.4 | | $ | - | $ | -50 | $ | - | $ | -50 | | |
(a)Â Â Â Â Â Â Â These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash and cash equivalents. |
(b)Â Â Â Â Â Â Â Based on LIBOR and swap rates. |
(c)Â Â Â Â Â Â Â These contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position. |
(d)Â Â Â Â Â Â Â Based on observable market transactions of spot currency rates and forward currency prices. |
(e)Â Â Â Â Â Â Â Based on prices of futures exchanges and recently reported transactions in the marketplace. |
(f)Â Â Â Â Â Â Â Based on prices of common stock and bond matrix pricing. |
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| | 26-May-13 | | |
| | Fair Values of Assets | | Fair Values of Liabilities | | |
In Millions | | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts (a) (b) | | $ | - | $ | 10.3 | $ | - | $ | 10.3 | | $ | - | $ | - | $ | - | $ | - | | |
Foreign exchange contracts (c) (d) | | | - | | 15.7 | | - | | 15.7 | | | - | | -1.6 | | - | | -1.6 | | |
Total | | | - | | 26 | | - | | 26 | | | - | | -1.6 | | - | | -1.6 | | |
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Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts (c) (d) | | | - | | 6.7 | | - | | 6.7 | | | - | | -0.1 | | - | | -0.1 | | |
Equity contracts (a) (e) | | | - | | - | | - | | - | | | - | | -0.2 | | - | | -0.2 | | |
Commodity contracts (c) (e) | | | 10.3 | | 3.1 | | - | | 13.4 | | | - | | -3.9 | | - | | -3.9 | | |
Grain contracts (c) (e) | | | - | | 7.5 | | - | | 7.5 | | | - | | -30.4 | | - | | -30.4 | | |
Total | | | 10.3 | | 17.3 | | - | | 27.6 | | | - | | -34.6 | | - | | -34.6 | | |
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Other assets and liabilities reported at fair value: | | | | | | | | | | | | | | | | | | | | |
Marketable investments (a) (f) | | | 6.4 | | 134.1 | | - | | 140.5 | | | - | | - | | - | | - | | |
Total | | | 6.4 | | 134.1 | | - | | 140.5 | | | - | | - | | - | | - | | |
Total assets, liabilities, and derivative positions recorded at fair value | | $ | 16.7 | $ | 177.4 | $ | - | $ | 194.1 | | $ | - | $ | -36.2 | $ | - | $ | -36.2 | | |
(a)Â Â Â Â Â Â Â These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash and cash equivalents. |
(b)Â Â Â Â Â Â Â Based on LIBOR and swap rates. |
(c)Â Â Â Â Â Â Â These contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position. |
(d)Â Â Â Â Â Â Â Based on observable market transactions of spot currency rates and forward currency prices. |
(e)Â Â Â Â Â Â Â Based on prices of futures exchanges and recently reported transactions in the marketplace. |
(f)Â Â Â Â Â Â Â Based on prices of common stock and bond matrix pricing. |
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We did not significantly change our valuation techniques from prior periods. |
Information related to our cash flow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the quarterly and nine-month periods ended February 23, 2014 and February 24, 2013, were as follows: |
| | Interest Rate Contracts | | Foreign Exchange Contracts | | Equity Contracts | | Commodity Contracts | | Total |
| | Quarter Ended | | Quarter Ended | | Quarter Ended | | Quarter Ended | | Quarter Ended |
In Millions | Feb. 23, 2014 | Feb. 24, 2013 | Feb. 23, 2014 | Feb. 24, 2013 | Feb. 23, 2014 | Feb. 24, 2013 | Feb. 23, 2014 | Feb. 24, 2013 | Feb. 23, 2014 | Feb. 24, 2013 |
Derivatives in Cash Flow Hedging Relationships: | | | | | | | | | | | | | | | | | | | | |
Amount of gain (loss) recognized in other comprehensive income (OCI) (a) | $ | -0.1 | $ | 10.2 | $ | 11.7 | $ | 22.3 | $ | - | $ | - | $ | - | $ | - | $ | 11.6 | $ | 32.5 |
Amount of gain (loss) reclassified from AOCI into earnings (a) (b) | | -2.9 | | -3.1 | | 2.8 | | -1.4 | | - | | - | | - | | - | | -0.1 | | -4.5 |
Amount of gain recognized in earnings (c) | | - | | 0.2 | | 0.2 | | 0.2 | | - | | - | | - | | - | | 0.2 | | 0.4 |
Derivatives in Fair Value Hedging Relationships: | | | | | | | | | | | | | | | | | | | | |
Amount of net loss recognized in earnings (d) | | -0.2 | | - | | - | | - | | - | | - | | - | | - | | -0.2 | | - |
Derivatives Not Designated as Hedging Instruments: | | | | | | | | | | | | | | | | | | | | |
Amount of gain (loss) recognized in earnings (d) | | - | | - | | -9.1 | | 7 | | 1.4 | | 4 | | 6.4 | | -21.9 | | -1.3 | | -10.9 |
(a)Â Â Â Â Â Â Â Effective portion. |
(b)Â Â Â Â Â Â Â Gain (loss) reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts. |
(c)Â Â Â Â Â Â Â Gain recognized in earnings is related to the ineffective portion of the hedging relationship, including SG&A expenses for foreign exchange contracts and interest, net for interest rate contracts. No amounts were reported as a result of being excluded from the assessment of hedge effectiveness. |
(d)Â Â Â Â Â Â Â Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts, in cost of sales for commodity contracts, and in SG&A expenses for equity contracts and foreign exchange contracts. |
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| | Interest Rate Contracts | | Foreign Exchange Contracts | | Equity Contracts | | Commodity Contracts | | Total |
| | Nine-Month Period Ended | | Nine-Month Period Ended | | Nine-Month Period Ended | | Nine-Month Period Ended | | Nine-Month Period Ended |
In Millions | | Feb. 23, 2014 | | Feb. 24, 2013 | | Feb. 23, 2014 | | Feb. 24, 2013 | | Feb. 23, 2014 | | Feb. 24, 2013 | | Feb. 23, 2014 | | Feb. 24, 2013 | | Feb. 23, 2014 | | Feb. 24, 2013 |
Derivatives in Cash Flow Hedging Relationships: | | | | | | | | | | | | | | | | | | | | |
Amount of gain recognized in other comprehensive income (OCI) (a) | $ | 10.6 | $ | 11.8 | $ | 8.9 | $ | 16.3 | $ | - | $ | - | $ | - | $ | - | $ | 19.5 | $ | 28.1 |
Amount of gain (loss) reclassified from AOCI into earnings (a) (b) | | -9 | | -9.4 | | 12.3 | | -9.4 | | - | | - | | - | | - | | 3.3 | | -18.8 |
Amount of gain recognized in earnings (c) | | - | | - | | - | | 0.3 | | - | | - | | - | | - | | - | | 0.3 |
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Derivatives in Fair Value Hedging Relationships: | | | | | | | | | | | | | | | | | | | | |
Amount of net gain recognized in earnings (d) | | 0.1 | | 1.2 | | - | | - | | - | | - | | - | | - | | 0.1 | | 1.2 |
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Derivatives Not Designated as Hedging Instruments: | | | | | | | | | | | | | | | | | | | | |
Amount of gain (loss) recognized in earnings (d) | | - | | - | | -20.2 | | 8.7 | | 7 | | 8.2 | | -9.6 | | 14.4 | | -22.8 | | 31.3 |
(a)Â Â Â Â Â Â Â Effective portion. |
(b)Â Â Â Â Â Â Â Gain (loss) reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts. |
(c)Â Â Â Â Â Â Â All gain recognized in earnings is related to the ineffective portion of the hedging relationship, including SG&A expenses for foreign exchange contracts. No amounts were reported as a result of being excluded from the assessment of hedge effectiveness. |
(d)Â Â Â Â Â Â Â Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts, in cost of sales for commodity contracts, and in SG&A expenses for equity contracts and foreign exchange contracts. |
Amounts Recorded in Accumulated Other Comprehensive Loss. Unrealized losses from interest rate cash flow hedges recorded in AOCI as of February 23, 2014, totaled $41.1 million after tax. These deferred losses are primarily related to interest rate swaps we entered into in contemplation of future borrowings and other financing requirements and are being reclassified into net interest over the lives of the hedged forecasted transactions. Unrealized gains from foreign currency cash flow hedges recorded in AOCI as of February 23, 2014, were $9.8 million after-tax. The net amount of pre-tax gains and losses in AOCI as of February 23, 2014, that we expect to be reclassified into net earnings within the next 12 months is $3.0 million of income. |
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Credit-Risk-Related Contingent Features. Certain of our derivative instruments contain provisions that require us to maintain an investment grade credit rating on our debt from each of the major credit rating agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on February 23, 2014, was $15.5 million. We would be required to post this amount of collateral to the counterparties if the contingent features were triggered. |
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Credit Risk. We enter into interest rate, foreign exchange, commodity, and equity derivatives primarily with a diversified group of highly rated counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, limit the amount of credit exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties; however, we have not incurred a material loss. We also enter into commodity futures transactions through various regulated exchanges. |
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The amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is $19.0 million against which we do not hold any collateral. Under the terms of master swap agreements, some of our transactions require collateral or other security to support financial instruments subject to threshold levels of exposure and counterparty credit risk. Collateral assets are either cash or U.S. Treasury instruments and are held in a trust account that we may access if the counterparty defaults. |
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We offer certain suppliers access to a third party service that allows them to view our scheduled payments online. The third party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third party, or any financial institutions concerning this service. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of February 23, 2014, $242.9 million of our total accounts payable is payable to suppliers who utilize this third party service. |