Tyson Foods 2011 Annual Report Download - page 57

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57
The following table sets forth the pretax impact of cash flow hedge derivative instruments on the Consolidated Statements of Income
(in millions):
Gain/(Loss)
Consolidated
Gain/(Loss)
Recognized in OCI
Statements of Income
Reclassified from
on Derivatives
Classification
OCI to Earnings
2011
2010
2009
2011
2010
2009
Cash Flow Hedge – Derivatives designated
as hedging instruments:
Commodity contracts
$(5)
$6
$(61)
Cost of Sales
$25
$(6)
$(67)
Foreign exchange contracts
9
1
8
Other Income/Expense
0
1
6
Total
$4
$7
$(53)
$25
$(5)
$(61)
Fair value hedges
We designate certain futures contracts as fair value hedges of firm commitments to purchase livestock for slaughter. Our objective of these
hedges is to minimize the risk of changes in fair value created by fluctuations in commodity prices associated with fixed price livestock
firm commitments. We had the following aggregated notionals of outstanding forward contracts entered into to hedge forecasted
commodity purchases which are accounted for as a fair value hedge:
Metric
October 1, 2011
October 2, 2010
Commodity:
Live Cattle
Pounds
318 million
361 million
Lean Hogs
Pounds
601 million
508 million
For these derivative instruments we designate and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting
gain or loss on the hedged item attributable to the hedged risk, are recognized in earnings in the same period. We include the gain or loss on
the hedged items (i.e., livestock purchase firm commitments) in the same line item, Cost of Sales, as the offsetting gain or loss on the
related livestock forward position.
in millions
Consolidated
Statements of Income
Classification
2011
2010
2009
Gain/(Loss) on forwards
Cost of Sales
$(78)
$(58)
$152
Gain/(Loss) on purchase contract
Cost of Sales
78
58
(152)
Ineffectiveness related to our fair value hedges was not significant during fiscal 2011, 2010 and 2009.
Foreign net investment hedges
We utilize forward foreign exchange contracts to protect the value of our net investments in certain foreign subsidiaries. For derivative
instruments that are designated and qualify as a hedge of a net investment in a foreign currency, the gain or loss is reported in OCI as part of
the cumulative translation adjustment to the extent it is effective, with the related amounts due to or from counterparties included in other
liabilities or other assets. We utilize the forward-rate method of assessing hedge effectiveness. Any ineffective portions of net investment
hedges are recognized in the Consolidated Statements of Income during the period of change. Ineffectiveness related to our foreign net
investment hedges was not significant during fiscal 2011, 2010 and 2009. At October 1, 2011, and October 2, 2010, we had $35 million
and $49 million aggregate outstanding notionals related to our forward foreign currency contracts accounted for as foreign net investment
hedges.
The following table sets forth the pretax impact of these derivative instruments on the Consolidated Statements of Income (in
millions):
Gain/(Loss)
Consolidated
Gain/(Loss)
Recognized in OCI
Statements of Income
Reclassified from
on Derivatives
Classification
OCI to Earnings
2011
2010
2009
2011
2010
2009
Net Investment Hedge – Derivatives
designated as hedging instruments:
Foreign exchange contracts
$(2)
$(1)
$(5)
Other Income/Expense
$0
$0
$(2)