Tyson Foods 2013 Annual Report Download - page 56

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56
The following table sets forth the pretax impact of cash flow hedge derivative instruments in the Consolidated Statements of Income:
in millions
Gain/(Loss)
Recognized in OCI
on Derivatives
Consolidated
Statements of Income
Classification
Gain/(Loss)
Reclassified from
OCI to Earnings
2013 2012 2011 2013 2012 2011
Cash Flow Hedge – Derivatives
designated as hedging instruments:
Commodity contracts $ (29) $ 24 $ (5) Cost of Sales $ (5) $ (16) $ 25
Foreign exchange contracts (2) (8) 9 Other Income/Expense (4) 4 —
Total $ (31) $ 16 $ 4 $ (9) $ (12) $ 25
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 notional values of outstanding forward contracts entered into to hedge
firm commitments which are accounted for as a fair value hedge:
in millions
Metric September 28, 2013 September 29, 2012
Commodity:
Live Cattle Pounds 209 232
Lean Hogs Pounds 384 239
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 2013 2012 2011
Gain/(Loss) on forwards Cost of Sales $ 21 $ 47 $ (78)
Gain/(Loss) on purchase contract Cost of Sales (21)(47) 78
Ineffectiveness related to our fair value hedges was not significant during fiscal 2013, 2012 and 2011.
Undesignated positions
In addition to our designated positions, we also hold forward and option contracts for which we do not apply hedge accounting. These
include certain derivative instruments related to commodities price risk, including grains, livestock, energy and foreign currency risk.
We mark these positions to fair value through earnings at each reporting date. We generally do not enter into undesignated positions
beyond 18 months.
The objective of our undesignated grains, livestock and energy commodity positions is to reduce the variability of cash flows
associated with the forecasted purchase of certain grains, energy and livestock inputs to our production processes. We also enter into
certain forward sales of boxed beef and boxed pork and forward purchases of cattle and hogs at fixed prices. The fixed price sales
contracts lock in the proceeds from a future sale and the fixed cattle and hog purchases lock in the cost. However, the cost of the
livestock and the related boxed beef and boxed pork market prices at the time of the sale or purchase could vary from this fixed price.
As we enter into fixed forward sales of boxed beef and boxed pork and forward purchases of cattle and hogs, we also enter into the
appropriate number of livestock options and futures positions to mitigate a portion of this risk. Changes in market value of the open
livestock options and futures positions are marked to market and reported in earnings at each reporting date, even though the
economic impact of our fixed prices being above or below the market price is only realized at the time of sale or purchase. These
positions generally do not qualify for hedge treatment due to location basis differences between the commodity exchanges and the
actual locations when we purchase the commodities.