Tyson Foods 2014 Annual Report Download - page 75

The following table sets forth the pretax impact of cash flow hedge derivative instruments in the Consolidated Statements of Income:
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:
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.
Ineffectiveness related to our fair value hedges was not significant during fiscal 2014 , 2013 and 2012 .
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.
67
in millions
Gain/(Loss)
Recognized in OCI
on Derivatives
Consolidated
Statements of Income
Classification
Gain/(Loss)
Reclassified from
OCI to Earnings
2014
2013
2012
2014
2013
2012
Cash Flow Hedge – Derivatives designated
as hedging instruments:
Commodity contracts
$
(7
)
$
(29
)
$
24
Cost of Sales
$
(10
)
$
(5
)
$
(16
)
Foreign exchange contracts
(1
)
(2
)
(8
)
Other Income/Expense
— (
4
)
4
Total
$
(8
)
$
(31
)
$
16
$
(10
)
$
(9
)
$
(12
)
in millions
Metric
September 27, 2014
September 28, 2013
Commodity:
Live Cattle
Pounds
427
209
Lean Hogs
Pounds
329
384
in millions
Consolidated
Statements of Income
Classification
2014
2013
2012
Gain/(Loss) on forwards
Cost of Sales
$
(154
)
$
21
$
47
Gain/(Loss) on purchase contract
Cost of Sales
154
(21
)
(47
)