DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We account for derivative instruments in accordance with Financial Accounting Standards Board accounting standards which require us to recognize all derivative instruments at fair value. We classify derivatives as assets or liabilities on the balance sheet. As of March 31, 2013 and December 31, 2012, all of our derivative instruments were classified as cash flow hedges.

The fair value of derivative instruments in the Consolidated Balance Sheet as of March 31, 2013 was as follows:

Balance Sheet Caption	Interest Rate Swap Agreements		Foreign Exchange Forward Contracts and Options		Commodities Futures and Options Contracts
In thousands of dollars
Prepaid expense and other current assets	$	—	$	1,481	$	2,610
Other long-term assets	$	3,414	$	—	$	—
Accrued liabilities	$	73	$	817	$	—

The fair value of derivative instruments in the Consolidated Balance Sheet as of December 31, 2012 was as follows:

Balance Sheet Caption	Interest Rate Swap Agreements		Foreign Exchange Forward Contracts and Options		Commodities Futures and Options Contracts
In thousands of dollars
Prepaid expense and other current assets	$	—	$	2,119	$	—
Accrued liabilities	$	12,502	$	917	$	2,010
Other long-term liabilities	$	922	$	—	$	—

The fair value of the interest rate swap agreements represents the difference in the present values of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments.

The fair value of foreign exchange forward contracts and options is the amount of the difference between the contracted and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign exchange forward contracts and options on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. As of March 31, 2013, the fair value of foreign exchange forward contracts with gains totaled $1.5 million and the fair value of foreign exchange forward contracts with losses totaled $0.8 million.

As of March 31, 2013, prepaid expense and other current assets associated with commodities futures and options contracts were associated with cash transfers receivable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. We make or receive cash transfers to or from commodity futures brokers on a daily basis reflecting changes in the value of futures contracts on the IntercontinentalExchange or various other exchanges. These changes in value represent unrealized gains and losses.

The effect of derivative instruments on the Consolidated Statements of Income for the three months ended March 31, 2013 was as follows:

Cash Flow Hedging Derivatives	Interest Rate Swap Agreements			Foreign Exchange Forward Contracts and Options			Commodities Futures and Options Contracts
In thousands of dollars
Gains (losses) recognized in other comprehensive income (“OCI”) (effective portion)	$	7,733		$	(1,507	)	$	(9,320	)
Gains (losses) reclassified from accumulated OCI into income (effective portion) (a)	$	(912	)	$	869		$	(5,800	)
Gains (losses) recognized in income (ineffective portion) (b)	$	(428	)	$	—		$	388

The effect of derivative instruments on the Consolidated Statements of Income for the three months ended April 1, 2012 was as follows:

Cash Flow Hedging Derivatives	Interest Rate Swap Agreements			Foreign Exchange Forward Contracts and Options			Commodities Futures and Options Contracts
In thousands of dollars
Gains (losses) recognized in other comprehensive income (“OCI”) (effective portion)	$	—		$	1,669		$	14,825
Gains (losses) reclassified from accumulated OCI into income (effective portion) (a)	$	(924	)	$	(1,100	)	$	(26,000	)
Gains (losses) recognized in income (ineffective portion) (b)	$	—		$	—		$	651

(a) Gains (losses) reclassified from accumulated OCI into earnings were included in cost of sales for commodities futures and options contracts and for foreign exchange forward contracts and options designated as hedges of purchases of inventory. Other gains and losses for foreign exchange forward contracts and options were included in selling, marketing and administrative expenses. Gains (losses) reclassified from accumulated OCI into earnings were included in interest expense for interest rate swap agreements.

(b) Gains (losses) recognized in earnings were included in cost of sales for commodities futures and options contracts and in interest expense for interest rate swap agreements.

All gains (losses) related to the ineffective portion of the hedging relationship were recognized in earnings. We recognized no components of gains and losses on cash flow hedging derivatives in income due to excluding such components from the hedge effectiveness assessment.

The amount of net losses on cash flow hedging derivatives, including interest rate swap agreements, foreign exchange forward contracts and options, and commodities futures and options contracts, expected to be reclassified into earnings in the next twelve months was approximately $12.3 million after tax as of March 31, 2013. This amount was primarily associated with commodities futures and options contracts.

For more information, refer to the consolidated financial statements and notes included in our 2012 Annual Report on Form 10-K.