XML 33 R21.htm IDEA: XBRL DOCUMENT
v3.21.2

Derivative Financial Instruments | 9 Months Ended
--- | ---
Jul. 03, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | DERIVATIVE FINANCIAL INSTRUMENTS Our business operations give rise to certain market risk exposures mostly due to changes in commodity prices, foreign currency exchange rates and interest rates. We manage a portion of these risks through the use of derivative financial instruments to reduce our exposure to commodity price risk, foreign currency risk and interest rate risk. Our risk management programs are periodically reviewed by our Board of Directors' Audit Committee. These programs and risks are monitored by senior management and may be revised as market conditions dictate. Our current risk management programs utilize various industry-standard models that take into account the implicit cost of hedging. Credit risks associated with our derivative contracts are not significant as we minimize counterparty exposure by dealing with credit-worthy counterparties and utilizing exchange traded instruments, margin accounts or letters of credit. Additionally, our derivative contracts are mostly short-term in duration and we generally do not make use of credit-risk-related contingent features. No significant concentrations of credit risk related to our derivative financial instruments existed at July 3, 2021. We had the following net aggregated outstanding notional amounts related to our derivative financial instruments:
in millions, except soybean meal tons | Metric |  | July 3, 2021 |  | October 3, 2020
Commodity: |  |  |  |  |
Corn | Bushels |  | 32 |  |  | 43 |
Soybean Meal | Tons |  | 767,133 |  |  | 428,300 |
Live Cattle | Pounds |  | 337 |  |  | 234 |
Lean Hogs | Pounds |  | 378 |  |  | 283 |
Foreign Currency | United States dollar |  | $ | 117 |  |  | $ | 536 |
We recognize all derivative instruments as either assets or liabilities at fair value in the Consolidated Condensed Balance Sheets, with the exception of normal purchases and normal sales expected to result in physical delivery. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument based upon the exposure being hedged (e.g., cash flow hedge or fair value hedge). We designate certain forward contracts as follows: •Cash Flow Hedges – include certain commodity forward and option contracts of forecasted purchases (e.g., grains), interest rate swaps and locks, and certain foreign exchange forward contracts. •Fair Value Hedges – include certain commodity forward contracts of firm commitments (e.g., livestock). Cash Flow Hedges Derivative instruments are designated as hedges against changes in the amount of future cash flows related to procurement of certain commodities utilized in our production processes as well as interest rates related to our variable rate debt. For the derivative instruments we designate and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of July 3, 2021, we had $15 million of realized losses related to treasury rate locks in connection with the issuance of the 2026, 2029 and 2048 Notes, which will be reclassified to earnings over the lives of these notes. During the nine months ended July 3, 2021 and June 27, 2020, we did not reclassify significant pretax gains or losses into earnings as a result of the discontinuance of cash flow hedges. The following table sets forth the pretax impact of cash flow hedge and derivative instruments recognized in Other Comprehensive Income (in millions):
Gain (Loss) Recognized in OCI On Derivatives | Three Months Ended |  | Nine Months Ended
July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Cash flow hedge – derivatives designated as hedging instruments: |  |  |  |  |  |  |
Commodity contracts | $ | — |  |  | $ | (7) |  |  | $ | — |  |  | $ | (18) |
Interest rate hedges | — |  |  | (1) |  |  | — |  |  | (2) |
Total | $ | — |  |  | $ | (8) |  |  | $ | — |  |  | $ | (20) |
Fair Value Hedges We designate certain derivative contracts as fair value hedges of firm commitments to purchase livestock for harvest. 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. 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 (e.g., 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 fair value hedges was not significant for the three and nine months ended July 3, 2021, and June 27, 2020. The following table sets forth the carrying amount of fair value hedge (assets) liabilities as of July 3, 2021 and October 3, 2020 (in millions):
Consolidated Condensed Balance Sheets Classification |  | July 3, 2021 |  | October 3, 2020 |  |  |  |
Inventory |  |  | $ | 23 |  |  | $ | 6 |  |  |  |  |
Undesignated Positions In addition to our designated positions, we also hold derivative 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. Reclassification to Earnings The following table sets forth the total amounts of each income and expense line item presented in the Consolidated Condensed Statements of Income in which the effects of hedges are recorded (in millions):
Consolidated Condensed Statements of Income Classification | Three Months Ended |  | Nine Months Ended
July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Cost of Sales | $ | 10,858 |  |  | $ | 8,709 |  |  | $ | 30,188 |  |  | $ | 27,951 |
Interest Expense | 105 |  |  | 122 |  |  | 325 |  |  | 361 |
Other, net | (7) |  |  | (11) |  |  | (38) |  |  | (133) |
The following table sets forth the pretax impact of the cash flow, fair value and undesignated derivative instruments in the Consolidated Condensed Statements of Income (in millions):
Consolidated Condensed Statements of Income Classification | Three Months Ended |  | Nine Months Ended
July 3, 2021 |  | June 27, 2020 |  | July 3, 2021 |  | June 27, 2020
Cost of Sales | Gain (Loss) on cash flow hedges reclassified from OCI to Earnings: |  |  |  |  |  |  |
| Commodity contracts | $ | — |  |  | $ | (7) |  |  | $ | (1) |  |  | $ | (14) |
| Gain (Loss) on fair value hedges: |  |  |  |  |  |  |
| Commodity contracts (a) | (25) |  |  | 69 |  |  | (40) |  |  | 116 |
| Gain (Loss) on derivatives not designated as hedging instruments: |  |  |  |  |  |  |
| Commodity contracts | 66 |  |  | (74) |  |  | 162 |  |  | (171) |
Total |  | $ | 41 |  |  | $ | (12) |  |  | $ | 121 |  |  | $ | (69) |
Interest Expense | Gain (Loss) on cash flow hedges reclassified from OCI to Earnings: |  |  |  |  |  |  |
| Interest rate contracts | $ | — |  |  | $ | (1) |  |  | $ | (1) |  |  | $ | (3) |
Other, net | Gain (Loss) on derivatives not designated as hedging instruments: |  |  |  |  |  |  |
| Foreign exchange contracts | $ | (3) |  |  | $ | (4) |  |  | $ | (2) |  |  | $ | (3) |
(a) Amounts represent gains/(losses) on commodity contracts designated as fair value hedges of firm commitments that were realized during the period presented, which were offset by a corresponding gain/(loss) on the underlying hedged inventory. Gains or losses related to changes in the fair value of unrealized commodity contracts, along with the offsetting gain or loss on the hedged inventory, are also marked-to-market through earnings with no impact on a net basis. The fair value of all outstanding derivative instruments in the Consolidated Condensed Balance Sheets are included in Note 12: Fair Value Measurements.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration