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DERIVATIVE FINANCIAL INSTRUMENTS | 12 Months Ended
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Dec. 28, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | FINANCIAL INSTRUMENTS In the first quarter of 2018, the Company elected to early adopt ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedge Activities, which amended the hedge accounting recognition and presentation requirements of ASC 815. ASU 2017-12 required the presentation and disclosure requirements to be applied prospectively and as a result, certain disclosures for fiscal year 2017 conform to the presentation and disclosure requirements prior to the adoption. The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices and commodity prices. As part of the Company’s risk management program, a variety of financial instruments such as interest rate swaps, currency swaps, purchased currency options, foreign exchange contracts and commodity contracts, may be used to mitigate interest rate exposure, foreign currency exposure and commodity price exposure. If the Company elects to do so and if the instrument meets the criteria specified in ASC 815, management designates its derivative instruments as cash flow hedges, fair value hedges or net investment hedges. Generally, commodity price exposures are not hedged with derivative financial instruments and instead are actively managed through customer pricing initiatives, procurement-driven cost reduction initiatives and other productivity improvement projects. Financial instruments are not utilized for speculative purposes. A summary of the fair values of the Company’s derivatives recorded in the Consolidated Balance Sheets at December 28, 2019 and December 29, 2018 follows:
(Millions of Dollars) |  | Balance Sheet Classification |  | 2019 |  | 2018 |  | Balance Sheet Classification |  | 2019 |  | 2018
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts Cash Flow |  | LT other assets |  | $ | — |  |  | $ | — |  |  | LT other liabilities |  | $ | 40.5 |  |  | $ | — |
Foreign Exchange Contracts Cash Flow |  | Other current assets |  | 7.0 |  |  | 18.1 |  |  | Accrued expenses |  | 7.8 |  |  | 0.6 |
Net Investment Hedge |  | Other current assets |  | 18.6 |  |  | 5.7 |  |  | Accrued expenses |  | 8.5 |  |  | 1.5 |
|  | LT other assets |  | — |  |  | — |  |  | LT other liabilities |  | 2.6 |  |  | 13.8 |
Non-derivative designated as hedging instrument: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net Investment Hedge |  |  |  | — |  |  | — |  |  | Short-term borrowings |  | 335.5 |  |  | 228.9 |
Total Designated as hedging instruments |  |  |  | $ | 25.6 |  |  | $ | 23.8 |  |  |  |  | $ | 394.9 |  |  | $ | 244.8 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Foreign Exchange Contracts |  | Other current assets |  | $ | 3.7 |  |  | $ | 9.1 |  |  | Accrued expenses |  | $ | 6.1 |  |  | $ | 5.4 |
Total |  |  |  | $ | 29.3 |  |  | $ | 32.9 |  |  |  |  | $ | 401.0 |  |  | $ | 250.2 |
The counterparties to all of the above mentioned financial instruments are major international financial institutions. The Company is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The credit risk is limited to the asset amounts noted above. The Company limits its exposure and concentration of risk by contracting with diverse financial institutions and does not anticipate non-performance by any of its counterparties. Further, as more fully discussed in Note M, Fair Value Measurements, the Company considers non-performance risk of its counterparties at each reporting period and adjusts the carrying value of these assets accordingly. The risk of default is considered remote. As of December 28, 2019 and December 29, 2018, there were no assets that had been posted as collateral related to the above mentioned financial instruments. In 2019, 2018 and 2017, cash flows related to derivatives, including those that are separately discussed below, resulted in net cash received of $69.9 million, $2.4 million and $2.6 million, respectively. CASH FLOW HEDGES — There were after-tax mark-to-market losses of $54.2 million and $26.8 million as of December 28, 2019 and December 29, 2018, respectively, reported for cash flow hedge effectiveness in Accumulated other comprehensive loss. An after-tax loss of $7.4 million is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next twelve months. The ultimate amount recognized will vary based on fluctuations of the hedged currencies and interest rates through the maturity dates. The tables below detail pre-tax amounts of derivatives designated as cash flow hedges in Accumulated other comprehensive loss for active derivatives during the periods in which the underlying hedged transactions affected earnings for 2019, 2018 and 2017:
2019 (Millions of Dollars) |  | Gain (Loss) Recorded in OCI |  | Classification of Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Recognized in Income on Amounts Excluded from Effectiveness Testing
Interest Rate Contracts |  | $ | (40.5 | ) |  | Interest expense |  | $ | (16.2 | ) |  | $ | — |
Foreign Exchange Contracts |  | $ | (16.7 | ) |  | Cost of sales |  | $ | (6.5 | ) |  | $ | — |
2018 (Millions of Dollars) |  | Gain (Loss) Recorded in OCI |  | Classification of Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Recognized in Income on Amounts Excluded from Effectiveness Testing
Interest Rate Contracts |  | $ | 33.1 |  |  | Interest expense |  | $ | (15.3 | ) |  | $ | — |
Foreign Exchange Contracts |  | $ | 35.9 |  |  | Cost of sales |  | $ | (17.9 | ) |  | $ | — |
2017 (Millions of Dollars) |  | Gain (Loss) Recorded in OCI |  | Classification of Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Reclassified from OCI to Income (Effective Portion) |  | Gain (Loss) Recognized in Income (Ineffective Portion*)
Interest Rate Contracts |  | $ | (8.4 | ) |  | Interest expense |  | $ | — |  |  | $ | — |
Foreign Exchange Contracts |  | $ | (66.6 | ) |  | Cost of sales |  | $ | 8.4 |  |  | $ | — |
* Includes ineffective portion and amount excluded from effectiveness testing on derivatives. A summary of the pre-tax effect of cash flow hedge accounting on the Consolidated Statements of Operations for 2019 and 2018 is as follows:
| 2019 |  | 2018
(Millions of dollars) | Cost of Sales |  | Interest Expense |  | Cost of Sales |  | Interest Expense
Total amount in the Consolidated Statements of Operations in which the effects of the cash flow hedges are recorded | $ | 9,636.7 |  |  | $ | 284.3 |  |  | $ | 9,131.3 |  |  | $ | 277.9 |
Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |
Foreign Exchange Contracts: |  |  |  |  |  |  |
Hedged Items | $ | 6.5 |  |  | $ | — |  |  | $ | 17.9 |  |  | $ | — |
Gain (loss) reclassified from OCI into Income | $ | (6.5 | ) |  | $ | — |  |  | $ | (17.9 | ) |  | $ | — |
Interest Rate Swap Agreements: |  |  |  |  |  |  |
Gain (loss) reclassified from OCI into Income 1 | $ | — |  |  | $ | (16.2 | ) |  | $ | — |  |  | $ | (15.3 | )
1 Inclusive of the gain/loss amortization on terminated derivative financial instruments. For 2017, the hedged items’ impact to the Consolidated Statement of Operations was a loss of $8.4 million in Cost of Sales offsetting the amount shown above. There was no impact related to the interest rate contracts’ hedged items for any period presented. For 2019, 2018 and 2017 after-tax losses of $13.1 million, $15.4 million, and $4.7 million, respectively, were reclassified from Accumulated other comprehensive loss into earnings (inclusive of the gain/loss amortization on terminated derivative financial instruments) during the periods in which the underlying hedged transactions affected earnings. Interest Rate Contracts: The Company enters into interest rate swap agreements in order to obtain the lowest cost source of funds within a targeted range of variable to fixed-rate debt proportions. During 2019, the Company entered into forward starting interest rate swaps totaling $650.0 million to offset expected variability on future interest rate payments associated with debt instruments expected to be issued in the future. During 2019, swaps with a notional amount of $250.0 million matured resulting in a loss of $1.0 million, which was recorded in Accumulated other comprehensive loss and is being amortized to earnings as interest expense over future periods. The cash flows stemming from the maturity of such interest rate swaps designated as cash flow hedges are presented within other financing activities in the Consolidated Statements of Cash Flows. As of December 28, 2019, the Company had $400 million of forward starting swaps outstanding. As of December 30, 2018 all interest rate swaps designated as cash flow hedges matured as discussed below. In 2018, forward starting interest rate swaps with an aggregate notional amount of $400 million fixing 10 years of interest payments ranging from 4.25%-4.85% matured. The objective of the hedges was to offset the expected variability on future payments associated with the interest rate on debt instruments. This resulted in a loss of $22.7 million, which was recorded in Accumulated other comprehensive loss and is being amortized to earnings as interest expense over future periods. The cash flows stemming from the maturity of such interest rate swaps designated as cash flow hedges are presented within other financing activities in the Consolidated Statements of Cash Flows. In January 2020, the Company entered into forward starting interest rate swaps totaling $1.0 billion to offset expected variability on future interest rate payments associated with debt instruments expected to be issued in the future. In February 2020, the Company terminated these swaps resulting in a loss of $20.5 million, which was recorded in Accumulated other comprehensive loss and will be amortized to interest expense over future periods. Foreign Currency Contracts Forward Contracts: Through its global businesses, the Company enters into transactions and makes investments denominated in multiple currencies that give rise to foreign currency risk. The Company and its subsidiaries regularly purchase inventory from subsidiaries with functional currencies different than their own, which creates currency-related volatility in the Company’s results of operations. The Company utilizes forward contracts to hedge these forecasted purchases and sales of inventory. Gains and losses reclassified from Accumulated other comprehensive loss are recorded in Cost of sales as the hedged item affects earnings. There are no components excluded from the assessment of effectiveness for these contracts. At December 28, 2019, and December 29, 2018, the notional values of the forward currency contracts outstanding was $518.2 million and $240.0 million, respectively, maturing on various dates through 2020. Purchased Option Contracts: The Company and its subsidiaries have entered into various intercompany transactions whereby the notional values are denominated in currencies other than the functional currencies of the party executing the trade. In order to better match the cash flows of its intercompany obligations with cash flows from operations, the Company enters into purchased option contracts. Gains and losses reclassified from Accumulated other comprehensive loss are recorded in Cost of sales as the hedged item affects earnings. There are no components excluded from the assessment of effectiveness for these contracts. At December 28, 2019, there were no outstanding option contracts. At December 29, 2018, the notional value of option contracts outstanding was $370.0 million maturing on various dates through 2019. FAIR VALUE HEDGES Interest Rate Risk: In an effort to optimize the mix of fixed versus floating rate debt in the Company’s capital structure, the Company enters into interest rate swaps. In prior years, the Company entered into interest rate swaps related to certain of its notes payable which were subsequently terminated. Amortization of the gain/loss on previously terminated swaps is reported as a reduction of interest expense. Prior to termination, the changes in fair value of the swaps and the offsetting changes in fair value related to the underlying notes were recognized in earnings. The Company did not have any active fair value interest rate swaps at December 28, 2019 or December 29, 2018. A summary of the pre-tax effect of fair value hedge accounting on the Consolidated Statements of Operations for 2019 and 2018 is as follows:
(Millions of dollars) |  | 2019 Interest Expense | 2018 Interest Expense
Total amount in the Consolidated Statements of Operations in which the effects of the fair value hedges are recorded |  | $ | 284.3 |  | $ | 277.9 |
Amortization of gain on terminated swaps |  | $ | (7.7 | ) | $ | (3.2 | )
Amortization of the gain/loss on terminated swaps of $3.2 million was reported as a reduction of interest expense in 2017. In February 2019, the Company redeemed all of the outstanding 2053 Junior Subordinated Debentures as discussed in Note H, Long-Term Debt and Financing Arrangements. As a result, the Company recorded a pre-tax gain of $4.6 million relating to the remaining unamortized gain on swap termination related to this debt. A summary of the amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges as of 2019 and 2018 is as follows:
(Millions of dollars) |  | 2019 Carrying Amount of Hedged Liability1 |  | 2019 Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
Current maturities of long-term debt |  | $ | 3.1 |  |  | Terminated Swaps |  | $ | 3.1 |
Long-Term Debt |  | $ | 3,176.4 |  |  | Terminated Swaps |  | $ | (17.5 | )
1Represents hedged items no longer designated in qualifying fair value hedging relationships.
(Millions of dollars) |  | 2018 Carrying Amount of Hedged Liability1 |  | 2018 Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
Current maturities of long-term debt |  | $ | 2.5 |  |  | Terminated Swaps |  | $ | 2.1 |
Long-Term Debt |  | $ | 3,819.8 |  |  | Terminated Swaps |  | $ | (10.0 | )
1Represents hedged items no longer designated in qualifying fair value hedging relationships. NET INVESTMENT HEDGES Foreign Exchange Contracts: The Company utilizes net investment hedges to offset the translation adjustment arising from re-measurement of its investment in the assets and liabilities of its foreign subsidiaries. The total after-tax amounts in Accumulated other comprehensive loss were gains of $97.3 million and $63.3 million at December 28, 2019 and December 29, 2018, respectively. As of December 28, 2019, the Company had cross currency swaps with a notional value totaling $1.1 billion maturing on various dates through 2023 hedging a portion of its Japanese yen, Euro and Swiss franc denominated net investments and Euro denominated commercial paper with a value of $335.5 million maturing in 2020 hedging a portion of its Euro denominated net investments. As of December 29, 2018, the Company had foreign exchange contracts maturing on various dates through 2019 with notional values totaling $262.4 million outstanding hedging a portion of its British pound sterling, Swedish krona, and Euro denominated net investments; a cross currency swap with a notional value totaling $250.0 million maturing in 2023 hedging a portion of its Japanese yen denominated net investment; an option contract with a notional value totaling $35.1 million maturing in 2019 hedging a portion of its Mexican peso denominated net investment; and Euro denominated commercial paper with a value of $228.9 million maturing in 2019 hedging a portion of its Euro denominated net investments. In January 2020, the Company entered into cross currency swaps with notional values totaling $1.4 billion maturing in 2021 hedging a portion of its Euro, British pound sterling, Swedish krona and Swiss franc denominated net investments. Maturing foreign exchange contracts resulted in net cash received of $8.0 million and $25.7 million during 2019 and 2018, respectively, and cash paid of $23.3 million during 2017. Gains and losses on net investment hedges remain in Accumulated other comprehensive loss until disposal of the underlying assets. Upon adoption of ASU 2017-12, gains and losses representing components excluded from the assessment of effectiveness are recognized in earnings in Other, net on a straight-line basis over the term of the hedge. Prior to the adoption of ASU 2017-12, no components were excluded from the assessment of effectiveness. Gains and losses after a hedge has been de-designated are recorded directly to the Consolidated Statements of Operations in Other, net. The pre-tax gains and losses from fair value changes during 2019 and 2018 were as follows:
|  | 2019
(Millions of Dollars) |  | Total Gain (Loss) Recorded in OCI |  | Excluded Component Recorded in OCI |  | Income Statement Classification |  | Total Gain (Loss) Reclassified from OCI to Income |  | Excluded Component Amortized from OCI to Income
Forward Contracts |  | $ | 6.4 |  |  | $ | 4.6 |  |  | Other, net |  | $ | 4.3 |  |  | $ | 4.3 |
Cross Currency Swap |  | $ | 54.8 |  |  | $ | 48.8 |  |  | Other, net |  | $ | 29.9 |  |  | $ | 29.9 |
Option Contracts |  | $ | (3.7 | ) |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
Non-derivative designated as Net Investment Hedge |  | $ | 21.7 |  |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
|  | 2018
(Millions of Dollars) |  | Total Gain (Loss) Recorded in OCI |  | Excluded Component Recorded in OCI |  | Income Statement Classification |  | Total Gain (Loss) Reclassified from OCI to Income |  | Excluded Component Amortized from OCI to Income
Forward Contracts |  | $ | 37.1 |  |  | $ | 8.6 |  |  | Other, net |  | $ | 8.2 |  |  | $ | 8.2 |
Cross Currency Swap |  | $ | (2.3 | ) |  | $ | 5.8 |  |  | Other, net |  | $ | 6.8 |  |  | $ | 6.8 |
Option Contracts |  | $ | (2.0 | ) |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
Non-derivative designated as Net Investment Hedge |  | $ | 61.8 |  |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
The pre-tax loss from fair value changes during 2017 was as follows:
|  | 2017
Income Statement Classification (Millions of Dollars) |  | Amount Recorded in OCI Gain (Loss) |  | Effective Portion Recorded in Income Statement |  | Ineffective Portion* Recorded in Income Statement
Other-net |  | $ | (131.3 | ) |  | $ | — |  |  | $ | — |
*Includes ineffective portion. As discussed in Note H, Long-Term Debt and Financing Arrangements, the Company has a commercial paper program which authorizes Euro denominated borrowings in addition to U.S. Dollars. Euro denominated borrowings against this commercial paper program are designated as a net investment hedge against a portion of its Euro denominated net investment. As of December 28, 2019 and December 29, 2018, the Company had $335.5 million and $228.9 million, respectively, in Euro denominated borrowings outstanding against this commercial paper program. UNDESIGNATED HEDGES Foreign Exchange Contracts: Currency swaps and foreign exchange forward contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (such as affiliate loans, payables and receivables). The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results. The total notional amount of the forward contracts outstanding at December 28, 2019 was $946.8 million maturing on various dates through 2020. The total notional amount of the forward contracts outstanding at December 29, 2018 was $1.0 billion maturing on various dates through 2019. The gain (loss) recorded in the income statement from changes in the fair value related to derivatives not designated as hedging instruments under ASC 815 for 2019, 2018 and 2017 are as follows:
(Millions of Dollars) | Income Statement Classification |  | 2019 |  | 2018 |  | 2017
Foreign Exchange Contracts | Other-net |  | $ | (4.1 | ) |  | $ | 17.0 |  |  | $ | 51.5 |

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- 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 + Details
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