as fair value hedges and the assessment of effectiveness is based on changes in the fair value of the underlying debt, using incre- mental borrowing rates currently available on loans with similar terms and maturities. ment. Gains and losses on these instruments are recorded in earn- ings, offsetting gains and losses on the hedged item. For all fair value hedges, gains and losses representing either hedge ineffec- tiveness or hedge components excluded from the assessment of effectiveness were insignificant during the periods presented. Qualifying derivative and nonderivative financial instruments are accounted for as net investment hedges when the hedged item is a foreign currency investment in a subsidiary. Gains and losses on these instruments are recorded as a foreign currency translation adjustment in other comprehensive income. The Company is exposed to price fluctuations primarily as a result of anticipated purchases of raw and packaging materials. The Company uses the combination of long cash positions with suppli- ers, and exchange-traded futures and option contracts to reduce price fluctuations in a desired percentage of forecasted purchases over a duration of generally less than 18 months. Commodity contracts are accounted for as cash flow hedges. The assessment of effectiveness is based on changes in futures prices. The Company is exposed to credit loss in the event of nonperfor- mance by counterparties on derivative financial and commodity contracts. This credit loss is limited to the cost of replacing these contracts at current market rates. Management believes the proba- bility of such loss is remote. Financial instruments, which potentially subject the Company to concentrations of credit risk, are primarily cash, cash equivalents, and accounts receivable. The Company places its investments in highly rated financial institutions and investment-grade short-term debt instruments, and limits the amount of credit exposure to any one entity. Historically, concentrations of credit risk with respect to accounts receivable have been limited due to the large number of customers, generally short payment terms, and their dispersion across geographic areas. However, there has been significant worldwide consolidation in the grocery industry in recent years. At December 27, 2003, the Company’s five largest customers globally comprised approximately 20% of consolidated accounts receivable. The Company is exposed to fluctuations in foreign currency cash flows related primarily to third-party purchases, intercompany loans and product shipments, and nonfunctional currency denomi- nated third party debt. The Company is also exposed to fluctua- tions in the value of foreign currency investments in subsidiaries and cash flows related to repatriation of these investments. Additionally, the Company is exposed to volatility in the transla- tion of foreign currency earnings to U.S. Dollars. The Company as- sesses foreign currency risk based on transactional cash flows and translational positions and enters into forward contracts, options, and currency swaps to reduce fluctuations in net long or short cur- rency positions. Forward contracts and options are generally less than 18 months duration. Currency swap agreements are estab- lished in conjunction with the term of underlying debt issues. The Company also enters into foreign currency forward contracts and options to reduce volatility in the translation of foreign cur- rency earnings to U.S. Dollars. Gains and losses on these instru- ments are recorded in other income (expense), net, generally reduc- ing the exposure to translation volatility during a full-year period. For foreign currency cash flow and fair value hedges, the assess- ment of effectiveness is generally based on changes in spot rates. Changes in time value are reported in other income (expense), net. The Company is exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing issuances of vari- able rate debt. The Company currently uses interest rate swaps, in- cluding forward-starting swaps, to reduce interest rate volatility and funding costs associated with certain debt issues, and to achieve a desired proportion of variable versus fixed rate debt, based on current and projected market conditions. Variable-to-fixed interest rate swaps are accounted for as cash flow hedges and the assessment of effectiveness is based on changes in the present value of interest payments on the underly- ing debt. Fixed-to-variable interest rate swaps are accounted for Note 13 Quarterly financial data (unaudited) Interest rate risk Foreign exchange risk Other contracts Net investment hedges Price risk Credit risk concentration (millions, except per share data) Net sales Gross profit 2003 2002 2003 2002 First $ 2,147.5 $2,061.8 $ 916.4 $8 84.6 Second 2,247.4 2,125.1 1,0 15.3 963.6 Third 2,281.6 2,136.5 1,0 34.0 973.1 Fourth 2,135.0 1,980.7 946.9 913.8 $ 8,811.5 $8,304.1 $ 3,912.6 $3,735.1 Net earnings Net earnings per share 2003 2002 2003 2002 Basic Diluted Basic Diluted First $ 163.9 $152.6 $.40 $.40 $. 3 7 $.3 7 Second  203.9 173.8 .50 .50 .42 .42 Third 231.3 203.5 . 57 .56 .50 .49 Fourth 188.0 191.0 .46 .46 .47 .47 $ 787.1 $720.9 Earning Our Stripes 48