DuPont 2007 Annual Report Download - page 101

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Derivatives not Designated in Hedging Relationships
The company uses forward exchange contracts to reduce its net exposure, by currency, related to foreign currency-
denominated monetary assets and liabilities. The netting of such exposures precludes the use of hedge accounting.
However, the required revaluation of the forward contracts and the associated foreign currency-denominated
monetary assets and liabilities results in a minimal earnings impact, after taxes. In addition, the company maintains a
few small risk management programs for agricultural commodities that do not qualify for hedge accounting
treatment.
Currency Risk
The company routinely uses forward exchange contracts to offset its net exposures, by currency, related to monetary
assets and liabilities of its operations that are denominated in currencies other than the designated functional
currency. The primary business objective is to maintain an approximately balanced position in foreign currencies so
that exchange gains and losses resulting from exchange rate changes, net of related tax effects, are minimized.
From time to time, the company will enter into forward exchange contracts to establish with certainty the functional
currency amount of future firm commitments denominated in another currency. Decisions regarding whether or not
to hedge a given commitment are made on a case-by-case basis, taking into consideration the amount and duration
of the exposure, market volatility and economic trends. Forward exchange contracts are also used to manage near-
term foreign currency cash requirements and to place foreign currency deposits and marketable securities
investments.
Interest Rate Risk
The company primarily uses interest rate swaps to manage the interest rate mix of the total debt portfolio and related
overall cost of borrowing.
Interest rate swaps involve the exchange of fixed for floating rate interest payments that are fully integrated with
underlying fixed-rate bonds or notes to effectively convert fixed rate debt into floating rate debt based on USD
LIBOR.
At December 31, 2007, the company had entered into interest rate swap agreements with total notional amounts of
approximately $1,150, whereby the company, over the remaining terms of the underlying notes, will receive a fixed
rate payment equivalent to the fixed interest rate of the underlying note and pay a floating rate of interest that is
based on USD LIBOR.
Interest rate swaps did not have a material effect on the company’s overall cost of borrowing at December 31, 2007
and 2006. See Note 17 for additional descriptions of interest rate swaps.
Commodity Price Risk
The company enters into over-the-counter and exchange-traded derivative commodity instruments to hedge the
commodity price risk associated with energy feedstock and agricultural commodity exposures.
F-44
E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)