Sara Lee 2008 Annual Report Download - page 69

The following table summarizes by major currency the contractual
amounts of the corporation’s forward exchange contracts used in
continuing operations in U.S. dollars. The bought amounts represent
the net U.S. dollar equivalent of commitments to purchase foreign
currencies, and the sold amounts represent the net U.S. dollar
equivalent of commitments to sell foreign currencies. The foreign
currency amounts have been translated into a U.S. dollar equivalent
value using the exchange rate at the reporting date. Forward
exchange contracts mature at the anticipated cash requirement
date of the hedged transaction, generally within one year.
2008 2007 2006
Foreign currency – bought (sold)
European euro $«122 $÷«16 $÷88
British pound (180) (151) (66)
Brazilian real 43 26 4
Danish krone 50 48 (8)
Hungarian forint 329 255 188
Russian ruble (38) (47) (14)
Australian dollar 111 (36) 2
Other (21) (65) (18)
The corporation held foreign exchange option contracts to
reduce the foreign exchange fluctuations on anticipated purchase
transactions. The following table summarizes the notional amount
of option contracts relating to continuing operations to sell foreign
currency, in U.S. dollars:
2008 2007 2006
Foreign currency sold
European euro $– $8 $547
Australian dollar –9–
The following table summarizes the net derivative gains or
losses deferred into accumulated other comprehensive income and
reclassified to earnings in 2008, 2007 and 2006:
2008 2007 2006
Net accumulated derivative gain (loss)
deferred at beginning of year $÷(4) $(42) $(14)
Deferral of net derivative gain (loss) in
accumulated other comprehensive income (27) 29 (38)
Spin off of Hanesbrands –4–
Reclassification of net derivative (gain) loss
to income 52 5 10
Net accumulated derivative gain (loss)
at end of year $«21 $÷(4) $(42)
At June 28, 2008, the maximum maturity date of any cash flow
hedge was 5.0 years (principally two currency swaps that mature in
2012 and 2013), excluding any forward exchange, option or swap
contracts related to the payment of variable interest on existing
financial instruments. The corporation expects to reclassify into
earnings during the next 12 months net gains from accumulated
other comprehensive income of $14 at the time the underlying
hedged transactions are realized. In 2008, 2007 and 2006, hedge
ineffectiveness was insignificant. In 2008, 2007 and 2006, deriva-
tive losses excluded from the assessment of effectiveness, and
gains or losses resulting from the disqualification of hedge account-
ing are insignificant in each of these periods.
Non-U.S. Dollar Financing Transactions The corporation uses
non-U.S. dollar financing transactions as net investment hedges of
long-term investments in the corresponding foreign currency. Hedges
that meet the effectiveness requirements are accounted for under
net investment hedging rules. For 2008, 2007 and 2006, a net loss
of $378, $77 and $70, respectively, arising from effective hedges
of net investments has been reflected in the cumulative translation
adjustment account within common stockholders’ equity.
Fair Values The carrying amounts of cash and equivalents, trade
accounts receivable, notes payable and accounts payable approxi-
mated fair value as of June 28, 2008 and June 30, 2007. The fair
value of the remaining financial instruments recognized in continuing
operations on the Consolidated Balance Sheets of the corporation
at the respective year-ends were:
2008 2007
Long-term debt, including current portion $2,929 $4,161
Interest rate swaps 10 (18)
Currency swaps (311) (216)
Foreign currency forwards and options 77
Commodity forwards and options 33 7
The fair value of the corporation’s long-term debt, including the
current portion, is estimated using discounted cash flows based
on the corporation’s current incremental borrowing rates for similar
types of borrowing arrangements. The fair value of interest rate and
currency swaps is determined based upon externally developed pricing
models, using financial market data obtained from swap dealers. The
fair value of foreign currency and commodity forwards and options
is based upon information obtained from third-party institutions.
Sara Lee Corporation and Subsidiaries 67