DuPont 2008 Annual Report Download - page 100

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Derivatives not Designated in Hedging Relationships
The company uses foreign currency 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 foreign currency exchange contracts and the associated
foreign currency-denominated monetary assets and liabilities results in a minimal earnings impact, after taxes. In
addition, the company has risk management programs for agricultural commodities that do not qualify for hedge
accounting treatment.
Currency Risk
The company uses foreign 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. In addition, foreign
currency exchange contracts are used to offset a portion of the company’s exposure to certain foreign currency
denominated revenues. The objective of the hedge program is to reduce earnings and cash flow volatility related to
changes in foreign currency exchange rates.
From time to time, the company will enter into foreign currency 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. Foreign currency exchange contracts
are also used to manage near-term foreign currency cash requirements.
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, 2008, the company had 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, 2008
and 2007. 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)