DuPont 2010 Annual Report Download - page 103

Download and view the complete annual report

Please find page 103 of the 2010 DuPont annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 117

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117

E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
company to achieve a target range of floating rate debt. All interest rate swaps qualify for the shortcut method of hedge
accounting, thus there is no ineffectiveness related to these hedges. The company maintains no other significant fair
value hedges. At December 31, 2010 and 2009, the company had interest rate swap agreements with gross notional
amounts of approximately $1,000 and $1,900, respectively.
Cash Flow Hedges
The company maintains a number of cash flow hedging programs to reduce risks related to foreign currency and
commodity price risk. While each risk management program has a different time maturity period, most programs
currently do not extend beyond the next two-year period.
The company uses foreign currency exchange contracts to offset a portion of the company’s exposure to certain
foreign currency-denominated revenues so that gains and losses on these contracts offset changes in the USD value of
the related foreign currency-denominated revenues. At December 31, 2010 and 2009, the company had foreign
currency exchange contracts with gross notional amounts of approximately $1,220 and $293, respectively.
A portion of natural gas purchases are hedged to reduce price volatility using fixed price swaps and options. At
December 31, 2010 and 2009, the company had energy feedstock and other contracts with gross notional amounts of
approximately $151 and $277, respectively.
The company contracts with independent growers to produce seed inventory. Under these contracts, growers are
compensated with bushel equivalents that are sold to the company for the market price of grain for a period of time.
Derivative instruments, such as commodity futures and options that have a high correlation to the underlying
commodity, are used to hedge the commodity price risk involved in compensating growers.
The company utilizes agricultural commodity futures to manage the price volatility of soybean meal. These derivative
instruments have a high correlation to the underlying commodity exposure and are deemed effective in offsetting
soybean meal feedstock price risk.
At December 31, 2010 and 2009, the company had agricultural commodity contracts with gross notional amounts of
approximately $297 and $332, respectively.
During 2010 and 2009, the company entered into treasury rate contracts to hedge the company’s exposure to treasury
rates on a portion of planned bond issuances. The contracts were terminated at the time the bonds were issued prior to
year end.
Cash flow hedge results are reclassified into earnings during the same period in which the related exposure impacts
earnings. Reclassifications are made sooner if it appears that a forecasted transaction will not materialize. The following
table summarizes the effect of cash flow hedges on accumulated other comprehensive income (loss) for the years
ended December 31, 2010 and 2009:
2010 2009
Pre-tax Tax After-tax Pre-tax Tax After-tax
Beginning balance $(101) $ 36 $(65) $(246) $ 88 $(158)
Additions and revaluations of
derivatives designated as cash
flow hedges (36) 14 (22) (48) 17 (31)
Clearance of hedge results to
earnings 90 (34) 56 193 (69) 124
Ending balance $ (47) $ 16 $(31) $(101) $ 36 $ (65)
Portion of ending balance
expected to be reclassified into
earnings over the next twelve
months $ (69) $ 24 $(45) $ (54) $ 19 $ (35)
F-44