DuPont 2012 Annual Report Download - page 89
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(Dollars in millions, except per share)
Interest Rate Risk
The company 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 to effectively convert fixed rate debt into floating rate debt based on USD
LIBOR. Interest rate swaps allow the company to achieve a target range of floating rate debt.
Commodity Price Risk
Commodity price risk management programs serve to reduce exposure to price fluctuations on purchases of inventory such as copper, corn, soybeans and
soybean meal. 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.
Interest Rate Swaps
At December 31, 2012, the company maintained a number of interest rate swaps, which were implemented at the time debt instruments were issued. All
interest rate swaps qualify for the shortcut method of hedge accounting, thus there is no ineffectiveness related to these hedges.
Foreign Currency Contracts
The company uses foreign currency exchange instruments such as forwards and options 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.
Commodity Contracts
The company enters into over-the-counter and exchange-traded derivative commodity instruments, including options, futures and swaps, to hedge the
commodity price risk associated with energy feedstock and agriculture commodity exposures.
Treasury Rate Contracts
During 2010, 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.
While each risk management program has a different time maturity period, most programs currently do not extend beyond the next two-year period. 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 after-tax effect of cash flow hedges on accumulated other
comprehensive income (loss) for the years ended December 31, 2012 and 2011:
Beginning balance $41 $(31)
Additions and revaluations of derivatives designated as cash flow hedges (1) 12
Clearance of hedge results to earnings (37) 60
Ending balance $3$41
During the next 12 months, the after-tax amount expected to be reclassified from accumulated other comprehensive income (loss) into earnings is $9.
F-41