BGC » Topics » Hedging Programs

These excerpts taken from the BGC 8-K filed Sep 26, 2007.
Hedging Programs
 
The Company does not purchase, hold or sell derivative financial instruments unless it has an existing asset or obligation or anticipates a future activity that is likely to occur that will result in exposing the Company to market risk. Derivative financial instruments are used to manage well-defined commodity price and foreign


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Phelps Dodge International
 
Notes to Combined Financial Statements — (Continued)
 
exchange risks from the Company’s primary business activities. For a discussion on why the Company uses derivative financial instruments, year-end derivative positions and related financial results, refer to Note 10, Derivative Financial Instruments and Fair Value of Financial Instruments.
 
The Company recognizes all derivative financial instruments as assets and liabilities and measures them at fair value. For derivative instruments that are designated and qualify as cash flow hedges (specifically, metal purchase hedging), the effective portions of changes in fair value of the derivative are recorded in accumulated other comprehensive income (loss) in the Combined Balance Sheet, and are recognized in the Combined Statement of Income when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized currently in earnings. For derivative instruments that are designated and qualify as fair value hedges (specifically, currency forward exchange contracts), gains or losses resulting from changes in their fair value are recognized currently in earnings. In addition, the gain or loss resulting from changes in the fair value of the hedged item attributable to the hedged risk is adjusted and recognized currently in earnings. Therefore, any ineffectiveness would be recognized currently in earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting treatment are recognized currently in earnings.
 
Effectiveness testing for qualified hedge programs utilizes an intrinsic value methodology. This methodology excludes the time value component, which is recognized in earnings.
 
Hedging Programs
 
The Company does not purchase, hold or sell derivative financial instruments unless it has an existing asset or obligation or anticipates a future activity that is likely to occur that will result in exposing the Company to market risk. Derivative financial instruments are used to manage well-defined commodity price and foreign exchange risks from the Company’s primary business activities. For a discussion on why the Company uses derivative financial instruments, year-end derivative positions and related financial results, refer to Note 10, Derivative Financial Instruments and Fair Value of Financial Instruments.
 
The Company recognizes all derivative financial instruments as assets and liabilities and measures them at fair value. Changes in the fair value of derivatives that are economic hedges are recognized currently in earnings.
 

EXCERPTS ON THIS PAGE:

8-K (2 sections)
Sep 26, 2007
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