GIS » Topics » Derivative Instruments

These excerpts taken from the GIS 10-K filed Jul 11, 2008.
Derivative Instruments Application of hedge accounting under Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS 133), requires significant resources, recordkeeping, and analytical systems. As a result of the rising compliance costs and the complexity associated with the application of hedge accounting, we elected to discontinue the use of hedge accounting for all commodity derivative positions entered into after the beginning of fiscal 2008. Accordingly, the changes in the values of these derivatives are recorded currently in cost of sales in our Consolidated Statements of Earnings.
 
Regardless of designation for accounting purposes, we believe all our commodity derivatives are economic hedges of our risk

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exposures, and as a result we consider these derivatives to be hedges for purposes of measuring segment operating performance. Thus, these gains and losses are reported in unallocated corporate items outside of segment operating results until such time that the exposure we are hedging affects earnings. At that time we reclassify the hedge gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of the hedge without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items.
 
We also use derivatives to hedge our exposure to changes in foreign exchange rates and interest rates. All derivatives are recognized on the Consolidated Balance Sheets at fair value based on quoted market prices or management’s estimate of their fair value and are recorded in either current or noncurrent assets or liabilities based on their maturity. Changes in the fair values of derivatives are recorded in net earnings or other comprehensive income, based on whether the instrument is designated as a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in accumulated other comprehensive income (loss) are reclassified to earnings in the period the hedged item affects earnings. If the underlying hedged transaction ceases to exist, any associated amounts reported in accumulated other comprehensive income (loss) are reclassified to earnings at that time. Any ineffectiveness is recognized in earnings in the current period.
 
Derivative
Instruments
 Application of hedge accounting
under Statement of Financial Accounting Standards (SFAS)
No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” as amended (SFAS 133), requires
significant resources, recordkeeping, and analytical systems. As
a result of the rising compliance costs and the complexity
associated with the application of hedge accounting, we elected
to discontinue the use of hedge accounting for all commodity
derivative positions entered into after the beginning of fiscal
2008. Accordingly, the changes in the values of these
derivatives are recorded currently in cost of sales in our
Consolidated Statements of Earnings.


 



Regardless of designation for accounting purposes, we believe
all our commodity derivatives are economic hedges of our risk















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exposures, and as a result we consider these derivatives to be
hedges for purposes of measuring segment operating performance.
Thus, these gains and losses are reported in unallocated
corporate items outside of segment operating results until such
time that the exposure we are hedging affects earnings. At that
time we reclassify the hedge gain or loss from unallocated
corporate items to segment operating profit, allowing our
operating segments to realize the economic effects of the hedge
without experiencing any resulting
mark-to-market
volatility, which remains in unallocated corporate items.


 



We also use derivatives to hedge our exposure to changes in
foreign exchange rates and interest rates. All derivatives are
recognized on the Consolidated Balance Sheets at fair value
based on quoted market prices or management’s estimate of
their fair value and are recorded in either current or
noncurrent assets or liabilities based on their maturity.
Changes in the fair values of derivatives are recorded in net
earnings or other comprehensive income, based on whether the
instrument is designated as a hedge transaction and, if so, the
type of hedge transaction. Gains or losses on derivative
instruments reported in accumulated other comprehensive income
(loss) are reclassified to earnings in the period the hedged
item affects earnings. If the underlying hedged transaction
ceases to exist, any associated amounts reported in accumulated
other comprehensive income (loss) are reclassified to earnings
at that time. Any ineffectiveness is recognized in earnings in
the current period.


 



EXCERPTS ON THIS PAGE:

10-K (2 sections)
Jul 11, 2008
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