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This excerpt taken from the HBI 10-Q filed May 11, 2009. Cash Flow
Hedges — Commodity Derivatives
Cotton is the primary raw material the Company uses to
manufacture many of its products and is purchased at market
prices. From time to time, the Company uses commodity financial
instruments to hedge the price of cotton, for which there is a
high correlation between the hedged item and the hedge
instrument. Gains and losses on these contracts are intended to
offset losses and gains on the hedged transactions in an effort
to reduce the earnings volatility resulting from fluctuating
commodity prices. The effective portion of commodity hedge gains
and losses deferred in “Accumulated other comprehensive
loss” is reclassified into earnings as the underlying
inventory is sold, using historical inventory turnover rates.
The settlement of commodity hedge derivative contracts related
to the purchase of inventory is reported in the Condensed
Consolidated Statements of Cash Flows as cash flow from
operating activities. There were no amounts outstanding under
cotton futures or cotton option contracts at April 4, 2009
and January 3, 2009.
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