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HSY » Topics » Financial Statement Location and Amounts Pertaining to Derivative Instruments

This excerpt taken from the HSY 10-K filed Feb 19, 2010.

Financial Statement Location and Amounts Pertaining to Derivative Instruments

The fair value of derivative instruments in the Consolidated Balance Sheet as of December 31, 2009 was as follows:

 

Balance Sheet Caption

    Interest Rate Swap
Agreements		    Foreign Exchange
Forward
Contracts
and Options		    Commodities
Futures and
Options
Contracts
In thousands of dollars     

Prepaid expense and other current assets

    $ —      $ 2,872    $ 11,835
                    

Other assets

    $ 9,171    $ —      $ —  
                    

Accrued liabilities

    $ —      $ 7,708    $ 3,228
                    

The fair value of the interest rate swap agreements represents the difference in the present values of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments.

We define the fair value of foreign exchange forward contracts and options as the amount of the difference between the contracted and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign exchange forward contracts and options on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences.

As of December 31, 2009, prepaid expense and other current assets were associated with the fair value of commodity options contracts. Accrued liabilities were related to cash transfers payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. We make or receive cash transfers to or from commodity futures brokers on a daily basis reflecting changes in the value of futures contracts on the IntercontinentalExchange or various other exchanges. These changes in value represent unrealized gains and losses.

 

70

THE HERSHEY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The effect of derivative instruments on the Consolidated Statements of Income for the year ended December 31, 2009 was as follows:

 

Cash Flow Hedging Derivatives

    Interest Rate Swap
Agreements		    Foreign Exchange
Forward
Contracts
and Options		     Commodities
Futures and
Options
Contracts		  
In thousands of dollars       

Gains (losses) recognized in other comprehensive income (“OCI”) (effective portion)

    $ 9,171    $ (3,737 )    $ 119,764  
                       

Gains (losses) reclassified from accumulated OCI into income (effective portion)(a)

    $ —      $ 8,587     $ (11,600 ) 
                       

Gains (losses) recognized in income (ineffective portion)(b)

    $ —      $ —        $ 169  
                       

 

(a) Gains (losses) reclassified from accumulated OCI into earnings were included in cost of sales for commodities futures and options contracts and for foreign exchange forward contracts and options designated as hedges of intercompany purchases of inventory. Other gains and losses for foreign exchange forward contracts and options were included in selling, marketing and administrative expenses.
(b) Gains (losses) recognized in earnings were included in cost of sales.

All gains (losses) recognized in earnings were related to the ineffective portion of the hedging relationship. We recognized no components of gains and losses on cash flow hedging derivatives in income due to excluding such components from the hedge effectiveness assessment.

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