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DIS » Topics » Risk Management - Derivatives Not Designated as Hedges

This excerpt taken from the DIS 10-Q filed May 5, 2009.

Risk Management – Derivatives Not Designated as Hedges

The Company is exposed to certain interest rate, foreign exchange, commodity price and credit default risk for which the Company enters into risk management contracts that are not designated as hedges and do not quality for hedge accounting. These contracts are intended to offset economic exposures of the Company and are carried at market value with any changes in value recorded in earnings.

The Company enters into the following derivative contracts which may not be designated as hedge instruments:

 

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Pay-fixed interest rate swaps to hedge exposure on residual interests in securitized vacation ownership mortgage receivables

 

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Foreign exchange forward, option and cross currency swap contracts to hedge forecasted transactions, assets, liabilities, or firm commitments

 

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Commodity swap contracts to hedge against the change in commodity prices based on forecasted levels of consumption

 

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Credit default swaps to mitigate the negative impact on earnings and cash flows of customers’ credit default events

The notional amount of these contracts at March 28, 2009 and the gain or loss recognized in income for the six months then ended were not material, except for foreign exchange contracts. The notional amount of foreign exchange contracts at March 28, 2009 was $2.0 billion and gains recognized in income for the six months then ended totaled $214 million. These gains were largely offset by recognition of the related economic exposures.

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