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Derivatives and hedging

Forwards, swaps and options used to reduce currency or interest-rate risk, and how cash-flow and fair-value hedges show up in the 10-K, with Lockheed Martin and Apple.

The short answer

A derivative is a contract whose value moves with something else, such as a currency rate or an interest rate. Large companies use forwards, options and swaps mainly to reduce those risks on forecasted sales, purchases or borrowings, not to make a trading bet. The 10-K says what risks are being hedged, whether the contracts qualify as accounting hedges, and where the gains and losses go: net income or other comprehensive income.

Why companies use them

Lockheed Martin's 10-K for 2025 says it uses derivative instruments principally to reduce its exposure to market risks from changes in foreign currency exchange rates and interest rates, that it transacts business globally, and that it does not enter into or hold derivative instruments for speculative trading purposes. The contracts, it says, hedge forecasted foreign currency transactions. Apple's 10-K for fiscal 2026 likewise says it uses derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign exchange rates.

Source: Lockheed Martin 10-K for fiscal 2025, filed Jan 29, 2026 · Apple 10-K for fiscal 2026, filed Nov 3, 2026

Hedge accounting, in brief

Cash-flow hedges aim to lock in the rate on a forecasted transaction. The effective portion of the gain or loss sits in other comprehensive income until the forecasted sale or purchase hits earnings.
Fair-value hedges offset changes in the fair value of an asset or liability already on the books, such as a fixed-rate bond the company has issued. Both sides usually go through earnings.
Contracts that do not qualify as accounting hedges, or the ineffective slice of those that do, generally go through earnings as they move.

Apple's statement of comprehensive income includes a line for the change in unrealized gains and losses on derivative instruments, net of tax: the cash-flow-hedge trail in AOCI. The derivatives note describes the types of contracts, the notional amounts and the balance-sheet location of the related assets and liabilities. Fair values of those contracts are often also sorted into the fair value hierarchy.

What the disclosure does not do

A company's statement that it does not hold derivatives for speculative trading is a description of its policy, not a guarantee of the result. Hedges can be imperfect: the contract may not match the exposure in amount, timing or currency, and the 10-K often says so. The notional amount of a contract is not the same as the amount at risk; the fair value on the balance sheet is the closer figure to a current gain or loss.

Common questions

What is a derivative in a 10-K?

A contract that derives its value from something else, typically a currency rate, interest rate or commodity price. Forwards, swaps and options are the usual examples.

What does 'not for speculative trading' mean?

The company is saying it uses the contracts to offset a risk in the business, such as a forecasted foreign-currency sale, rather than to take a view on rates. Lockheed Martin's 10-K uses that wording.

Where do hedge gains and losses go?

It depends on the type of hedge. Effective cash-flow hedges go through other comprehensive income until the hedged transaction affects earnings. Fair-value hedges and non-hedge contracts usually go through earnings as they move.

What is a notional amount?

The face amount the contract is written on, such as a notional $1 billion of currency. It is not the same as the contract's fair value or the company's loss if rates move.

Where do I find this in the 10-K?

In a derivatives and hedging note, in the market-risk part of the MD&A or Item 7A, and, for cash-flow hedges, in the statement of comprehensive income.

Disclosures

Editor holdings: The editor holds no position in any company named on this page. As of Nov 11, 2026.
Compensation: Nobody paid for this page. No affiliate links on this page.
Sources: Each company's own SEC filings, linked next to each number.
Last updated: Nov 10, 2026

General education, the same for every reader. Not a recommendation to buy, sell or hold any security, and it doesn't consider your situation.

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