Adidas 2000 Annual Report Download - page 86

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82
20. Financial Instruments
The Company uses derivative financial instruments to reduce
exposure to market risks resulting from fluctuation in currency
exchange and interest rates.
Management of Foreign Exchange Risk
The Company is subject to currency exposure, primarily due to
an imbalance of its global cash flows caused by the high share
of product sourcing from suppliers in the Far East, which invoice
in US dollars, while sales other than in US dollars are invoiced
mainly in
European currencies, but also in Japanese yen, Cana-
dian dollars and other currencies.
It is the Company’s policy to hedge identified currency risks
arising from future operations when it becomes exposed. In
addition, the Company hedges balance sheet risk selectively.
For the management of its currency risks, the Company uses
forward contracts and currency options. The portion of options
relative to forward contracts was reduced during 2000.
In 2000, the Company incurred currency option premiums in
a total amount of c 14.0 million (1999: c 23.9 million). The total
amount of option premiums, which was charged to income
in 2000, was c 20.3 million (1999: c 18.9 million). Paid option
premiums in an amount of c 12.9 million and c 18.1 million were
deferred as at December 31, 2000 and 1999, respectively.
The total amount of US dollar purchases against other cur-
rencies was $1.4 billion and $1.0 billion in the years ended
December 31, 2000 and 1999, respectively.
The notional amounts of all outstanding currency hedging
instruments can be summarized as follows:
(euros in millions) Dec. 31 Dec. 31
2000 1999
Forward contracts 800 195
Currency options 544 828
Total 1,344 1,023
Out of the total amount of outstanding hedges, the following
contracts relate to the coverage of the biggest single exposure,
the US dollar:
(US dollars in millions) Dec. 31 Dec. 31
2000 1999
Forward contracts 330 117
Currency options 466 832
Total 796 949
The valuation of the above instruments is as follows:
(euros in millions) Dec. 31 Dec. 31
2000 1999
Currency options 20 23
Forward contracts 4 2
Fair value 24 25
Currency options 13 18
Forward contracts (0) (0)
Book value 13 18
Unrecognized gain 11 7
The book value of the currency options represents capitalized
premiums paid.