Adidas 2000 Annual Report Download - page 87

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adidas-Salomon ANNUAL REPORT 2000
83
Notes to Consolidated Financial Statements
Management of Interest Rate Risks
The Company is taking advantage of lower short-term interest
rates, compared to the available longer-term rates of most
leading currencies, but it has limited its exposure with regard
to possible future interest rate increases with interest rate cap
spreads in a structure which approximates the anticipated
currency composition of its worldwide borrowings. These
contracts protect the Company’s borrowings in a notional
amount of c 1.8 billion (1999: c 1.5 billion) against a rise of the
weighted average interest rate above 6.5% (1999: 5.6%). Out
of this amount, the protection ends for c 1.6 billion (1999:
c 1.0 billion) at a weighted average rate of 8.9% (1999: 8.4%).
Supplementary information on interest rate caps is as follows:
(euros in millions) Dec. 31 Dec. 31
2000 1999
Notional amount 1,789 1,475
Fair value 5 12
Book value 12 8
Unrecognized (loss)/gain (7) 4
As at December 31, 2000, the remaining life of these caps is
up to 6.0 years (1999: 6.9 years), with a weighted average
of 3.6 years (1999: 3.0 years). The interest rate caps expire
as detailed below:
(euros in millions) Dec. 31 Dec. 31
2000 1999
Within 1 year 281 307
Between 1 and 2 years 230 281
Between 2 and 3 years 246 230
Between 3 and 4 years 211 246
Between 4 and 5 years 224 179
Between 5 and 6 years 597 154
Between 6 and 7 years – 78
Total 1,789 1,475
Fair Value of Financial Instruments
The carrying amount of cash, cash equivalents and borrowings
approximates fair value due to the short-term maturities of these
instruments. The fair value of forward exchange contracts and
currency options was determined on the basis of the market
conditions on the reporting dates. The fair value of the interest
rate caps on the reporting date was assessed by the financial
institutions through which these caps had been arranged.
Credit Risk
The Company arranges its currency and interest rate hedges,
and it invests its cash, with major banks of a high credit stand-
ing throughout the world, and in high-quality money-market
instruments.