Capital One 2003 Annual Report Download - page 113
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Hedge of Net Investment in Foreign Operations
The Company uses cross-currency swaps and forward exchange contracts to protect the value of its investment in
its foreign subsidiaries. Realized and unrealized foreign currency gains and losses from these hedges are not
included in the income statement, but are shown in the translation adjustments in other comprehensive income.
The purpose of these hedges is to protect against adverse movements in exchange rates.
For the year ended December 31, 2003 and 2002, net losses of $6.0 million and $3.2 million related to these
derivatives were included in the cumulative translation adjustment.
Non-Trading Derivatives
The Company uses interest rate swaps to manage interest rate sensitivity related to loan securitizations. The
Company enters into interest rate swaps with its securitization trust and essentially offsets the derivative with
separate interest rate swaps with third parties.
The Company uses interest rate swaps in conjunction with its auto securitizations that are not designated hedges.
These swaps have zero balance notional amounts unless the paydown of auto securitizations differs from its
scheduled amortization.
These derivatives do not qualify as hedges and are recorded on the balance sheet at fair value with changes in
value included in current earnings. During the years ended December 31, 2003 and 2002, the Company had net
losses of $2.2 million and $2.3 million, respectively. The Company recognized net losses of $2.0 million during
the year ended December 31, 2003, for non-trading derivatives that were terminated.
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