Porsche 2006 Annual Report Download - page 169
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167
Notes on the other disclosures
(32) Financial instruments
Hedging strategy
Owing to the international activities in the vehicles and financial services segment, changes in interest rates
and exchange rates affect the net assets, financial position and results of operations of the Porsche Group.
The risks result from foreign currency transactions in the course of ordinary operations, from financing and
from investing activities. It is the objective of the Group’s central treasury department to manage and thus
minimize these financial risks for the continued existence and earnings power by concluding hedges for the
Group. Guidelines are issued to govern discretionary decisions and internal controls and avoid a concentra-
tion of risk. The nature and volume of hedging transactions is generally chosen with regard to the underlying
contract. Hedging transactions may only be concluded to hedge existing underlyings or forecast trans-
actions. Only approved financial instruments may be entered into with approved counterparties.
Currency risk
Currency risks from current receivables, liabilities and debts as well as from highly likely future transactions
are generally hedged with forward exchange contracts, currency options or combined options.
Hedges for value fluctuations in future cash flows from anticipated highly likely transactions mainly relate
to planned sales in foreign currency. As of July 31, 2007, currency hedges are in place in particular for
the major currencies US dollar, pound sterling and Japanese yen.
Interest rate risk
The Porsche Group has issued fixed-interest bonds. The interest rate risks arising in this regard are largely
hedged by appropriate derivatives.
Stock options
Hedges have been entered into to secure the step-up of the shareholding in Volkswagen AG in the reporting
year and in preparation for the takeover bid for all Volkswagen AG shares. They are stock options with cash
compensation. In addition, stock options with various base values are used to obtain liquidity.
Bad debt exposure
The credit risk of financial assets is taken into account through adequate valuation allowances considering
existing collateral. Various hedging measures are taken to reduce the credit risk for primary financial
instruments, such as requesting collateral or guarantees and credit ratings based on information from
credit rating agencies and historical data.
Hedging transactions are only entered into with first-rate banks on the basis of uniform guidelines and are
monitored accordingly.