Reebok 2006 Annual Report Download - page 91

087
Interest Rate Increases Modestly
The weighted average interest rate on the Group’s gross bor-
rowings rose 0.8 percentage points to 4.8% in 2006 from 4.0%
in 2005, mainly as a result of the significant increase of our
US dollar-denominated financing, which carries interest rates
above euro-denominated financing. In addition, this reflects
an increased portion of longer-term fixed interest rate debt
financing arrangements in the total financing structure as a
result of the new financing instruments. This provides better
protection against expected increases of interest rates in the
short and long term. As a consequence, long-term fixed-rate
financing amounted to around 65% of total financing at the
end of 2006. Further, interest rates for the Group’s variable
financing, which amounted to around 35% of total financing at
the end of the year, increased due to higher market interest
rates in 2006.
Currency Split of Gross Borrowings € in millions
2006 2005
Total 2,578 1,035
EUR
USD
JPY
All others
1,314
1,145
32
87
785
168
34
48
Issued Bonds at a Glance in millions
Issued Bonds Volume Coupon Maturity
Asian Private Placement USD 218 variable 2009
Asian Private Placement JPY 3,000 fixed 2009
Asian Private Placement EUR 26 variable 2010
Asian Private Placement AUD 16 variable 2010
German Private Placement EUR 150 fixed and 2010
variable
French Private Placement EUR 150 variable 2011 – 2012
US Private Placement USD 175 fixed 2015
US Private Placement USD 1,000 fixed 2009 – 2016
Convertible Bond EUR 400 2.5% 2018
Other Private Placements EUR 399 fixed and 2006 – 2012
variable
Currency Management Reflects Reebok Integration
As the adidas Group operates worldwide, currency manage-
ment is a key focus of the Group’s central Treasury depart-
ment. Because our Group sources the majority of products
from independent suppliers in Asia invoiced mainly in US
dollars, the adidas Group’s currency management focuses
on hedging the Group’s net US dollar deficit. In 2006, the
central Treasury department managed a net deficit of
around US $ 1.7 billion against the euro, which represents
an increase of approximately US $ 500 million from around
US $ 1.2 billion in the prior year. This reflects the increased
size of our business mainly as a result of the first-time inclu-
sion of Reebok in 2006. In relation to our sales, however,
the net US dollar deficit against the euro was reduced. As
outlined in our Group’s treasury policy, we have established
a rolling 12 to 18 months hedging system, under which a
large amount of the anticipated seasonal hedging volume
is secured six months prior to the start of a season. As a
result, we have already completed around 90% of our antici-
pated hedging needs for 2007 at rates slightly below those
of 2006. The use or combination of different hedging instru-
ments, such as currency options, swaps and forward con-
tracts, protects us against unfavorable currency movements,
while retaining the potential to benefit from future favorable
exchange rate developments (see Note 24, p. 171).
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