Reebok 2007 Annual Report Download - page 187

183
ANNUAL REPORT 2007 --- adidas Group
Of the total amount of outstanding hedges, the following contracts related to coverage of the
biggest single exposure, the US dollar:
NOTIONAL AMOUNTS OF US DOLLAR HEDGING INSTRUMENTS
€
in million
s
D
ec.
3
1 Dec. 31
200
7 2006
Forward contracts
Currency options
Total
1,
885 656
56
2
543
2,447 1,199
9
The fair value of all outstanding currency hedging instruments is as follows:
Dec.
3
1 200
7
Dec. 31 2006
Positive Negative
Positive Negative
fair fair
fair fair
value value
value value
Forward contracts
Currency options
To
t
al
FAIR VALUE
€
in millions
11 (79
9)
7 (26)
5 (23
3)
6 (9)
5)
16 (102) 13 (35
2)
A total negative net fair value of € 61 million (2006: negative € 22 million) for forward contracts
related to hedging instruments falling under hedge accounting as per defi nition of IAS 39 was
recorded in hedging reserve. The remaining net negative fair value of € 7 million (2006: positive
€ 3 million) mainly related to liquidity swaps for cash management purposes was recorded in
the income statement. The total fair value of outstanding currency options related to cash fl ow
hedges.
The fair value adjustments of outstanding cash fl ow hedges for forecasted sales will be
reported in the income statement when the forecasted sales transactions are recorded. The vast
majority of these transactions are forecasted to occur in 2008. Inventories were adjusted by
€ 22 million as at December 31, 2007, which will be recognized in the income statement in 2008.
In hedging reserves, an amount of negative € 3 million is included for hedges of net invest-
ments in foreign entities. This reserve will remain until the investment in the foreign entity is
divested.
In order to determine the fair values of its derivatives that are not publicly traded, the adidas
Group uses generally accepted fi nance-related economic models based on market conditions
prevailing at the balance sheet date.
FINANCIAL INSTRUMENTS FOR THE HEDGING OF INTEREST RATE RISK In the last two years
the Group has switched concentration from short-term fi nancing to long-term fi nancing, due to
increasing interest rates. As a result, the Group is better protected against rising interest rates.
As in 2006, no additional interest rate caps were entered into in 2007 and remaining maturing
interest rate caps amounting to approximately € 50 million were not renewed. There were no
interest rate swaps entered into in 2007.
Interest rate hedges which were outstanding as at December 31, 2007 and 2006, respectively
expire as detailed below:
EXPIRATION DATES OF INTEREST RATE HEDGES
€
in milli
o
n
s
Dec. 3
1
Dec. 31
2
00
7
2006
Within 1 year
Between 1 and 3 years
Between 3 and 5 years
After 5 years
T
ota
l
—
50
16
2
19
1
5
0 184
68
181
380 434
4
The above summary for 2007 includes the notional amount of one long-term US dollar interest
rate swap in an amount of € 68 million (2006: € 76 million), two long-term cross-currency swaps
for an amount of € 33 million (2006: € 29 million) and three interest rate swaps for a total of
€ 279 million (2006: € 279 million). Both cross-currency swaps and the one long-term US dollar
interest rate swap are classifi ed as fair value hedges, while the three interest rate swaps are
classifi ed as cash fl ow hedges.
The interest rate swaps and cross-currency interest rate swaps had a negative fair value of
€ 10 million (2006: negative € 12 million) and a positive fair value of € 4 million (2006: € 3 mil-
lion) as at December 31, 2007.
The risks hedged with fair value hedges occur from fi nancing with private placements in
US dollars, Japanese yen and Australian dollars amounting to a notional equivalent of € 101 mil-
lion (2006: € 105 million). The aim of cross-currency swap hedges in Australian dollars and
Japanese yen was to turn the fi nancing into euro and retain the fi nancing method. The intent of
the US dollar interest rate swap was to obtain variable fi nancing. The total negative € 7 million
fair value (2006: negative € 2 million), which was recorded directly in the income statement as
incurred, was compensated by positive fair value effects of the hedged items in an amount of
€ 6 million (2006: € 12 million).
All euro-denominated interest rate swaps qualify as cash fl ow hedges pursuant to IAS 39.
They relate to euro private placements with variable interest rates for a notional amount of € 279
million (2006: € 279 million). The goal of these hedges is to lower exposure to increasing short-
term euro interest rates. The negative fair value of € 1 million (2006: € 4 million) was credited in
hedging reserves.
05