Reebok 2008 Annual Report Download - page 189

adidas Group Annual Report 2008 185
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 millions
Dec. 31, 2008 Dec. 31, 2007
Forward contracts 1,732 1,885
Currency options 457 562
Total 2,189 2,447
The fair value of all outstanding currency hedging instruments is as follows:
Fair value
€ in millions
Dec. 31, 2008 Dec. 31, 2007
Positive
fair value
Negative
fair value
Positive
fair value
Negative
fair value
Forward contracts 163 (43) 11 (79)
Currency options 40 (24) 5 (23)
Total 203 (67) 16 (102)
A total net fair value of € 111 million (2007: negative € 61 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 fair value of € 9 million (2007: negative € 7 million)
mainly related to liquidity swaps for cash management purposes and forward contracts hedging
intercompany dividend receivables 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 2009. As at December 31, 2008, inventories were
adjusted by negative € 7 million as at December 31, 2008, which will be recognised in the income
statement in 2009.
In hedging reserves, an amount of negative € 3 million (2007: negative € 3 million) is included for
hedges of net investments 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 quantitative fi nancial models based on market conditions pre-
vailing at the balance sheet date.
The fair values of the derivatives were determined applying the “zero method”. The “zero
method” is a theoretical model for the determination of forward rates based on deposit and swap
interest rates. An alternative method is the “par method” which uses actively traded forward
rates that refl ect market ineffi ciencies. A comparison of the fair valuation based on the alter-
native methods revealed no substantive differences.
Financial instruments for the hedging of interest rate risk
In 2005 and 2006, the Group arranged long-term fi nancing mainly at fi xed rates to support the
Reebok acquisition. As a result, the Group is well protected against rising interest rates. In 2008,
an additional forward starting interest rate swap was entered into with a nominal amount of
US $ 16 million.
Interest rate hedges which were outstanding as at December 31, 2008 and 2007, respectively
expire as detailed below:
Expiration dates of interest rate hedges
€ in millions
Dec. 31, 2008 Dec. 31, 2007
Within 1 year 23 —
Between 1 and 3 years 184 162
Between 3 and 5 years 105 150
After 5 years 83 68
Total 395 380
The above summary for 2008 includes the notional amount of two long-term US dollar interest
rate swaps in an amount of € 83 million (2007: € 68 million resulting from one US dollar interest
rate swap), one long-term and one short-term cross-currency interest rate swap for an amount
of € 33 million (2007: € 33 million) and four long-term euro interest rate swaps for an amount of
€ 279 million (2007: € 279 million). Both cross-currency interest rate swaps and one long-term
US dollar interest rate swap are classifi ed as fair value hedges, while the four euro interest rate
swaps are classifi ed as cash fl ow hedges.