Adidas 1997 Annual Report Download - page 48

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46
The USD hedges, which were outstanding on December 31, 1997, covered approximately 90%
of the USD needs, which the Company anticipated for the period till the end of October 1998, i.e.
till the end of the sourcing for the last selling season in 1998.
December 31, 1997
Notional
(in DM millions) amounts Fair value Book value
Forward contracts 295 9.7 0.0
Currency options 1,416 64.3 19.7
1,711 74.0 19.7
The book value of the currency options represents capitalized premiums paid.
Management of interest rate risks:
As of December 31, 1997, most of the Company’s financing concerned the acquisition of adidas
Salomon France S.A. (the former Sport Développement S.C.A.) and the Company’s inventories
and receivables. Taking advantage of lower short-term rates of most major currencies, the Com-
pany has concentrated its borrowings in short maturities, but it has limited its exposure with regard
to possible future interest rate increases with the purchase of interest rate cap spreads for a basket
of currencies in a structure which approximates the currency composition of its worldwide borrow-
ings. These contracts protect the Company’s borrowings in a notional amount of DM 1.7 billion
against a rise of the weighted average interest rate above 5.5%. Out of this amount, the protection
ends for DM 1.3 billion at a weighted average rate of 8.4%. The lifetime of these caps ranges from
3 to 6 years, with a weighted average of 4 years.
December 31, 1997
Notional
(in DM millions) amounts Fair value Book value
Interest rate caps 1,700 9.8 9.8
Fair value of financial instruments:
The carrying amount of cash, cash equivalents and borrowings approximates fair value due to the
short-term maturities of these instruments. The fair value of forward exchange contracts and cur-
rency options were determined on the basis of the market conditions on the reporting date. The
fair value of the interest rate caps on the reporting date was assessed by the financial institutions
which these caps had been arranged with.
Credit risk:
The Company arranges its currency and interest rate hedges, and it invests its cash, with major
banks of a high credit standing throughout the world, and in high quality money-market instru-
ments. The Company has not incurred any related losses.