Annual Report 2002 - Agfa

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group uses mainly forward exchange contracts to manage its foreign currency
risk arising from recognized trade receivables, trade payables and borrowings
denominated in a foreign currency. These forward exchange contracts have
maturities of less than one year.
22. Derivative financial instruments
continued
Where currency risks are entered into through intra-group loans, these are fully
covered either naturally or through derivative financial instruments. The currency
risk arising from financial commitments is managed via currency swaps and
cross-currency interest rate swaps.
Where derivative financial instruments are used to economically hedge the foreign
exchange exposure of recognized monetary assets or liabilities, no hedge accounting
is applied. Changes in the fair value of these derivative financial instruments are
recognized in the income statement.
As of December 31, 2002 the Group was exposed to the following foreign currency
risk relating to primary financial instruments forming part of working capital and
financial debt:
MILLION EUROS
Dec. 31, 2002 Dec. 31, 2001
Assets Liabilities Assets Liabilities
Foreign currency risk 566 339 758 484
Natural covered positions (229) (229) (356) (356)
Outstanding derivative
financial instruments (253) (9) (175) (5)
Residual foreign currency risk 84 101 227 123
Forecasted transactions and firm commitments
The Group has designated forward exchange contracts (60 million Euros) as ‘cash
flow hedges’ of its foreign currency exposure related to forecasted purchases of
commodities over the following 9 months. The portion of the gain or loss on the
hedging instrument that is determined to be an effective hedge is recognized
directly in equity (December 31, 2002: - 3 million Euros).
Hedge of net investment in foreign subsidiary
The Group utilizes USD denominated bank loans and forward exchange contracts in
order to hedge the foreign currency exposure of the Group’s net investment in its
subsidiary in the United States (Agfa Corporation).
MILLION EUROS
Dec. 31, 2002 Dec. 31, 2001
USD denominated bank loans 328 483
Forward exchange contracts 172 17
Total 500 500
As of December 31, 2002 the hedge of the net investment in Agfa Corporation
(USA) has been determined to be effective and as a result the effective portion of
the gain on the hedging instrument, which amounted to 12 million Euros, has been
recognized directly in equity.
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