Operations and Business Environment - Fresenius Medical Care

to page 95 of the Consolidated Financial Statements
(note 18).
Financial Risks. We actively manage foreign currency
and interest rate exposures that result from our business
activities. Risk management is based on strategies defined
in close cooperation with the Management Board.
This includes, for example, guidelines covering all steps
and levels of the risk management process. They define
responsibilities for the determination of risks, the careful
use of financial instruments for hedging purposes, and
for accurate financial reporting. The use of derivative
instruments is restricted to hedging exposures arising in
the regular course of our business. Transactions for the
purpose of trading or speculation are not allowed. All
transactions are conducted with highly rated financial
institutions as approved by the Management Board.
We use interest rate hedging instruments to reduce
the impact of interest rate fluctuations on floating-rate
short- and long-term borrowings including accounts
receivable securitization programs. Such instruments are
also applied to transform fixed-rate liabilities into variable-rate
liabilities in order to protect the market value
of fixed-rate debt against changes in market interest
rates. The aggregate nominal value of the respective
hedge contracts was $ 3.615 billion as of December 31,
2006. The contracts expire on several different dates
until 2012.
Foreign exchange derivatives are entered into for the
purpose of limiting the exchange rate exposure from
sales and purchases as well as in connection with lendings
and borrowings between Group companies located
in different countries and reporting in different currencies.
Most of the transaction exposures arise from sales
of products from Group companies in Europe to other
international business units. The aggregate nominal value
of foreign exchange derivatives as of December 31,
2006 was $1.083 billion, primarily for hedging euro exposure
to the U.S. dollar and various other currencies.
Please see page 22 of the financial report (”Liquidity and
Capital Resources”) for further details.
Overall Risk
The Management Board’s basis for the evaluation of
general risk is Fresenius Medical Care’s risk management
system, which is subject to its own external reviews
and scrutiny from management. The effectiveness of
the risk management system is monitored and, when
necessary, improved as part of the Group-wide review
of the Integrated Management System. The Management
Board will continue to expand our risk management
as well as the review of the related management
system to identify, examine and evaluate potential
risks even more quickly for a timely and appropriate
response.
The Management Board continuously analyzes potential
risks, which include factors partly or wholly out of our
control, such as the overall development of national and
global economies. Potential risks also include factors
within our control – such as operating risks – which can
be anticipated and analyzed early by our risk management
system. When necessary, counteractive measures
can be introduced.
Based on the general principles for estimating risk
factors described from page 94 onwards, we currently
assume that none of these risks will lead to a longterm
and significant impairment of the asset, financial
and earnings position of Fresenius Medical Care Group.
Also, there are no material changes in risks compared
to the year 2005. We have established a structure
providing the necessary conditions to quickly identify
developing risk situations.
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Fresenius Medical Care 2006