Reply SpA

Consolidated financial statements as at December 31, 2010
Currency risk
Reply S.p.A. has a limited exposure to exchange rate risk, therefore the company does not deem necessary hedging
exchange rates.
Interest rate risk
Reply S.p.A. makes use of external funds obtained in the form of financing and invest in monetary and financial
market instruments. Changes in market interest rates can affect the cost of the various forms of financing, including
the sale of receivables, or the return on investments, and the employment of funds, causing an impact on the level of
net financial expenses incurred by the company.
In order to manage these risks, the Reply S.p.A uses interest rate derivative financial instruments, mainly interest
rate swaps with the object of mitigating, under economically acceptable conditions, the potential variability of interest
rates on the net result.
Sensitivity analysis
In assessing the potential impact of changes in interest rates, the company separates fixed rate financial instruments
(for which the impact is assessed in terms of fair value) from floating rate financial instruments (for which the impact
is assessed in terms of cash flows).
Floating rate financial instruments include principally cash and cash equivalents and part of debt.
A hypothetical, unfavorable and instantaneous change of 50 basis points in short-term interest rates at December
31, 2010 applied to floating rate financial assets and liabilities, operations for the sale of receivables and derivatives
financial instruments, would have caused increased net expenses before taxes, on an annual basis, of approximately
11 thousand Euros (63 thousand Euros at December 31, 2009).
This analysis is based on the assumption that there is a general and instantaneous change of 50 basis points in interest
rates across homogeneous categories. A homogeneous category is defined on the basis of the currency in which
the financial assets and liabilities are denominated.
To determine the effect of interest rate derivate financial instruments Reply refers to evaluation deriving from third
parties (banks and financial institutes) who base their estimates on direct (interest rates) or indirect observation of
the market: consequently the fair value used by the Group in accordance to the IFRS 7 for derivative hedge contracts
is classified as a hierarchy of Level 2 (prices not available on active markets for the assets or liabilities being measured
but can be directly or indirectly observed).
The market value of the Interest Rate Swaps represents the present value of the difference between fixed interest
rates to pay and or to receive and the interests evaluated on the market having the same expiry date as the derivative
contracts.
The Interest Rate Swap leads are can lead to the exchange of interest flows calculated on the nominal value of the
derivative at a fixed or floating rate at the fixed expiry date agreed by the parties. The nominal value does not represent
the amount exchanged by the parties and therefore does not constitute the credit risk exposure, that is limited
to the difference between the interest that has to be exchanged at expiry.
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