The Benetton Group Annual Report 1996

23. ACCRUED EXPENSES AND DEFERRED INCOME
This caption comprises the following:
12-31-1995 12-31-1996
Accrued expenses:
- financial charges 51,896 32,786
- other charges 3,432 1,914
Total accrued expenses 55,328 34,700
Deferred income:
- financial income 1,528 6,623
- sponsorships 9,337 17,003
- other income 1,230 467
Total deferred income 12,095 24,093
Premiums on bond issues 587 390
Total 68,010 59,183
Deferred financial income mainly reflects interest deriving from hedging transactions arranged by
Benetton International N.V. in connection with warrants attaching to the Lire bond discussed in note 22.
24. COMMITMENTS, CONTINGENCIES, MEMORANDUM ACCOUNTS
These mainly include currency to be sold or purchased forward.
This account group records the Lire value of commitments deriving from hedging contracts outstanding
at the balance sheet date.
In response to the volatility in exchange rates in the economic environment, the Group has
implemented a strategy to manage the exposure of exchange rate fluctuations on consolidated
operations.
The Group principally utilizes forward exchange contracts to fulfill this strategy only with substantial and
creditworthy multinational financial institutions. Therefore, there are no risks of counterparty
nonperformance nor the economic consequences of counterparty nonperformance associated with
these contracts.
For the most part, the caption reflects transactions opened to hedge foreign currency receivables, firm
orders and future sales. Some of those covering future sales were subsequently renegotiated by
entering opposite transactions. Other transactions were entered into to hedge the exchange risk on
capital invested by Group companies.
The estimated fair values and relating contract amounts of the Group’s financial instruments at
December 31, 1996 are as follows (in millions of lire):
Forward contracts: Fair value Contract amounts
Sell currency 3,462,987 3,744,604
Buy currency 1,912,543 2,050,226
Notional amount
Forward rate agreements 100,000
Interest rate swaps 328,751
Forward exchange contracts expire from January 1997 through May 1998. Included in forward
contracts, sell and buy currencies are respectively Lire 1,552,285 million and Lire 459,544 million of
contracts that hedge identifiable foreign currency assets, liabilities, contractual obligations or foreign
investments in subsidiary companies.
The interest rate swap agreements and forward rate agreements expire within three months and
therefore their carrying value approximates fair value.
Purchase commitments include contracts to acquire tangible fixed assets.
Sale commitments relate to a subsidiary company's contract to sell retail premises.