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Derivative financial instruments are reported in the balance sheet at fair values under other
assets or other liabilities.
In accordance with SFAS 133, (Accounting for Derivative Instruments and Hedging Activities),
derivative financial transactions are accounted for as follows:
If forward exchange contracts are used to hedge the fair value, both the changes in the value of
the derivatives and also the contrary changes in the hedged items are recognized in earnings
for the period. If they are used to hedge foreign exchange risks on future payments (cash flow
hedges), changes in fair value are reported as a component of other comprehensive income
(outside earnings) until the transaction is settled.
In the 2004 business year, 110 thousand euros from forward exchange contracts were recorded
in the other operating income, and 3,820 thousand euros from cash flow hedges in connection
with interest swaps were recorded as interest expense.
Where interest swaps or interest caps are used to hedge future cash flows (cash flow hedges),
the development of the fair value is treated as a change in equity and reported under comprehensive
income (component of equity). In the case of interest derivatives, which in accordance with
SFAS 133 are not regarded as being sufficiently effective to hedge the cash flow, the gain or loss
is recognized immediately in the statement of income as interest expense or interest income.
Financial derivatives were valued as of the balance sheet date in accordance with SFAS 133 as
follows:
The residual term of the interest derivatives essentially corresponds with the term of the underlying
financing transaction and lies between three and five years. The average term is four years.
The residual term of the forward exchange contracts lies between one and five months.
97
Dec. 31, 2004 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2003
Notional Notional
‘000 euros volume Gain or loss volume Gain or loss
Recognized in equity 133,610 –9,864 228,420 –12,096
Recognized in earnings 6,842 110 31,103 –1,212
Total 140,452 –9,754 259,523 –13,308
Market volume Market volume Dec. 31, 2004
due within due in more
‘000 euros 1 year than 1 year Total
Interest derivatives 0 122,710 122,710
Forward exchange contracts 17,742 0 17,742
Total 17,742 122,710 140,452
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP