(40) Financial Instruments

As of the reporting date, the financial instruments in the Salzgitter Group consisted of the following:

in T€	31/12/2005		31/12/2004
	Assets	Borrowings	Assets	Borrowings
Trade receivables	880,237	–	901,965	–
Loans	2,226	–	3,088	–
Other receivables	181,629	–	43,573	–
Shares in affiliated companies (non-consolidated)	24,916	–	34,634	–
Shareholdings	23,239	–	22,813	–
Other securities	27,888	–	7,894	–
Commercial paper	–	–	36,986	–
Cash and cash equivalents	884,897	–	208,885	–
Bonds	–	–	–	716
Trade payables	–	510,362	–	503,868
Liabilities to banks	–	178,373	–	174,838
Other liabilities	–	259,494	–	275,777
Currency hedges	18,295	3,105	10,445	9,292
Interest rate hedges	–	7,224	2,455	–
Other derivatives	–	23	–	–
Total	2,043,327	958,581	1,272,738	964,491

The contractual terms of the financial instruments in the reporting year were as follows:

Financial instruments	Time to maturity (months)
	from	to
Trade receivables	1	3
Other receivables	1	60
Originated loans	48	240
Trade payables	1	3
Other liabilities	1	31
Bank loans, short-term	1	2
Bank loans, long-term	35	447
Forward exchange contracts	1	36
Currency options	8	36
Interest rate hedges	11	36
Other derivatives	12	18

These financial instruments can be categorized as follows as of the reporting date:

in T€	31/12/2005	31/12/2004
Financial assets held for trading	4,584	1,095
Loans and receivables originated by the enterprise	294,236	168,265
Derivatives with documented hedging arrangement	3,359	–3,454
Available-for-sale financial assets	782,567	142,341
Total	1,084,746	308,247

The “financial assets held for trading” amounting to € 4.6 million (2004: € 1.1 million) relate to ineffective hedging transactions.

In the reporting year the Salzgitter Group recorded write-downs on assets categorized as “loans and receivables originated by the company” in the amount of € 8.7 million (2004: € 28.6 million) and reversals of write-downs in the amount of € 6.4 million (2004: € 6.0 million).

The changes in the value of hedging transactions concluded to secure future cash flows are posted to equity with no effect on income. As of the end of the reporting year, a total amount of € 1.9 million (2004: − € 4.4 million) resulting from changes in the value of the hedging transactions was reported under equity without effect on income.

In the reporting year, the valuation of shareholdings and securities without effect on income led to the posting under equity of € 2.7 million as disposals and € 4.0 million as write-ups (2004: disposals of € 7.3 million and write-ups of € 3.3 million). This position essentially concerns the shareholding in a North American steel company (SDI) and the shares in an Indian tube manufacturing company that were acquired in the reporting year; the fair value of these two investments is some € 6.4 million (2004: € 5.1 million) higher than their historical acquisition cost.

In the reporting year, profits amounting to € 3.4 million (2004: € 10.1 million) were made from the sale of “available-for-sale financial assets”. For the assets in this category recorded as of the reporting date, valuation allowances amounting to € 9.8 million (2004: € 8.2 million) with effect on income were posted in the reporting year.

The interest on fixed-term deposits in euro was between 1.91% and 2.36% p.a. with a maximum term of 2 months. The interest on fixed-term deposits in currencies other than the euro was between 2.18% and 4.25% p.a. with a term of up to 5 days. Interest rates on term money borrowings in euro ranged from 2.36% to 2.90% with a maximum term of 2 months, while interest rates on term money borrowings in currencies other than euro were between 2.72% and 3.95% with a maximum term of 3 days. Interest rates on short-term capital market instruments ranged from 2.20% to 2.32% p.a. with an investment period of 1 to 2 months. Interest on loans extended by the company is subject to a maximum residual term of 6 months to 20 years. Interest on bank loans received by the company ranged from 3.00% to 4.78% per annum with a maximum residual term of 9 months to 5 years.

In order to cover significant elements of the default risk and to afford access to a special information service, credit insurance cover has been arranged at the individual Group companies. For the companies in the Steel Division, the credit insurance does not extend to sales to dealers or companies in the iron and steel industry enterprises, for which global securities are arranged via the steel del credere office.

The default risk pertaining to financial instruments as of the reporting date compared with the previous year was as follows:

in T€	31/12/2005		31/12/2004
	Maximum default risk	Secured default risk	Maximum default risk	Secured default risk
Trade receivables	880,237	568,410	901,965	584,982
Other receivables	181,629	2,510	43,573	1,550
Loans	2,226	151	3,088	217
Securities	118,436	25	7,894	25
Total	1,182,528	571,096	956,520	586,774

In the case of foreign currency receivables, rate hedging cover is provided by entering into forward exchange contracts with various banks. The relevant claims are reported at the rate agreed in each case.

The nominal volume of the derivative hedging transactions comprises the unnetted total of all purchases and sales amounts, valued at the respective settlement rates. Market values were always determined on the basis of conditions that prevailed on the reporting date, using the values at which the relevant derivatives were traded or listed, without considering contrary movements in value deriving from the underlying transactions. The current value of the derivatives to be reported derives from the valuation of the hedged foreign currency amount as the difference between the rate applying when the forward contract was entered into and the forward rate on the reporting date; this amount is discounted at the euro interest rate to the reporting date in line with the residual time to maturity.

in T€	Par value 31/12/2005	Market value 31/12/2005	Par value 31/12/2004	Market value 31/12/2004
Forward exchange contracts
Purchase
PLN	21	–	47	1
CAD	457	–2	53	–1
SEK	333	7	756	–3
GBP	4,137	–13	1,941	–22
USD	287,782	7,252	459,265	–21,713
Other	735	1	3,314	59
Sale
USD	270,261	–5,011	264,549	18,529
GBP	37,380	201	37,065	748
CAD	2,377	–50	13,864	44
SEK	24,267	–149	21,025	17
PLN	648	–16	455	–18
Other currencies	367	–2	–	–
Currency options
Purchases USD	101,912	11,633	101,970	3,512
Sales USD	33,595	1,339	–	–
Interest rate instruments	170,000	–7,224	120,000	2,455
Other derivatives	8,698	–23	–	–
Total	–	7,943	–	3,608