Approximately two-thirds of EADS’ revenues are denominated in U.S. Dollars, whereas a substantial portion of its costs is incurred in Euro and, to a lesser extent, Pounds Sterling. EADS uses hedging strategies to manage and minimise the impact of exchange rate fluctuations on its profits. See “Hedging Activities — Foreign Exchange Rates” and “1. Financial Market Risks — Exposure to Foreign Currencies”.

Cash flow hedges. When hedges form a hedging relationship with customer orders to which they specifically relate, they qualify for IAS 39 hedge accounting and are referred to as ‘cash flow hedges. Revenues from such customer orders are recorded in Euro at the hedged rate and the impact of the hedges is recognised in gross margin and operating income at the time of revenue recognition. At the end of each accounting period, the value of each outstanding cash flow hedge contract is marked-to-market in the balance sheet on the basis of the then prevailing forward exchange rate. See “Statement of Changes in Consolidated Total Equity”. For products such as aircraft, EADS typically hedges the first forecasted highly probable future cash inflows for a given month based upon final payments at delivery. See “Hedging Activities — Foreign Exchange Rates”.

Cash flow hedges associated with transactions that are cancelled or postponed for more than a relatively short period are deemed terminated for accounting purposes. The sum of (i) changes in the fair value of these hedges since 1st January and (ii) a reversal of the portion of accumulated other comprehensive income (“AOCI”) corresponding to these hedges prior to 1st January, are then recorded in revenues and deferred tax income (loss) in the consolidated statement of income.

Revenues in currencies other than the Euro that are not hedged through financial instruments are translated into Euro at the spot exchange rate at the date the underlying transaction occurs.