Siemens 2007 Annual Report Download - page 292

292 Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts)
Financial income (expense), net in the Consolidated Statements of Income. The net
effect recognized in Financial income (expense), net, representing the ineffective
portion of the hedging relationship, amounted to €7 in fi scal 2007. Net cash
receipts and payments relating to such interest rate swap agreements are
recorded as interest expense, which is part of Financial income (expense), net.
The Company had interest rate swap contracts to pay variable rates of interest
(average rate of 5.2% and 5.0% as of September 30, 2007 and 2006, respectively)
and received fi xed rates of interest (average rate of 5.7% and 5.7% as of September
30, 2007 and 2006, respectively). The notional amount of indebtedness hedged as
of September 30, 2007 and 2006 was €7,326 and €5,752, respectively. This resulted
in 82% and 44% of the Company’s underlying notes and bonds being subject to
variable interest rates as of September 30, 2007 and 2006, respectively. The
notional amounts of these contracts mature at varying dates based on the matu-
rity of the underlying hedged items. The net fair value of interest rate swap con-
tracts (excluding accrued interest) used to hedge indebtedness as of September
30, 2007 and 2006 was €20 and €207, respectively.
Fair value hedges of available-for-sale fi nancial assets
During the year ended September 30, 2007, the Company applied fair value hedge
accounting for certain fi xed-rate available-for-sale fi nancial assets. To offset the
impact of future changes in interest rates on the fair value of the underlying
fi xed-rate available-for-sale fi nancial assets, interest rate swap agreements were
entered into. The interest rate swap contracts and the related portion of the avail-
able-for-sale fi nancial assets are refl ected at fair value in the Company’s Consoli-
dated Balance Sheets. Changes in the fair value of interest rate swap contracts and
the offsetting changes in fair value of the available-for-sale fi nancial assets being
hedged attributable to the interest rate risk being hedged are recognized as
adjustments to the line item Financial income (expense), net in the Consolidated
Statements of Income. The net effect recognized in Financial income (expense), net,
representing the ineffective portion of the hedging relationship, amounted to €9
in fi scal 2007.
Cash fl ow hedges of revolving term deposits
During the years ended September 30, 2007 and 2006, the Company applied cash
fl ow hedge accounting for a revolving term deposit. Under the interest rate swap
agreements entered into, the Company agrees to pay a variable rate of interest
multiplied by a notional principle amount, and to receive in return an amount
equal to a specifi ed fi xed rate of interest multiplied by the same notional principal
amount. These interest rate swap agreements offset the effect of future changes in
interest payments of the underlying variable-rate term deposit. The interest rate
swap contracts are refl ected at fair value and the effective portion of changes in
fair value of the interest rate swap contracts that were designated as cash fl ow
hedges are recorded in Other components of equity. Net cash receipts and payments
relating to such interest rate swap agreements are recorded as interest income,
which is part of Financial income (expense), net.