Siemens 2008 Annual Report Download - page 287

Notes to Consolidated Financial Statements 191
(in millions of €, except where otherwise stated and per share amounts)
The fair values of each type of derivative nancial instruments are as follows:
Foreign currency exchange risk management
As described in Note 33, the Company employs various derivative nancial instruments in order to mitigate
or eliminate certain foreign-currency exchange risks.
Derivative nancial instruments not designated as hedges
The Company manages its risks associated with uctuations in foreign-currency-denominated receivables, pay-
ables, debt, rm commitments and anticipated transactions and to some extent planned transactions primarily
through a Company-wide portfolio approach. This approach concentrates the associated Company-wide risks
centrally, and various derivative nancial instruments, primarily foreign exchange contracts and, to a lesser
extent, interest rate and cross-currency interest rate swaps and options, are utilized to minimize such risks.
Such a strategy does not qualify for hedge accounting treatment under IAS 39, Financial Instruments: Recogni-
tion and Measurement. Accordingly, all such derivative nancial instruments are recorded at fair value on the
Consolidated Balance Sheets, either as Other current nancial assets or Other current nancial liabilities, and
changes in fair values are charged to net income (loss).
The Company also has foreign-currency derivative instruments, which are embedded in certain sale and pur-
chase contracts denominated in a currency other than the functional currency of the signicant parties to the
contract, principally the U.S.$. Gains or losses relating to such embedded foreign-currency derivatives are
reported in Cost of goods sold and services rendered in the Consolidated Statements of Income.
Hedging activities
The Company’s operating units applied hedge accounting for certain signicant anticipated transactions and
rm commitments denominated in foreign currencies. Specically, the Company entered into foreign exchange
contracts to reduce the risk of variability of future cash ows resulting from forecasted sales and purchases and
rm commitments resulting from its business units entering into long-term contracts (project business) and
standard product business which are denominated primarily in U.S.$.
Cash ow hedges – Changes in fair value of forward exchange contracts that were designated as foreign-cur-
rency cash ow hedges are recorded as follows: the portion of the fair value changes that is determined to be an
effective hedge is recognized in Other components of equity, whereas the ineffective portion of the fair value
change is recognized in prot or loss. As of September 30, 2008 and 2007, the ineffective portion that was imme-
diately recorded in prot or loss amounted to €1 and € – , respectively. During the years ended September 30,
2008 and 2007, net gains of €5 and €1, respectively, were reclassied from Other components of equity into net
income (loss) because the occurrence of the related hedged forecasted transaction was no longer probable.
September 30, 2008 September 30, 2007
Asset Liability Asset Liability
Foreign currency exchange contracts 371 979 602 420
Interest rate swaps and combined interest/currency swaps 424 168 175 239
Embedded derivatives 128 144 107 254
Options 65 56 19 –
Other 9 58 40 4
997 1,405 943 917