Siemens 2008 Annual Report Download - page 289

Notes to Consolidated Financial Statements 193
(in millions of €, except where otherwise stated and per share amounts)
The Company had interest rate swap contracts to pay variable rates of interest (average rate of 4.5% and 5.2% as
of September 30, 2008 and 2007, respectively) and received xed rates of interest (average rate of 5.6 and 5.7%
as of September 30, 2008 and 2007, respectively). The notional amount of indebtedness hedged as of September
30, 2008 and 2007 was €11,766 and €7,326, respectively. This changed 89% and 82% of the Company’s underly-
ing notes and bonds from xed interest rates into variable interest rates as of September 30, 2008 and 2007,
respectively. The notional amounts of these contracts mature at varying dates based on the maturity of the
underlying hedged items. The net fair value of interest rate swap contracts (excluding accrued interest) used to
hedge indebtedness as of September 30, 2008 and 2007 was €291 and €20, respectively.
Fair value hedges of available-for-sale nancial assets
During the years ended September 30, 2008 and 2007, the Company had applied fair value hedge accounting for
certain xed-rate available-for-sale nancial assets. However, fair value hedge accounting was terminated at the
beginning of scal year 2008 since the majority of the hedged item was derecognised. To offset the impact of
future changes in interest rates on the fair value of the underlying xed-rate available-for-sale nancial assets,
interest rate swap agreements had been entered into. As long as hedge accounting was applied, the interest rate
swap contracts and the related portion of the available-for-sale nancial assets were reected at fair value in the
Company’s Consolidated Balance Sheets. Changes in the fair value of interest rate swap contracts and the offset-
ting changes in fair value of the available-for-sale nancial assets being hedged attributable to the interest rate
risk being hedged were recognized as adjustments to the line item Financial income (expense), net in the Con-
solidated Statements of Income. The net effect recognized in Financial income (expense), net, representing the
ineffective portion of the hedging relationship, amounted to € – and €9 in scal 2008 and 2007, respectively.
Cash ow hedges of revolving term deposits
During the years ended September 30, 2008 and 2007, the Company applied cash 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 specied 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 reected at fair value and the effective portion of changes in fair value of
the interest rate swap contracts that were designated as cash ow hedges are recorded in Other components of
equity; any ineffective portion of changes in fair value are recognized in prot or loss. In scal 2008 and 2007,
the cash ow hedges of revolving term deposits did not lead to any material ineffective portions recognized in
prot or loss (less than €1). 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.
33 Financial risk management
Market risks
Increasing market uctuations may result in signicant cash-ow and prot volatility risk for Siemens. Its
worldwide operating business as well as its investment and nancing activities are affected by changes in for-
eign exchange rates, interest rates and equity prices. To optimize the allocation of the nancial resources across
the Siemens segments and entities, as well as to secure an optimal return for its shareholders, Siemens identi-
es, analyzes and proactively manages the associated nancial market risks. The Company seeks to manage and
control these risks primarily through its regular operating and nancing activities, and uses derivative instru-
ments when deemed appropriate.