Siemens 2009 Annual Report Download - page 279

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 Managing Board statements, Independent auditors’ report, Additional information
 Notes to Consolidated Financial Statements
(in millions of €, except where otherwise
stated and per share amounts)
Cash flow hedges – Changes in fair value of forward exchange
contracts that were designated as foreign-currency cash flow
hedges are recorded as follows: the portion of the fair value
changes that is determined to be an effective hedge is recog-
nized in Other components of equity, whereas the ineffective
portion of the fair value changes is recognized in profit or loss.
As of September 30, 2009 and 2008, the ineffective portion
that was immediately recorded in profit or loss amounted to
€ – and €1, respectively. During the years ended September 30,
2009 and 2008, net gains of €6 and €5, respectively, were re-
classified from Other components of equity into Cost of goods
sold and services rendered because the occurrence of the re-
lated hedged forecasted transaction was no longer probable.
The development of Other components of equity resulting
from changes in fair value of these transactions as well from
amounts that were removed and included in profit or loss is
shown in Note 27.
It is expected that €143 of net deferred losses in Other compo-
nents of equity will be reclassified into Cost of goods sold and
services rendered during the year ended September 30, 2010,
when the hedged forecasted foreign-currency denominated
sales and purchases occur.
As of September 30, 2009, the maximum length of time over
which the Company is hedging its future cash flows associated
with foreign-currency forecasted transactions is 207 months.
Fair value hedges – As of September 30, 2009 and 2008, the
Company hedged firm commitments using forward exchange
contracts that were designated as foreign-currency fair value
hedges of future sales related primarily to the Company ’s proj-
ect business and, to a lesser extent, purchases. As of Septem-
ber 30, 2009 and 2008, the hedging transactions resulted in
the recognition of financial assets of €13 and €19, respectively,
and financial liabilities of €23 and €34, respectively, for the
hedged firm commitments. Changes in fair value of forward
exchange contracts resulted in losses of €2 and €20, respec-
tively. These losses relate to gains from the valuation of firm
commitments of €2 and €19, respectively. Changes in fair value
of the forward exchange contracts as well as of the firm com-
mitments were recorded in Cost of goods sold and services
rendered.
Foreign currency exchange risk management
As described in Note 33, the Company employs various deriva-
tive financial instruments in order to mitigate or eliminate cer-
tain foreign-currency exchange risks.
Derivative financial instruments
not designated in a hedging relationship
The Company manages its risks associated with fluctuations in
foreign-currency-denominated receivables, payables, debt, firm
commitments and anticipated transactions primarily through
a Company-wide portfolio approach. This approach concen-
trates the associated Company-wide risks centrally, and various
derivative financial instruments, primarily foreign exchange
contracts and 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 treat
ment under
IAS 39, Financial Instruments: Recognition and Measurement.
Accordingly, all such derivative financial instruments are re-
corded at fair value on the Consolidated Balance Sheets, either
as Other current financial assets or Other current financial liabil-
ities, and changes in fair values are charged to net income (loss).
The Company also has foreign-currency derivative instru-
ments, which are embedded in certain sale and purchase con-
tracts denominated in a currency other than the functional
currency of the significant parties to the contract and other
than a currency which is commonly used in the economic en-
vironment in which the contract takes place. Gains or losses
relating to such embedded foreign-currency derivatives are re-
ported in Cost of goods sold and services rendered in the Con-
solidated Statements of Income.
Hedging activities
The Company ’s operating units applied hedge accounting for
certain significant anticipated transactions and firm commit-
ments denominated in foreign currencies. Specifically, the
Company entered into foreign exchange contracts to reduce
the risk of variability of future cash flows resulting from fore-
casted sales and purchases and firm commitments resulting
from its business units entering into long-term contracts (proj-
ect business) and standard product business which are de-
nominated primarily in U.S.$.