Siemens 2010 Annual Report Download - page 281

147 Consolidated Financial Statements
148 Consolidated Statements of Income
149 Consolidated Statements of Comprehensive Income
150 Consolidated Statements of Financial Position
151 Consolidated Statements of Cash Flow
152 Consolidated Statements of Changes in Equity
154 Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated
and per share amounts)
261 Additional information

Financial instruments categorized as financial assets and fi-
nancial liabilities measured at fair value are presented in the
following table:
September ,
 
Financial assets measured at fair value
Available-for-sale financial assets 322 226
Derivative financial instruments 3,642 2,871
Not designated in a hedge
accounting relationship 1,314 820
In connection with fair value hedges 1,936 1,474
Foreign currency exchange derivatives 9 10
Interest rate derivatives 1,927 1,464
In connection with cash flow hedges 296 421
Foreign currency exchange derivatives 295 413
Interest rate derivatives – 8
Commodity derivatives 1 –
Embedded derivatives 96 156
Financial liabilities measured at fair value
Derivative financial instruments 1,262 998
Not designated in a hedge
accounting relationship 998 731
In connection with fair value hedges 11 4
Foreign currency exchange derivatives 11 4
Interest rate derivatives – –
In connection with cash flow hedges 153 130
Foreign currency exchange derivatives 137 130
Interest rate derivatives 16 –
Commodity derivatives – –
Embedded derivatives 100 133
Fair values for available-for-sale financial assets are derived
from quoted market prices in active markets.
The Company limits default risks in derivative instruments by
a careful counterparty selection. Derivative instruments are
principally transacted with financial institutions with invest-
ment grade credit ratings. The fair valuation of derivative in-
struments at Siemens incorporates all factors that market
participants would consider, including an adequate consider-
ation of the counterparties’ credit risks. This assures that the
counterparties’ credit risks themselves as well as any changes
in the counterparties’ credit worthiness are included in the fair
valuation of the Company ’s derivative instruments and thus
reflected in the Consolidated Financial Statements. The exact
calculation of fair values for derivative financial instruments
depends on the specific type of instruments:
Derivative interest rate contracts – The fair values of deriva-
tive interest rate contracts (e.g. interest rate swap agreements)
are estimated by discounting expected future cash flows using
current market interest rates and yield curves over the remain-
ing term of the instrument. Interest rate options are valued on
the basis of quoted market prices or on estimates based on
option pricing models.
Derivative currency contracts – The fair value of forward
foreign exchange contracts is based on forward exchange
rates. Currency options are valued on the basis of quoted mar-
ket prices or on estimates based on option pricing models.
Derivative commodity contracts – The fair value of commod-
ity swaps is based on forward commodity prices. Commodity
options are valued on the basis of quoted market prices or on
estimates based on option pricing models.
Credit default swaps – The fair value of credit default swaps
is calculated by comparing discounted expected future cash
flows using current bank conditions with discounted expected
future cash flows using contracted conditions.
In determining the fair values of the derivative financial instru-
ments, no compensating effects from underlying transactions
(e.g. firm commitments and anticipated transactions) are tak-
en into consideration.