Siemens 2010 Annual Report Download - page 285

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

Cash flow hedges of revolving term deposits
In fiscal,  and , the Company applied cash flow hedge
accounting for a revolving term deposit. To offset the effect of
future changes in interest payments of this revolving term
deposit, the Company had entered into an interest rate swap
agreement to pay a variable rate of interest and to receive a
specified fixed rate of interest. When the swap contract ended
in June , cash flow hedge accounting was terminated. As
long as hedge accounting was applied, the interest rate swap
contract was reflected at fair value and the effective portion of
changes in fair value were recorded in Other comprehensive
income; any ineffective portion of changes in fair value was
recognized in profit or loss. In fiscal  and , the cash
flow hedges of revolving term deposits did not result in any
ineffective portion to be recognized in profit or loss. Net cash
receipts and payments relating to such interest rate swap
agreements were recorded as interest income and expense,
respectively.
Cash flow hedges of a variable-rate term loan
As of September , , the Company applied cash flow
hedge accounting for  percent of a variable-rate U.S. dollar
term loan. To benefit from the low interest rates in the U.S., the
Company entered into interest rate swap agreements to pay a
fixed rate of interest and to receive in return a variable rate of
interest. These interest rate swap agreements offset the effect
of future changes in interest payments to be made for the un-
derlying variable-rate term loan. The interest rate swap con-
tracts are reflected at fair value and the effective portion of
changes in fair value of the interest rate swap contracts that
were designated as cash flow hedges are recorded in Other
comprehensive income; any ineffective portion of changes in
fair value is recognized in profit or loss. In fiscal , the cash
flow hedges of the variable-rate term loan did not lead to any
ineffective portion to be recognized in profit or loss. Net cash
receipts and payments relating to such interest rate swap
agreements are recorded as interest income and expense, re-
spectively.
Commodity price risk management
As described in Note , the Company employs commodity
derivatives in order to mitigate or eliminate price risks from
the procurement of commodities.
Derivative financial instruments not designated in a
hedging relationship
The Company partly uses a portfolio approach to manage the
Company-wide risks associated with fluctuations in commod-
ity prices from firm commitments and anticipated transactions
by entering into commodity swaps and commodity options. As
such, a strategy does not qualify for hedge accounting treat-
ment under IAS , Financial Instruments: Recognition and
Measurement, the derivative financial instruments are re-
corded at fair value on the Consolidated Statements of Finan-
cial Position, either as Other current financial assets / liabilites
or Other financial assets / liabilities, and changes in fair values
are charged to net income (loss).
Cash flow hedging activities
As of June , the Company ’s corporate procurement applies
cash flow hedge accounting for certain firm commitments to
purchase copper. Changes in fair value of the swaps which are
used in the hedging relationship are recorded as follows: the
portion of the fair value changes that is determined to be an
effective hedge is recognized in Other comprehensive income,
whereas the ineffective portion of the fair value changes is
recognized in profit or loss. As of September , , there
was no ineffective portion that had to be recorded in profit or
loss. In fiscal , no gains or losses were reclassified from
Other comprehensive income into Cost of goods sold and ser-
vices rendered because the occurrence of the related hedged
forecasted transaction was no longer probable. The develop-
ment of Other comprehensive income resulting from changes
in fair value of these transactions as well from amounts that
were removed and included in profit or loss is presented in
Note .
It is expected that € of net deferred gains in Other comprehen-
sive income will be reclassified into Cost of goods sold and
services rendered in fiscal , when the consumption of the
hedged commodity purchases is recognized as Cost of goods
sold and services rendered. As of September , , the
maximum length of time over which the Company is hedging
its future commodity purchases is  months.
 – Financial risk management
Market risks
Siemens’ financial risk management is an integral part of how
to plan and execute its business strategies. Siemens’ financial
risk management policy is set by the Managing Board. Siemens’
organizational and accountability structure requires each of
the respective managements of Siemens Sectors, Cross-Sector
Businesses, Regional Clusters and Corporate Units to imple-
ment financial risk management programs that are tailored to