Siemens 2011 Annual Report Download - page 329

153 D. Consolidated Financial Statements 273 E. Additional information
158 D. Consolidated Statements of Changes in Equity
160 D. Notes to Consolidated Financial Statements
266 D. Supervisory Board and Managing Board
154 D. Consolidated Statements of Income
155 D.2 Consolidated Statements of Comprehensive Income
156 D. Consolidated Statements of Financial Position
157 D. Consolidated Statements of Cash Flow

The fair values of each type of derivative financial instru-
ments recorded as financial assets or financial liabilities are
as follows:
September ,  September , 
(in millions of €) Asset Liability Asset Liability
Foreign currency
exchange contracts 390 644 858 423
Interest rate swaps
and combined
interest / currency swaps 2,161 423 2,317 416
Commodity swaps 62 155 78 11
Embedded derivatives 167 97 96 100
Options 242 286 289 308
Other – – 4 4
3,022 1,605 3,642 1,262
FOREIGN CURRENCY EXCHANGE RATE
RISK MANAGEMENT
As described in Note 33 Financial risk management, the
Company employs various derivative financial instruments in
order to mitigate or eliminate certain foreign currency ex-
change rate 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 forecast transactions primarily
through a Company-wide portfolio approach. Under this ap-
proach the Company-wide risks are concentrated centrally,
and various derivative financial instruments, primarily for-
eign currency exchange contracts and options, are utilized to
minimize such risks. Such a strategy does not qualify for
hedge accounting treatment under IAS , Financial Instru-
ments: Recognition and Measurement. Accordingly, all such
derivative financial instruments are recorded at fair value on
the Consolidated Statements of Financial Position, either in
line items Other current financial assets / liabilities or line
items Other financial assets / liabilities, and changes in fair
values are charged to net income (loss).
The Company also has foreign currency derivatives, which are
embedded in certain sale and purchase contracts denominat-
ed in a currency that is neither the functional currency of the
substantial parties to the contract nor a currency which is
commonly used in the economic environment in which the
contract takes place. Gains or losses relating to such embed-
ded foreign currency derivatives are reported in line item Cost
of goods sold and services rendered in the Consolidated State-
ments of Income.
Hedging activities
The Company ’s operating units apply hedge accounting for
certain significant forecast transactions and firm commit-
ments denominated in foreign currencies. Particularly, the
Company has entered into foreign currency exchange con-
tracts to reduce the risk of variability of future cash flows re-
sulting from forecast sales and purchases as well as firm com-
mitments. This risk results mainly from contracts denominat-
ed in US$ both from Siemens’ business units entering into
long-term contracts (project business) and from the standard
product business.
Cash flow hedges – Changes in fair value of foreign currency
exchange contracts that were designated as hedging instru-
ments in foreign currency cash flow hedges are recorded as
follows: the portion of the fair value changes that is deter-
mined to be an effective hedge is recognized in line item Oth-
er comprehensive income, net of tax, whereas the ineffective
portion of the fair value changes is recognized in profit or
loss. As of September ,  and , the ineffective por-
tion that was immediately recorded in profit or loss amounted
to € million and €() million, respectively. In fiscal  and
, net gains (losses) of €() million and € million, respec-
tively, were reclassified from line item Other comprehensive
income, net of tax into line item Cost of goods sold and servic-
es rendered because the occurrence of the related hedged
forecast transaction was no longer probable. The develop-
ment of line item Other comprehensive income, net of tax re-
sulting from changes in fair value of these transactions as
well as from amounts that were removed and included in prof-
it or loss is presented in
Note 27 Equity.