Siemens 2011 Annual Report Download - page 330

6 A. To our shareholders 51 C. Combined management’s discussion and analysis 23 B. Corporate Governance

The following table shows the periods in which the hedged
forecast transactions or the firm commitments denominated
in foreign currency are expected to impact profit or loss and,
therefore, the relating net deferred gains and losses in line
item Other comprehensive income, net of tax will be reclassi-
fied into line item Revenue or line item Cost of goods sold and
services rendered.
Year ended September ,
 
 to

 and
thereafter
(in millions of €)
Expected gain (loss) to
be reclassified from line
item Other comprehensive
income, net of tax into
revenue or cost of goods
sold and services rendered (57) (2) (25) 1
Fair value hedges – As of September ,  and , the
Company hedged firm commitments using foreign currency
exchange contracts that were designated as hedging instru-
ments in foreign currency fair value hedges of future sales re-
lated primarily to the Company ’s project business and, to a
lesser extent, future purchases. As of September ,  and
, the hedging transactions resulted in the recognition of
financial assets of € million and € million, respectively,
and financial liabilities of € million and € million, respec-
tively, for the hedged firm commitments. Changes in fair val-
ue of foreign currency exchange contracts resulted in losses
of € million and losses of € million in fiscal  and ,
respectively. These effects relate to gains from the valuation
of firm commitments of € million and gains of € million,
respectively. Changes in fair value of the foreign currency ex-
change contracts as well as firm commitments were recorded
in line item Cost of goods sold and services rendered.
INTEREST RATE RISK MANAGEMENT
Interest rate risk arises from the sensitivity of financial assets
and liabilities to changes in market rates of interest. The Com-
pany seeks to mitigate this risk by entering into interest rate
derivatives such as interest rate swaps, options, cross-curren-
cy interest rate swaps, interest rate futures and forward rate
agreements. For additional information see
Note 33 Finan-
cial risk management.
Derivative financial instruments
not designated in a hedging relationship
Starting with the first quarter of fiscal , the interest rate
risk management relating to the Group excluding SFS busi-
ness has been realigned with the financial market environ-
ment. Under this portfolio-based approach, derivative finan-
cial instruments are used to manage interest risk actively rela-
tive to a benchmark consisting of medium-term interest rate
swaps and interest forwards. Compared to the former interest
rate overlay management, the benchmark approach may re-
sult in longer interest periods of derivatives and higher nomi-
nal volumes. The interest rate management relating to the
SFS business remains to be managed separately, considering
the term structure of SFS’ financial assets and liabilities on a
portfolio basis. Both approaches do not qualify for hedge ac-
counting treatment under IAS , Financial Instruments: Rec-
ognition and Measurement. Accordingly, all interest rate de-
rivatives held in this relation are recorded at fair value, either
in line items Other current financial assets / liabilities or in line
items Other financial assets / liabilities, and changes in the fair
values are charged to line item Other financial income (ex-
pense), net. Net cash receipts and payments relating to inter-
est rate swaps used in offsetting relationships are also record-
ed in line item Other financial income (expense), net.
Fair value hedges of fixed-rate debt obligations
Under the interest rate swap agreements outstanding during
the years ended September ,  and , the Company
has agreed to pay a variable rate of interest multiplied by a no-
tional principle amount, and receives in return an amount
equal to a specified fixed rate of interest multiplied by the
same notional principal amount. These interest rate swap
agreements offset an impact of future changes in interest
rates on the fair value of the underlying fixed-rate debt obliga-
tions. The interest rate swap contracts are recorded at fair val-
ue in the Company ’s Consolidated Statements of Financial Po-
sition and the related portion of fixed-rate debt being hedged
is recorded at an amount equal to the sum of its carrying
amount plus an adjustment representing the change in fair
value of the debt obligations attributable to the interest rate
risk being hedged. Changes in the fair value of interest rate
swap contracts and the offsetting changes in the adjusted
carrying amount of the related portion of fixed-rate debt be-
ing hedged are recognized in line item Other financial income
(expense), net in the Consolidated Statements of Income. Ad-
justments in the carrying amount of the debt obligations re-
sulted in a gain of € million and a loss of € million in
fiscal  and , respectively. During the same period, the