Siemens 2012 Annual Report Download - page 292

1 A. To our Shareholders 49 C. Combined Management Report 21 B. Corporate Governance
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hedged. Changes in the fair value of interest rate swap con-
tracts and the offsetting changes in the adjusted carrying
amount of the related portion of fixed-rate debt being hedged
are recognized in line item Other financial income (expense),
net in the Consolidated Statements of Income. Adjustments in
the carrying amount of the debt obligations resulted in a gain
(loss) of €() million and € million in fiscal  and ,
respectively. During the same period, the related swap agree-
ments resulted in a gain (loss) of € million and €() mil-
lion, respectively. Accordingly, the net effect recognized in line
item Other financial income (expense), net, representing the
ineffective portion of the hedging relationship, amounts to €
million and €() million in fiscal  and , respectively.
Net cash receipts and payments relating to such interest rate
swap agreements are recorded as interest expense.
The Company had interest rate swap contracts to pay variable
rates of interest of an average of .% and .% as of Septem-
ber ,  and , respectively and received fixed rates of
interest (average rate of .% and .% as of September ,
 and , respectively). The notional amount of indebted-
ness hedged as of September ,  and  was €,
million and €, million, respectively. This changed %
and % of the Company ’s underlying notes and bonds from
fixed interest rates into variable interest rates as of September
,  and , respectively. The notional amounts of these
contracts mature at varying dates based on the maturity of the
underlying hedged items. The net fair value of interest rate
swap contracts (excluding accrued interest) used to hedge in-
debtedness as of September ,  and  was €, mil-
lion and €, million, respectively.
Cash flow hedges of a variable-rate term loan
As of September ,  and , the Company applied cash
flow hedge accounting for % of a variable-rate US$  billion
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 underlying variable-rate term loan. In fiscal  and ,
the cash flow hedges of the variable-rate term loan did not re-
sult in any ineffective portion. Net cash receipts and payments
relating to such interest rate swap agreements are recorded as
interest expense.
Periods in which the hedged interest payments expected to
impact profit or loss are:
Year ended September ,
 
 to

 and
thereafter
(in millions of €)
Expected income (loss)
to be reclassified from line
item Other comprehensive
income, net of tax into
interest expense (8) (1) (2) (7)
   
    
Derivative financial instruments not designated
in a hedging relationship
The Company applies a portfolio approach to manage the Com-
pany-wide risks associated with fluctuations in commodity
prices from firm commitments and forecast transactions by
entering into commodity swaps and commodity options. Such
a strategy does not qualify for hedge accounting treatment.
Cash flow hedging activities
The Company ’s corporate procurement applies cash flow
hedge accounting for certain firm commitments to purchase
copper. As of September ,  and , there is no ineffec-
tive portion. In fiscal  and , no gains (losses) were re-
classified from line item Other comprehensive income, net of
tax into line item Cost of goods sold and services rendered be-
cause the occurrence of the related hedged forecast transac-
tion was no longer probable.
It is expected that € million of net deferred losses in line
item Other comprehensive income, net of tax will be reclassi-
fied into line item Cost of goods sold and services rendered in
fiscal , when the consumption of the hedged commodity
purchases is recognized in line item Cost of goods sold and
services rendered. As of September ,  and , the
maximum length of time over which the Company is hedging
its future commodity purchases is  months and  months,
respectively.