Siemens 2013 Annual Report Download - page 317

253 D. Consolidated Financial Statements 357 E. Additional Information
254 D.1 Consolidated Statements of Income
255 D.2 Consolidated Statements of Comprehensive Income
256 D.3 Consolidated Statements of Financial Position
257 D. Consolidated Statements of Cash Flows
258 D.5 Consolidated Statements of Changes in Equity
260 D.6 Notes to Consolidated Financial Statements
348 D.7 Supervisory Board and Managing Board
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relating to the SFS’ business remains to be managed separately,
considering the term structure of SFS’ financial assets and
liabilities on a portfolio basis. Neither approach qualifies for
hedge accounting treatment. Accordingly, all interest rate
derivatives 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
(expenses), net. Net cash receipts and payments relating to
interest rate swaps used in offsetting relationships are also
recorded in line item Other financial income (expenses), 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
designated as the hedged risk on the fair value of the underly-
ing fixed-rate debt obligations. The interest rate swap con-
tracts are recorded at fair value in the Company ’s Consolidated
Statements of Financial Position 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 represent-
ing the change in fair value of the debt obligations attributable
to the respective 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 por-
tion of fixed-rate debt being hedged are recognized in line item
Other financial income (expenses), 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 agreements resulted in a
gain (loss) of €() million and € million, respectively.
Accordingly, the net effect recognized in line item Other fi-
nancial income (expenses), 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 expenses.
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
indebtedness as of September ,  and  was €
million and €, million, respectively. To reduce counter-
party risk, Siemens agreed in fiscal  to adjust the fixed rate
of several interest rate swaps to market levels in exchange for
receiving a fair value compensation.
Cash flow hedges of a variable-rate term loan
As of September , , 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. The variable-rate term
loan and the corresponding interest rate swap agreements
matured in August . In fiscal  and , the cash flow
hedges of the variable-rate term loan did not result in any
ineffective portion. Net cash receipts and payments relating to
such interest rate swap agreements are recorded as interest
expenses.
COMMODITY PRICE RISK MANAGEMENT
Derivative financial instruments not designated
in a hedging relationship
The Company applies a portfolio approach to manage the
Company-wide risks associated with fluctuations in commod-
ity 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. The ineffective portion as well as resulting gains and
(losses) were not significant individually or in aggregate.
It is expected that € million of net deferred losses in line
item Other comprehensive income, net of income taxes will be
reclassified into line item Cost of sales in fiscal , when the
consumption of the hedged commodity purchases is recog-