Siemens 2014 Annual Report Download - page 298

108 A. To our Shareholders 131 B. Corporate Governance 171 C. Combined Management Report

Derivative interest rate contracts – The fair values of derivative
interest rate contracts (e.g. interest rate swap agreements) are
estimated by discounting expected future cash flows using cur-
rent market interest rates and yield curves over the remaining
term of the instrument. Interest rate futures and interest rate
options are valued on the basis of quoted market prices when
available. If quoted market prices are not available, interest rate
options are valued based on option pricing models.
Derivative currency contracts – The fair value of foreign cur-
rency exchange contracts is based on forward exchange rates.
Currency options are valued on the basis of quoted market
prices or on estimates based on option pricing models.
Derivative commodity contracts – The fair value of commodity
swaps is based on forward commodity prices. Commodity
options are valued on the basis of quoted market prices or on
estimates based on option pricing models.
The warrants issued together with US$  billion bonds in fiscal
 are valued based on an option pricing model. The most
significant inputs used are the underlying Siemens and OSRAM
share price and the implied volatility.
In determining the fair values of the derivative financial instru-
ments, no compensating effects from underlying transactions
(e.g. firm commitments and forecast transactions) are taken
into consideration.
The following table allocates financial assets and financial
liabilities measured at fair value to the three levels of the fair
value hierarchy.
September , 
(in millions of €) Level  Level  Level  Total
Financial assets measured
at fair value
Available-for-sale financial assets 1,527 703 307 2,536
Equity instruments 1,527 1 307 1,834
Debt instruments – 702 – 702
Derivative financial instruments – 2,569 – 2,569
Total 1,527 3,272 307 5,105
Financial liabilities measured
at fair value
Derivative financial instruments – 1,749 – 1,749
September , 
(in millions of €) Level  Level  Level  Total
Financial assets measured
at fair value
Available-for-sale financial assets 1,612 382 – 1,994
Equity instruments 1,612 – – 1,612
Debt instruments – 382 – 382
Derivative financial instruments – 2,330 – 2,330
Total 1,612 2,712 – 4,324
Financial liabilities measured
at fair value
Derivative financial instruments – 1,047 – 1,047
The levels of the fair value hierarchy and its application to our
financial assets and financial liabilities are described below:
Level : quoted prices in active markets for identical assets
or liabilities;
Level : inputs other than quoted prices that are observ-
able for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
Level : inputs for assets or liabilities, not based on observ-
able market data.
The unquoted equity instrument allocated to level  of the fair
value hierarchy relates to an investment in an offshore wind
farm. The fair value is determined based on discounted cash
flow calculations. The most significant unobservable input
used to determine the fair value is the cash flow forecast which
is mainly based on the future power generation income. This
income is generally subject to future market developments and
thus price volatility. Since a long-term power purchase agree-
ment is in place that mitigates price volatility, significant
changes to the cash flow forecast are unlikely and thus, no
significant effects on Other comprehensive income, net of
income taxes, are expected.
At the end of the reporting period the Company assesses
whether transfers from one level of the fair value hierarchy to
another level have to be made. In fiscal , there were no
such transfers.