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3.6 Consolidated financial statements Notes to the consolidated financial statements The fair value hierarchy reflects the significance of the inputs used to determine fair values. Financial instruments with fair value measurement based on quoted prices in active markets are disclosed in Level 1. In Level 2 determination of fair values is based on observable inputs, e.g. foreign exchange rates. Level 3 comprises financial instruments for which the fair value measurement is based on unobservable inputs. The following table shows net gains and losses from financial instruments by measurement categories. Gains or losses arising from finance lease and from derivatives that qualify for hedge accounting are not included, as they are not part of any IAS 39 measurement category. million € Year ended Sept. 30, 2010 Year ended Sept. 30, 2011 Loans and receivables 576 409 Available-for-sale financial assets Derivatives that do not qualify for hedge accounting 98 38 (Financial assets/liabilities held for trading) (19) 44 Financial liabilities measured at amortized cost (514) (633) Net gains under “loans and receivables” mainly comprises interest on financial receivables and gains and losses on foreign currency receivables. The category “available-for-sale financial assets” mainly includes current earnings from equity and debt instruments, gains or losses on their disposal as well as impairments. Gains and losses arising from changes in fair value of foreign currency, interest rate and commodity derivatives that do not comply with the hedge accounting requirements under IAS 39 are included in the “derivatives that do not qualify for hedge accounting” category. The category “financial liabilities measured at amortized cost” mainly comprises of interest expenses on financial liabilities, gains and losses on foreign currency liabilities as well as income resulting from capitalized borrowing cost. Included in net gains and loses are exchange differences of €130 million (2009/2010: €158 million). Derivative financial instruments The Group uses various derivative financial instruments, including foreign currency forward contracts, foreign currency options, interest rate swaps, cross currency swaps and commodity forward contracts. Derivative financial instruments are generally used to hedge existing or anticipated underlying transactions so as to reduce foreign currency, interest rate and commodity price risks. The following table shows the notional amounts and fair values of derivatives used within the Group: million € Notional amount Sept. 30, 2010 Carrying amount Sept. 30, 2010 Notional amount Sept. 30, 2011 Carrying amount Sept. 30, 2011 Assets Foreign currency derivatives that do not qualify for hedge accounting Foreign currency derivatives 3,240 115 2,275 68 qualifying as cash flow hedges 1,286 93 2,026 63 Embedded derivatives Interest rate derivatives that do not 128 6 128 5 qualify for hedge accounting* Interest rate derivatives qualifying 20 1 0 0 as cash flow hedges* Interest rate derivatives qualifying 0 0 299 5 as fair value hedges Commodity derivatives that do not 987 3 0 0 qualify for hedge accounting Commodity derivatives qualifying as 393 50 400 64 cash flow hedges Commodity derivatives qualifying 123 57 111 14 as fair value hedges 20 1 0 0 Total 6,197 326 5,239 219 Liabilities Foreign currency derivatives that do not qualify for hedge accounting Foreign currency derivatives 1,890 73 5,062 235 qualifying as cash flow hedges 1,038 30 357 38 Embedded derivatives Interest rate derivatives that do not 94 5 70 2 qualify for hedge accounting* Interest rate derivatives qualifying 0 0 0 0 as cash flow hedges* Interest rate derivatives qualifying 752 34 750 35 as fair value hedges Commodity derivatives that do not 0 0 0 0 qualify for hedge accounting Commodity derivatives qualifying 408 59 287 45 as cash flow hedges Commodity derivatives qualifying 10 2 97 23 as fair value hedges 20 1 0 0 Total 4,212 204 6,623 378 * inclusive of cross currency swaps
3.6 Consolidated financial statements Notes to the consolidated financial statements Derivatives that qualify for hedge accounting Hedge accounting in accordance with IAS 39 is used to hedge foreign currency risks of firm commitments, future receivables and liabilities denominated in foreign currency, commodity price risks arising from sales and purchase transactions, and interest rate risks from noncurrent financings. Cash flow hedges Cash flow hedges are mainly used to hedge future cash flows against foreign currency and commodity price risks arising from future sales and purchase transactions as well as interest rate risks from noncurrent liabilities. These derivatives are measured at fair value, divided into an effective and ineffective portion. Until realization of the hedged underlying transaction, the effective portion of fluctuations in fair value of these derivatives is recognized directly in equity in the cumulative other comprehensive income position, while the ineffective portion is recognized in profit or loss. The cumulative gain or loss recognized in equity is reclassified to profit or loss in the same period during which the future underlying transactions (hedged items) affect profit or loss. As of 30 September 2011, hedging instruments with positive fair value totaled €82 million (2010: €150 million) and those with negative fair value totaled €96 million (2010: €66 million). For the 2010/2011 fiscal year, €1 million (2009/2010: €97 million) (before tax) in unrealized gains or losses have been recognized directly in equity in the cumulative other comprehensive income position. Cash flows from future transactions are currently hedged for a maximum of 60 months. During the current fiscal year, €(2) million (2010: €(6) million) of cumulative other comprehensive income were reclassified to sales in profit or loss as a result of the underlying transactions being realized during the year. €(0.4) million (2010: 0) thereof are included in discontinued operations. In addition, €74 million (2010: €102 million), thereof €4 million (2010: €2 million) in discontinued operations, of cumulative other comprehensive income were reclassified to decrease cost of inventories, as the hedged commodities were recognized, although the underlying transaction had not yet been taken to profit or loss. This resulted in decreased expenses of €93 million, thereof €5 million in discontinued operations, in 2010/2011 an expense of €19 million, thereof €1 million in discontinued operations, of that reclassified amount is expected to impact earnings in the subsequent fiscal year. Furthermore, €5 million (2010: €121 million) of cumulative Consolidated financial statements 180 | 181 other comprehensive income were reclassified and decreased (2010: increased) cost of property, plant and equipment. Thereof expenses of €0.2 million impacted earnings in 2010/2011. In addition, €0.2 million of that reclassified amount is expected to impact earnings in 2011/2012, €4.4 million in subsequent fiscal years. As of September 30, 2011, net income from the ineffective portions of derivatives classified as cash flow hedges totaled €(23) million (2009/2010: €11 million). The cancellation of cash flow hedges during the current fiscal year resulted in earnings of 0 (2009/2010: €(4) million) due to reclassification from cumulative other comprehensive income. These fluctuations in fair value of derivatives originally recognized in equity were reclassified to profit or loss when the hedged underlying transaction was no longer probable to occur. In the subsequent fiscal year fluctuations in fair value of derivatives included in cumulative other comprehensive income as of the reporting date is expected to impact earnings by income of €72 million. During the 2012/2013 fiscal year, earnings are expected to be impacted by income of €2 million, during the 2013/2014 fiscal year by expenses of €8 million and during the following fiscal years by expenses of €50 million. Fair value hedges Fair value hedges are mainly used to hedge the exposure to changes in fair value of a firm commitment and exposure to inventory price risks as well as to hedge interest rate risks. These commodity and interest rate derivatives are measured at fair value. The carrying amounts of the corresponding underlying transactions are adjusted for the change of the fair values of the hedged risks. As of September 30, 2011, hedging instruments with positive fair value totalled 0 (2010: €4 million) and those with negative fair value totalled 0 (2010: €1 million). Fluctuations in fair value are recognized immediately in profit or loss under sales, cost of sales or financial income/(expense), net, depending on the type of underlying transaction. During the fiscal year, income/(expense), net from the measurement of fair value hedging instruments totalled €1 million (2009/2010: 0), while income/(expense), net from the corresponding underlying transactions during the same period amounted to €(1) million (2009/2010: 0).
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Annual Report 2010/2011 At the cent
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