2011 Annual Report - OTCIQ.com

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136 Notes (30) Derivative Financial Instruments and Hedging Transactions Strategy and Objectives The Company’s policy generally permits the use of derivatives if they are associated with underlying assets or liabilities, planned transactions, or legally binding rights or obligations. Proprietary trading activities are concentrated on E.ON Energy Trading and are conducted within the confines of the risk management guidelines described below. Hedge accounting in accordance with IAS 39 is employed primarily for interest rate derivatives used to hedge long-term debts, as well as for currency derivatives used to hedge net investments in foreign operations, long-term receivables and debts denominated in foreign currency, as well as planned capital investments. In commodities, potentially volatile future cash flows resulting primarily from planned purchases and sales of electricity within and outside of the Group, as well as from anticipated fuel purchases and purchases and sales of gas, are hedged. Fair Value Hedges Fair value hedges are used to protect against the risk from changes in market values. Gains and losses on these hedges are generally reported in that line item of the income statement which also includes the respective hedged items. In 2010, an equity interest was hedged against fluctuating market prices using forward transactions. The unrealized loss on the forwards used to hedge the value of this equity interest amounted to €115 million in 2010. This corresponded to the fair value of the forwards. The gain on the hedged shares as regards market price fluctuations amounted to €107 million. The aforementioned fair value hedge expired in 2010. Cash Flow Hedges Cash flow hedges are used to protect against the risk arising from variable cash flows. Interest rate swaps, cross-currency interest rate swaps and interest rate options are the principal instruments used to limit interest rate and currency risks. The purpose of these swaps is to maintain the level of payments arising from long-term interest-bearing receivables and liabilities and from capital investments denominated in foreign currency and euro by using cash flow hedge accounting in the functional currency of the respective E.ON company. In order to reduce future cash flow fluctuations arising from electricity transactions effected at variable spot prices, futures contracts are concluded and also accounted for using cash flow hedge accounting. As of December 31, 2011, the hedged transactions in place included foreign currency cash flow hedges with maturities of up to 27 years (2010: up to 28 years) and up to five years (2010: up to six years) for interest cash flow hedges. Commodity cash flow hedges have maturities of up to three years (2010: up to three years). The amount of ineffectiveness for cash flow hedges recorded for the year ended December 31, 2011, produced a gain of €4 million (2010: €6 million loss).
Pursuant to the information available as of the balance sheet date, the following effects will accompany the reclassifications from accumulated other comprehensive income to the income statement in subsequent periods: Gains and losses from reclassification are generally reported in that line item of the income statement which also includes the respective hedged transaction. Gains and losses from the ineffective portions of cash flow hedges are classified as other operating income or other operating expenses. Interest cash flow hedges are reported under “Interest and similar expenses.” The fair values of the derivatives used in cash flow hedges totaled €134 million (2010: €242 million). A loss of €63 million (2010: €204 million loss) was posted to other comprehensive income in 2011. In the same period, a gain of €108 million (2010: €203 million gain) was reclassified from OCI to the income statement. Net Investment Hedges CEO Letter E.ON Stock Combined Group Management Report Consolidated Financial Statements Corporate Governance Report Supervisory Board and Board of Management Tables and Explanations Timing of Reclassifications from OCI1 to the Income Statement—2011 Carrying Expected gains/losses € in millions amount 2012 2013 2014–2016 >2016 OCI—Currency cash flow hedges 157 1 5 8 -171 OCI—Interest cash flow hedges -71 1 – 9 61 OCI—Commodity cash flow hedges -23 11 1 11 – 1 OCI = Other comprehensive income. Figures are pre-tax. Timing of Reclassifications from OCI1 to the Income Statement—2010 Carrying Expected gains/losses € in millions amount 2011 2012 2013–2015 >2015 OCI—Currency cash flow hedges -133 8 8 20 97 OCI—Interest cash flow hedges 40 -2 1 17 -56 OCI—Commodity cash flow hedges -12 5 7 – – 1 OCI = Other comprehensive income. Figures are pre-tax. The Company uses foreign currency loans, foreign currency forwards and foreign currency swaps to protect the value of its net investments in its foreign operations denominated in foreign currency. For the year ended December 31, 2011, the Company recorded an amount of -€63 million (2010: €558 million) in accumulated other comprehensive income due to changes in fair value of derivatives and to currency translation results of non-derivative hedging instruments. As in 2010, no ineffectiveness resulted from net investment hedges in 2011. 137
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2011 Annual Report
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Contents 2 CEO Letter 4 E.ON Stock
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Europe’s energy markets are conso
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Dividend At the 2012 Annual Shareho
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Global Units We manage all our oper
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How will we achieve all this? The f
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Top performance requires efficient
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The Energy Roadmap 2050 adopts a sc
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Macroeconomic Environment In 2011,
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Energy Prices Four main factors dro
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Attributable Generating Capacity Th
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The Russia unit generated about 94
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Gas Sales On a consolidated basis,
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Sales Our sales rose by 22 percent
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Sales at the UK regional unit decli
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E.ON generates a significant portio
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Distribution Networks’ EBITDA dec
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and coal-fired power stations. Of t
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Analyzing Value Creation by Means o
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Cash Flow and Financial Position E.
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In addition to our DIP, we have a
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E.ON AG’s Earnings, Financial, an
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Employees HR Strategy The knowledge
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Workforce Figures At year-end 2011,
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Technology and Innovation In 2011,
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The ERC was founded in 2006. Its mi
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Risk Management and Insurance E.ON
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Strategic Risks Our business strate
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E.ON is building a hard-coal-fired
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waste.” The draft legislation men
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In 2012, Sweden will introduce a ne
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Due to lower commodity prices and u
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We anticipate Renewables’ earning
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Opportunities We conduct a bottom-u
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Audit Opinion According to § 322 A
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CEO Letter E.ON Stock Combined Grou
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Additional information on the State
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Business Combinations Business comb
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Newly created goodwill is allocated
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Subsequent costs arising, for examp
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Instruments commonly used are forei
Page 87 and 88: future exercise price. This amount
Page 89 and 90: Contingent liabilities are possible
Page 91 and 92: (2) New Standards and Interpretatio
Page 93 and 94: and joint operations. The provision
Page 95 and 96: The amended standard also contains
Page 97 and 98: Russian Federation. The proceeds fr
Page 99 and 100: The gains on the disposal of invest
Page 101 and 102: The decrease in tax expense by €3
Page 103 and 104: Of the deferred taxes reported, a t
Page 105 and 106: Stock Appreciation Rights of E.ON A
Page 107 and 108: The fees for financial statement au
Page 109 and 110: CEO Letter E.ON Stock Combined Grou
Page 113 and 114: Of this total, an amount of €160
Page 115 and 116: (15) Companies Accounted for under
Page 117 and 118: The individual impaired receivables
Page 119 and 120: (20) Additional Paid-in Capital As
Page 121 and 122: Description of the Benefit Obligati
Page 123 and 124: Description of Plan Assets Defined
Page 125 and 126: Taking into account periodic additi
Page 127 and 128: (25) Miscellaneous Provisions The f
Page 129 and 130: Advance payments made to other wast
Page 131 and 132: At year-end 2011, the following EIF
Page 133 and 134: Construction grants of €2,857 mil
Page 135 and 136: In Sweden, owners of nuclear facili
Page 137: Competition in the gas market and i
Page 143 and 144: The fair value of shareholdings in
Page 145 and 146: The following two tables illustrate
Page 147 and 148: Risk Management Principles The pres
Page 149 and 150: A sensitivity analysis was performe
Page 151 and 152: Virtually all of the investments in
Page 153 and 154: Under IAS 24, compensation paid to
Page 155 and 156: Net book gains in 2011 decreased by
Page 159 and 160: (34) Compensation of Supervisory Bo
Page 161 and 162: Notes (36) List of Shareholdings Pu
Page 177 and 178: In addition to the Company’s peri
Page 179 and 180: The Supervisory Board has establish
Page 181 and 182: and the Consolidated Financial Stat
Page 183 and 184: Compensation of the Members of the
Page 185 and 186: The Supervisory Board, at its discr
Page 187 and 188: the E.ON Group’s ROCE and prior-y
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Compensation of the Members of the
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The remaining other compensation of
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In addition, the Board of Managemen
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We examined the Board of Management
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Klaus Dieter Raschke Chairman of th
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At the Board of Management’s disc
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Further information about financial
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Assessment After companies have doc
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Glossary of Financial Terms Actuari
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Prepayments and accrued income Line
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Financial Calendar May 3, 2012 2012
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2011 Annual Report - OTCIQ.com

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