Derivative financial instruments

Portfolio of derivative financial instruments as of March 31, 2012:

The derivative transactions are marked to market daily by determining the value that would be realized if the hedging position were closed out (liquidation method). Input for the calculation of fair values are observable currency exchange rates and raw materials prices as well as interest rates. Based on the input, the fair value is calculated using generally accepted actuarial formulas.

Unrealized profits or losses from hedged transactions are accounted for as follows:

• If the hedged asset or liability is already recognized in the statement of financial position or an obligation not recorded in the statement of financial position is hedged, the unrealized profits and losses from the hedged transaction are recognized through profit and loss. At the same time, the hedged item is reported at fair value, regardless of its initial valuation method. The resulting unrealized profits and losses are offset with the unrealized results of the hedged transaction in the income statement, so that in total, only the ineffective portion of the hedged transaction is reported in profit or loss for the period (fair value hedges).
• If a future transaction is hedged, the effective portion of the unrealized profits and losses accumulated up to the reporting date is recognized directly in equity. The ineffective portion is recognized through profit and loss. When the transaction that is hedged results in the recognition of an asset or a liability in the statement of financial position, the amount recognized in equity is taken into account when the carrying amount of this item is determined. Otherwise, the amount reported in equity is recognized through profit or loss in accordance with the income effectiveness of the future transaction or the existing obligation (cash flow hedges).

In the business year 2011/12, hedge accounting in accordance with IAS 39 was used for hedging foreign currency cash flows, interest-bearing receivables and liabilities, and raw materials purchase agreements. The interest rate and currency hedges are mainly cash flow hedges, while the raw material hedges are designated almost exclusively as fair value hedges. Hedge accounting is only applied to a part of currency and raw material hedges.

Net gains of foreign currency and interest rate derivatives (cash flow hedges) amounting to EUR 25.3 million (2010/11: EUR –16.7 million) were recognized through profit and loss in the reporting period.

Losses amounting to EUR 2.6 million (2010/11: profits amounting to EUR 2.8 million) on raw material hedges, which are designated as fair value hedges, were recognized through profit and loss. Gains for the corresponding hedged items amounting to EUR 2.6 million (2010/11: losses amounting to EUR 2.8 million) were also recognized through profit and loss.

Negative fair values amounting to EUR 5.7 million (2010/11: positive fair values amounting to EUR 10.7 million) previously recorded in the reserve for foreign exchange hedges were recognized through profit and loss during the reporting period; positive fair values amounting to EUR 4.1 million (2010/11: negative fair values amounting to EUR 5.7 million) were allocated to the reserve. The reserve for interest hedges decreased by EUR 4.3 million (2010/11: EUR 25.3 million increased) following changes in the fair values of the hedges.

Derivatives designated as cash flow hedges have the following effects on cash flows and profit or loss for the period: