Annual Report 2012 - Knorr-Bremse AG.

Notes to the Consolidated Financial Statements 165
Not included in the hedging report are forward exchange derivatives with a nominal value of EUR 40.2
million. Financial instruments amounting to EUR 857.5 million in total (representing hedged risks) are
included in macro hedges. Of this amount, EUR 285.2 million is attributable to the hedging of assets
(micro hedges), EUR 56.7 million to the hedging of open contracts (micro hedges) and EUR 515.6 million
to the hedging of high-probability transactions (portfolio hedges).
Commodity futures contracts are used exclusively to hedge price risks arising on fluctuations in the
purchase prices of raw materials used in Knorr-Bremse Group products (portfolio hedges). The volume
of underlying transactions (hedged items) is calculated on the basis of high-probability requirements
for raw materials over a rolling two-year planning period. The derivatives are based on reference indices
traded on commodity futures exchanges. The effectiveness of the hedging relationship is retrospectively
analyzed using statistical correlation techniques, showing a correlation in excess of 80%.
Concluded contracts totaling EUR 4.5 million are carried in full in macro hedges.
The nominal and market values of financial instruments as at December 31, 2012 break down as follows:
Total
Total
Total
Total
Dec. 31, 2012 Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2011
in EUR millions Nominal value Market value Nominal value Market value
Foreign exchange contracts
Forward exchange transactions 530 7 611 (26)
Currency options 200 1 170 (3)
Interest rate contracts
Cross currency swaps 132 (24) 125 (30)
Interest rate swaps 36 (7) 36 (4)
Commodity-related contracts
Swaps 4 0 7 (1)
Negative market values correspond to the risks associated with financial derivatives; of these, EUR 0.05
million are recorded under accrued liabilities. Positive market values are offset by risks associated with
the underlying transactions (hedged items) in the respective macro hedges.
While cross currency swaps generally come under the heading of interest rate instruments, in terms of
content they are used exclusively to hedge foreign currency risks, because the interest rates in the
underlying currencies are exchanged at fixed rates.
The market value of financial derivatives is best defined as the price one party is prepared to pay in
order to assume the rights and/or obligations of another party. Market values are calculated on the
basis of market information available at the balance sheet date and by applying standard market valuation
methods as follows:
• Currency hedging contracts are valued on the basis of reference rates, taking account of forward
premiums and discounts.
• Cross currency swaps are valued analogously to pure interest rate contracts or currency hedging
contracts, on the basis of discounted, projected cash-flows using market interest rates and reference
rates for the remaining lifespans of the instruments.
• The lease payments for one real estate leasing contract were hedged by an interest rate swap.