Merck 2008 Annual Report Download - page 132

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Gains and losses on the fair value of derivatives and underlyings are usually recognized
directly in the income statement. If cash flows are being hedged and the requirements
for hedge accounting in accordance with IAS 39.88 are met, the effective portions of
the gains and losses from the fair value measurement of derivatives are recognized in
equity until the underly ing transaction occurs. These amounts are only reclassified
from equity and carried to the income statement after accounting for the underlying
transactions. Amounts reclassified to the income statement are either recognized in the
operating result, or in the financial result in the case of financial transactions.
Hedge accounting in accordance with IAS 39 was used for some hedging transactions:
€ million
Nominal volume Fair value
Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007
Cash flow hedge 936.9 760.9 74.6 0.1
Fair value hedge 53.5 102.1 2.6 –0.2
Interest rate swap 500.0 500.0 –0.6 –28.3
1,490.4 1,363.0 76.6 –28.4
The forward exchange contracts that are entered into to reduce the exchange rate risk
with a total nominal volume of € 4,274.3 million primarily serve to hedge intercom-
pany financing in foreign currency. These primarily served to hedge fluctuations in
the exchange rates of the U.S. dollar (€ 1,116.0 million), the Swiss franc (€ 2,046.9 mil-
lion), the Japanese yen (€ 706.4 million) and the British pound (€ 281.9 million).
Forecast transactions are only cash flow-hedged if the occurrence can be assumed to
be highly probable. The nominal volume of hedged future transactions amounted to
€ 936.9 million as of the balance sheet date and related mainly to the hedging of future
sales in U.S. dollars, Taiwanese dollars and Japanese yen as well as future costs in
Swiss francs. The occurrence of hedged items is expected within the next 36 months.
During the fiscal year, gains of € 53.9 million from the fair value measurement of
derivatives were recognized in equity. € 20.6 million was transferred from equity to
expenses.
Due to planned payments that did not materialize, cash flow hedges with a nominal
volume of € 79.4 million were removed from hedge accounting in 2008. Expenses of
€ 10.9 million were thus recognized in the financial result.
72 Income Statement
73 Balance Sheet
74 Segment Reporting
CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP
76 Cash Flow Statement
77 Free Cash Flow
77 Statement of Recognized
Income and Expense
78 Statement of Changes
in Net Equity including
Minority Interest
79 Notes
127