21 Equity
28 Additional disclosures on financial instruments
The following tables present the carrying amounts and the fair values of financial instruments by their respective classes and a breakdown by category of financial instruments as of 30 September 2020 and 2019 according to IFRS 9:
Financial assets, € in millions
Carrying amount Categories of financial assets Designated hedging instruments (cash flow hedges)
Fair value At fair value through
profit or loss At amortized cost As of 30 September 2020
Current assets:
Cash and cash equivalents 1,851 1,524 327 – 1,851
Financial investments 1,376 777 599 – 1,376
Trade receivables 1,196 – 1,196 – 1,196
Other current assets 257 2 254 1 257
Non-current assets:
Other non-current assets ¹ 154 98 56 – 154
Total 4,834 2,401 2,432 1 4,834
As of 30 September 2019 Current assets:
Cash and cash equivalents 1,021 73 948 – 1,021
Financial investments 2,758 2,187 571 – 2,758
Trade receivables 2 1,057 – 1,057 – 1,057
Other current assets 558 2 343 213 558
Non-current assets:
Other non-current assets ¹ 107 55 52 – 107
Total 5,501 2,317 2,971 213 5,501
1 As of 30 September 2020, other non-current assets, which are measured at amortized cost, included €1 million (previous year: €1 million) from an agreement related to the residual liability of Infineon as former shareholder of Qimonda Dresden GmbH & Co. OHG (see note 25, p. 194), which are deposited in escrow in order to secure potential claims against Infineon .
2 In conjunction with the integration of Cypress, the presentation of reimbursement obligations to customers was aligned with the approach previously used by Cypress (see note 10, p. 172). Instead of netting reimbursement obligations against trade receivables, they are now reported within other current liabilities. For better comparability, the previous year’s figures were adjusted.
Financial liabilities, € in millions
Carrying amount Categories of financial liabilities Not assignable to any
IFRS 9 measurement category Fair value
At fair value through
profit or loss Other
financial liabilities (amortized cost
Designated hedging instruments (cash flow hedges)
Others
As of 30 September 2020 Current liabilities:
Short-term financial debt and current portion
of long-term financial debt 505 139 366 – – 509
Trade payables 1,160 – 1,160 – – 1,160
Current leasing liabilities 59 – – – 59 –
Other current liabilities 845 2 777 66 – 845
Non-current liabilities:
Long-term financial debt 6,528 – 6,528 – – 6,783
Non-current leasing liabilities 235 – – – 235 –
Other non-current liabilities 77 – 77 – – 77
Total 9,409 141 8,908 66 294 9,374
As of 30 September 2019
Current liabilities:
Short-term financial debt and current portion
of long-term financial debt 22 – 22 – – 21
Trade payables 1,089 – 1,089 – – 1,089
Other current liabilities ¹ 470 3 467 – – 470
Non-current liabilities:
Long-term financial debt 1,534 – 1,534 – – 1,608
Other non-current liabilities 63 – 63 – – 63
Total 3,178 3 3,175 – – 3,251
1 In conjunction with the integration of Cypress, the presentation of reimbursement obligations to customers was aligned with the approach previously used by Cypress (see note 10, p. 181 f.). Instead of netting reimbursement obligations against trade receivables, they are now reported within other current liabilities. For better comparability, the previous year’s figures were adjusted. In the 2019 fiscal year, other current liabilities included €112 million in option premiums to be paid upon completion of the acquisition of Cypress as other financial liabilities (see “Derivative financial instruments and hedging activities” below, p. 202 ff.). This liability was built up in installments in the 2020 fiscal year and a total of €141 million was paid upon completion of the acquisition on 16 April 2020.
In the 2020 and 2019 fiscal years, there were no reclassifications between the categories of financial instruments.
For assets allocated to the category “At amortized cost”, which are measured at amor-tized cost, it is assumed that the fair values correspond to their carrying amounts.
The same assumption applies to liabilities resulting from trade payables and other current liabilities categorized as “Other financial liabilities (amortized cost)”.
The fair value of current and non-current financial debt that are measured at amor-tized cost is based either on quoted prices as of the reporting date (level 1) or is determined based on expected future cash flows discounted using a current market interest rate (level 2). As of 30 September 2020 and 2019 respectively fair values of non-current financial debt, which were allocated to level 1, amounted to €3,521 mil-lion and €518 milmil-lion, respectively. Fair values for level 2 were €3,262 milmil-lion and
€1,089 million.
Financial instruments measured at fair value are allocated to the following measure-ment levels in accordance with IFRS 13. The allocation to the different levels is based on the market proximity of the valuation parameters used in the determination of the fair values:
› Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities,
› Level 2: valuation parameters whose prices are not the ones considered in Level 1, but which can be observed either directly or indirectly for the assets or liabilities,
› Level 3: valuation parameters for assets and liabilities, which are not based on observable market data.
The allocation to the levels as of 30 September 2020 and 2019 was as follows:
€ in millions
Fair value Fair value by category
Level 1 Level 2 Level 3
30 September 2020 Current assets:
Cash and cash equivalents 1,524 1,524 – –
Financial investments 777 777 – –
Other current assets 3 – 3 –
Non-current assets:
Other non-current assets 98 81 – 17
Total 2,402 2,382 3 17
Current liabilities:
Short-term financial debt and current
portion of long-term financial debt 139 – 139 –
Other current liabilities 68 – 68 –
Total 207 – 207 –
30 September 2019
Current assets:
Cash and cash equivalents 73 73 – –
Financial investments 2,187 2,187 – –
Other current assets 215 – 5 210
Non-current assets:
Other non-current assets 55 38 – 17
Total 2,530 2,298 5 227
Current liabilities:
Other current liabilities 3 – 3 –
Total 3 – 3 –
Cash equivalents partly included investments in money market funds.
Other current assets and liabilities contained derivative financial instruments, including cash flow hedges. Their fair value was determined by discounting future cash flows according to the discounted cash flow method. Where possible, valuation parameters observed on the reporting date in the relevant markets (such as currency rates, interest rates, or commodity prices) drawn from reliable external sources were used (level 2). In case fair values were estimated on the basis of non-observable input factors, they were assigned to level 3 of the fair value category.
The determination of the fair values of the Deal Contingent Forward and Deal Con-tingent Option designated as cash flow hedges to partly hedged exchange rate risks arising from the purchase price obligation relating to the acquisition of Cypress (see note 3, p. 162 ff., and hereinafter “Derivative financial instruments and hedging activities”, p. 202 ff.) were based on factors observable in markets such as forward prices, interest rate curves and volatilities. In addition, the probability of occurrence of the planned acquisition was taken into account as a non-observable factor.
The determination of the fair values of the Deal Contingent Forward Starting Interest Rate Swaps connected with the planned refinancing measures (see hereinafter
“Derivative financial instruments and heging activities”, p. 202 ff.) were based on factors
observable in markets such as interest rate curves and US dollar spot rate. In addition, the probability of occurrence of the planned acquisition was taken into account as a non-observable factor.
Short-term financial debt included the conversion rights from convertible bonds acquired in the course of the Cypress acquisition (see note 17, p. 179 ff.), which can be exercised against cash payment by bondholders until the maturity of the instruments.
The fair value of the conversion rights was determined by discounting future cash flows according to the discounted cash flow method. Valuation parameters observed on the reporting date in the relevant markets such as interest rates and US dollar spot rate were used from reliable external sources (level 2).
Other non-current assets include equity investments and investments in funds. Where these are traded on an active market, the fair value is based on the actual market price (level 1). For equity investments where no market price from an active market is available, the fair value is determined by considering existing contractual arrange-ments based on externally observable dividend policy (level 3).
The following table shows the reconciliation of financial instruments classified as level 3 (before tax):
€ in millions
30 September
2019 Acquisitions (including additions)
Sales (including disposals)
Unrealized losses recognized in profit or loss 2
Realized losses recognized in profit or loss 2
Gains (losses) recognized in equity
Reclassification
to Level 2 30 September 2020
Equity investments 17 – – – – – – 17
Deal Contingent Forward 91 – (98) – – 7 – –
Deal Contingent Option ¹ 119 29 (181) – 1 32 – –
Deal Contingent Forward Starting Interest Rate Swaps – (11) 5 (10) – (97) 113 –
Total 227 18 (274) (10) 1 (58) 113 17
1 The additions to the deal contingent option are due to the subsequent valuation of the option premium to be paid upon completion of the Cypress acquisition and the associated exercise of the option.
2 These are gains within financial income or losses within financial expenses.
With the completion of the acquisition of Cypress and the lapse of the commencement conditions, the deal contingent forward starting interest rate swaps classified in level 3 were continued as forward starting interest rate swaps and accordingly reclassified to level 2.
A hypothetical change in the material non-observable valuation parameters at the balance sheet date of ± 10 percent would have resulted in a theoretical reduction in fair values of €1 million or an increase of €1 million (previous year: €25 million).
The net gain or loss on financial instruments (including interest income and expense) within continuing operations in the Consolidated Statement of Profit or Loss amounted to the following as of 30 September 2020 and 2019:
€ in millions 2020 2019
Financial assets measured at amortized cost (42) 149
therein interest income 28 26
therein impairment losses (2019: gains) (1) 2
thereof foreign currency exchange (70) 122
Financial assets measured at fair value through profit and loss (15) (26)
Financial liabilities measured at amortized cost (18) (180)
therein interest expenses (120) (52)
thereof foreign currency exchange 107 (123)
thereof other financial expenses (5) (5)
Financial liabilities at fair value through profit or loss (3) –
Financial assets or liabilities measured at fair value
through profit and loss – held for trading (40) (5)
thereof foreign currency exchange (40) (5)
Total (118) (62)
Interest expense on financial liabilities measured at amortized cost mainly included interest on financial debt and effects from using the effective interest method.
Infineon does not net financial instruments. Infineon conducts derivative transactions according to the global netting agreement (Master Agreement) of the International Swaps and Derivatives Association (ISDA) and other comparable national framework agreements. Under the terms of these agreements, any netting arising from the occurrence of certain future events would have had no material effect on the balance sheet presentation of these financial instruments.
Derivative financial instruments and hedging activities
Infineon holds derivative financial instruments exclusively for hedging purposes. This includes the use of forward exchange contracts, foreign currency options, interest- and commodity swaps. The objective is to reduce the impact of exchange rate, interest and commodity price fluctuations on future net cash flows.
The nominal values and fair values of Infineon’s derivative instruments as of 30 Sep-tember 2020 and 2019 that were not designated as cash flow hedges were as follows:
€ in millions
30 September 2020 30 September 2019 Nominal
value Fair
value Nominal
value Fair
value
Forward exchange contracts sold 144 (2) 134 (3)
Forward exchange contracts purchased 151 2 150 2
Total – (1)
Foreign exchange derivatives are entered into by Infineon to offset the exchange risk from anticipated cash receipts from operating activities. In connection with the acquisition of Cypress, foreign currency derivatives were acquired in the 2020 fiscal year to hedge the current business, which have been redesignated as cash-flow hedges.
As part of the hedging, only the spot element of the forward exchange contracts was designated as a hedging instrument. The forward elements of a forward exchange contract were excluded from the designation of the hedging instrument.
The economic connection was proven by means of a regression analysis. These foreign currency derivatives expired in full as of 30 September 2020.
As of 30 September 2020 and 2019, Infineon held the following instruments, which were designated as cash flow hedges and were used to hedge against exchange rate, interest and commodity price changes.
€ in millions (except otherwise stated, exchange rates, interest rates and prices) Short term 30 September 2020
Hedging of interest risks
Forward Starting Interest Rate Swaps
Nominal value (US dollar) 750
Average interest rate 1.9548%
Hedging of other risks Commodity swaps
Nominal value 15
Average price (US dollar/ounce) 1,765
30 September 2019
Hedging of foreign exchange risks Deal Contingent Forward
Nominal value 3,300
Average forward rate (Euro/US dollar) 1.1199
Deal Contingent Option
Nominal value 3,300
Average forward rate (Euro/US dollar) 1.1506
Hedging of other risks Commodity swaps
Nominal value 30
Average price (US dollar/ounce) 1,364
In order to hedge the majority of the foreign currency risks arising from the purchase price obligation of the acquisition of Cypress, a transaction-dependent euro/US dollar foreign currency forward (deal contingent forward) and a transaction-dependent euro/US dollar foreign currency option (deal contingent option), each with a nominal value of €3.3 billion, were concluded in the previous year and were accounted for as cash flow hedges. With the completion of the acquisition of Cypress on 16 April 2020, the deal contingent forward and deal contingent option became due. The amounts from these hedging relationships previously included in other reserves of €137 million were taken into account in full in the calculation of the consideration transferred (see note 3, p. 162 ff.). This amount includes the option premium of €141 million paid in connection with the exercise of the deal contingent option. No hedge ineffective-ness was recorded in the Consolidated Statement of Profit or Loss for these hedging relationships.
In view of planned future refinancing measures, in December 2019 Infineon partially hedged against the risk of rising interest rates with transaction-dependent interest rate hedging transactions (deal contingent forward starting interest rate swaps) with a total nominal volume of €2,025 million and US$750 million, which were accounted for as cash flow hedges. At the inception of the hedging transaction, and on a con-tinuing basis, Infineon verified the existence of an economic relationship between the hedged item and the hedging instrument (critical term). For the above-mentioned hedging transactions, the hedge ratio was 1:1. As part of the hedging, the swap rates were designated in their volume to 100 percent. On the other hand, the deal contin-gency component implied in the swap rates was excluded from the designation of the hedging instrument and was recognized directly in the Consolidated Statement of Profit or Loss over the term of the hedges until the date of the planned refinancing measures. In the 2020 fiscal year no material ineffectiveness was recognized in the Consolidated Statement of Profit or Loss from the aforementioned interest rate swaps.
Ineffectiveness is caused mainly from adjustments for the default risk arising from the counter-party and the Company, which are not offset by the changes in value of the secured future refinancing measures. When the refinancing measures are concluded, the effective part of the hedge will be recognized as interest expense over the term of the instruments.
The interest rate swaps were, upon initial recognition, each recorded at market price, calculated using the valuation model on the transaction date. The transaction price of the interest rate swaps deviated from the market price, since they were concluded with a premium to market price due to their dependence on the conclusion of the acquisition of Cypress. The deviations of the market price from the transaction price were capitalized as a so-called “day one loss” and were recognized directly in the Consolidated Statement of Profit or Loss over the term of the hedges until the date of the planned refinancing measures.
The development of the day one loss was as follows:
€ in millions
Balance as of 1 October 2019 –
Addition from new transactions 11
Reversal through profit or loss in the period (10)
Balance as of 30 September 2020 1
When the bonds were issued on 24 June 2020 (see note 17, p. 179 f.), interest rate swaps with a nominal value of €1,525 million were due. The amount of minus €36 mil-lion from this hedge, previously recognized in the other reserves, are recognized in interest expense over the term of the individual tranches of the bonds.
As a result of developments in the capital markets resulting from the coronavirus pandemic, interest rate swaps with a nominal value of €500 million were no longer designated as cash flow hedges, since the occurrence of the hedged transaction was considered unlikely. In this context, losses of €11 million were reclassified from other reserves into the Consolidated Statement of Profit or Loss.
The following table shows the effects of the deal contingent forward, the deal con-tingent option, and the deal concon-tingent forward starting interest rate swaps as of 30 September 2020 and 2019 on the items in the Consolidated Statement of Financial Position and the Consolidated Statement of Profit or Loss (before tax):
€ in millions
Deal Contingent Forward
Deal Contingent Option
Forward Starting Interest Rate Swaps
Total
30 September 2020
Other current assets – – 1 1
Other reserves – – (98) (98)
Therein hedge reserve – – (98) (98)
Other current liabilities – – 66 66
Financial expense – – 26 26
30 September 2019
Other current assets 91 119 – 210
Other reserves 91 7 – 98
Therein hedge reserve 56 84 – 140
Therein cost of hedging reserve 35 (77) – (42)
Other current liabilities – 112 – 112
To hedge the price risks of highly probable gold purchases in the 2021 fiscal year, Infineon entered into swaps, which are designated as cash flow hedges. The desig-nated hedged items and the hedging instruments were subject to the same risk.
The economic connection was proven by means of a regression analysis. Due to the execution of only highly effective hedging transactions, Infineon assumes that signifi-cant ineffective elements will normally not be generated. Infineon applies a hedging ratio of 1:1. Ineffectiveness can be caused mainly from the impact of the credit risks arising from the counter-party and the Company on the fair value of the swap, that is not reflected in the change in the fair value of hedged cash flows attributable to changes in raw material prices. As in the previous year, no hedge ineffectiveness was recorded in the Consolidated Statement of Profit or Loss for these hedging relation-ships. As in the pre vious year, no gains or losses were transferred from other reserves to profit or loss as a result of cash flow hedges for future raw material purchases being canceled following the decision that the occurrence of the hedged transaction had become unlikely.
The amounts related to positions designated as hedged items were as follows as of 30 September 2020 and 2019:
€ in millions
Change in the value of the hedged item used to determine ineffectiveness
Hedge reserve
(before taxes) Cost of
hedging reserve (before taxes)
30 September 2020 Hedging of foreign exchange
Deal Contingent Forward (98) – –
Deal Contingent Option (75) – –
Hedging of interest risks
Forward Starting Interest Rate Swaps 99 (98) –
Hedging of commodity price risks (1) 1 –
Total (97) –
30 September 2019 Hedging of foreign exchange
Deal Contingent Forward (56) 56 35
Deal Contingent Option (67) 84 (77)
Hedging of commodity price risks (3) 3 –
In the 2020 and 2019 fiscal years, no balances remained in other comprehensive income for which hedge accounting is no longer applied.
The relevant amounts of the derivative financial instruments designated as hedging instruments as of 30 September 2020 and 2019 (before tax) were as follows:
€ in millions
Carrying amount Changes in fair value for the
measurement of the
ineffective-ness in the reporting period
Changes in fair value of the hedging instrument recognized in other comprehensive income
Changes in fair value of cost of hedging recognized in other comprehensive income (loss)
Amount reclassified from
hedge reserve to the Statement of Profit or Loss
Amount reclassified from the hedge reserve to the State-ment of Profit or Loss from hedging relationships for which the underlying transaction is no longer expected
Amount reclassified from the hedge reserve to the cost of non-financial assets
Amount reclassified from the cost of hedging reserve
to the cost of non-financial assets
Line item of the Statement of Financial Position or the Statement of Profit or Loss affected by the reclassification
30 September 2020 Other current assets:
Hedging of foreign exchange
Deal Contingent Forward – 98 (56) (35) – – 70 28 Goodwill
Deal Contingent Option – 39 (84) 77 – – 181 (142) Goodwill
Hedging of commodity price risks 1 1 (2) – – – (5) – Inventories
Other current liabilities
Hedging of interest risks 66 (99) (98) – (1) (11) – – Financial expense
Total 67 39 (240) 42 (1) (11) 246 (114)
30 September 2019 Other current assets:
Hedging of foreign exchange
Deal Contingent Forward 91 91 56 35 – – – – –
Deal Contingent Option 119 7 84 (77) – – – – –
Hedging of commodity price risks 3 3 6 – – – – – –
Total 213 101 146 (42) – – – –
The following table shows the reconciliation for the reserve for cash flow hedges (before taxes) by risk category:
€ in millions
Hedging of foreign exchange risk
Hedging of interest
risks
Hedging of commodity price risks
Total
30 September 2019 98 – 3 101
Change in fair value 39 (99) (7) (67)
Amount reclassified to the
Consolidated Statement of Profit or Loss – 1 – 1
Amount reclassified
to non-financial items (137) – 5 (132)
30 September 2020 – (98) 1 (97)