41. Carrying amounts and fair values according to measurement category

The carrying amounts and fair values of recognised financial instruments are as follows:

Classes were formed based on similar risks for the respective financial instruments and correspond to the categories of IAS 39. Derivative financial instruments in a hedging relationship under IAS 39 and other financial liabilities are classified in each case to a separate class.

The fair value hierarchy comprises three levels which reflect the degree of closeness to the market of the input parameters used in the determination of the fair values. In cases in which the valuation is based on different input parameters, the fair value is attributed to the hierarchy level corresponding to the input parameter of the lowest level that is significant for the valuation.

Input parameters for level 1: quoted prices (that are adopted unchanged) in active markets for identical assets or liabilities which the company can access at the valuation date.

Input parameters for level 2: other input parameters than the quoted prices included in level 1 which are either directly or indirectly observable for the asset or liability.

Input parameters for level 3: input parameters that are not observable for the asset or liability.

Of the total carrying amount of investments of €69 million (30/9/2014: €18 million), €9 million (30/9/2014: €18 million) are recognised at historical cost as a fair value cannot be reliably determined. These concern off-exchange financial instruments without an active market. The company currently does not plan to dispose of the investments recognised at historical cost. Non-listed investments in real estate companies totalling €60 million (30/9/2014: €0 million) are recognised at fair value outside of profit or loss. The addition stems from the sale of the Galeria Kaufhof group.

In addition, securities totalling €417 million (30/9/2014: €1 million) are recognised outside of profit or loss. This primarily concerns highly liquid exchange-listed money market funds.

Miscellaneous financial liabilities include liabilities from put options of non-controlling interests in the amount of €156 million (30/9/2014: €72 million) as well as earn-out liabilities (contingent purchase payments related to corporate acquisitions) totalling €21 million (30/9/2014: €0 million). Of this amount, €112 million (30/9/2014: €72 million) are recognised at fair value outside of profit or loss and €65 million (30/9/2014: €0 million) are recognised at fair value through profit or loss.

The following table depicts the financial instruments that are recognised at fair value in the balance sheet. These are classified into a three-level fair value hierarchy whose levels reflect the degree of closeness to the market of the data used in the determination of the fair values:

The measurement of securities (level 1) is carried out based on quoted market prices on active markets.

Interest rate swaps and currency transactions (all level 2) are measured using the mark-to-market method based on quoted exchange rates and market yield curves.

No transfers between levels 1 and 2 were effected during the reporting period.

On the asset side, the level 3 measurements exclusively concern investments in real estate companies whose fair value was derived from third-party real estate valuations using the discounted cash flow method. Among others, these valuations are based on market rent assumptions and assumptions regarding possible vacancy rates. The fair value of these investments was determined after subtraction of liabilities and multiplication with the company’s share.

The level 3 measurements on the liabilities side include liabilities from put options of non-controlling interests and earn-out liabilities. The fair value measurement depends on the respective contract details and is carried out in the amount of €47 million (30/9/2014: €72 million) using the discounted cash flow method and in the amount of €130 million (30/9/2014: €0 million) in consideration of contractual value limits or based on current purchase price offers.

The fair values of liabilities from put options and earn-out liabilities, which are determined using the discounted cash flow method, are based on expected future cash flows over a detailed planning period of up to three years (30/9/2014: three years) plus a perpetuity. The assumed growth rate for the perpetuity is 1.0 per cent (30/9/2014: between 2.5 per cent and 8.7 per cent). In principle, the respective weighted average cost of capital (WACC) is used as the discount rate. In the reporting period, the cost of capital ranged from 5.6 per cent to 8.7 per cent (30/9/2014: between 11.6 per cent and 15.2 per cent). If individual interest rates were to increase by 10 per cent, the fair value of these liabilities would decline by €1 million (30/9/2014: €6 million). An interest rate decrease of 10 per cent would increase the fair value of these liabilities by €2 million (30/9/2014: €8 million).

Changes in the value of put options and earn-out liabilities developed as follows between 1 October 2014 and 30 September 2015:

The changes in value of put options of non-controlling interests and earn-out liabilities existing as of 30 September 2015 include €48 million from the recognition of put options in debt by means of a reclassification from equity. In addition, goodwill increased by €57 million.

Changes in the put options recognised as of 30 September 2014 lowered goodwill by €7 million and other comprehensive income by €1 million.

Financial instruments that are recognised at amortised cost in the balance sheet, but for which the fair value is stated in the notes, are also classified according to a three-level fair value hierarchy.

Due to their mostly short terms, the fair values of receivables due from suppliers, trade receivables and liabilities as well as cash and cash equivalents essentially correspond to their carrying amounts.

The measurement of the fair value of bonds, liabilities to banks and promissory note loans is based on the market interest rate curve following the zero-coupon method in consideration of credit spreads (level 2). The amounts comprise the interest prorated to the closing date.

The fair values of all other financial assets and liabilities that are not listed on an exchange correspond to the present value of payments underlying these balance sheet items. The calculation was based on the applicable country-specific yield curves (level 2) as of the closing date.