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of marketable securities corresponds to prices quoted for identical financial assets in active markets (hierarchy level 1). The fair value of equity instruments, derivative financial instru- ments and debts is determined by applying valuation techniques for which inputs are based on observable market data (hierarchy level 2) or on unobservable input factors (hierarchy level 3). Changes in the fair value of derivative financial instruments qualifying for hedge accounting are recognized in profit or loss or in other comprehensive income depending on whether the derivative is designated as a fair value or a cash flow hedge. For derivatives designated as fair value hedges, changes in the fair value of the hedged item and the deriva- tive financial instrument are recognized in profit or loss. For derivative financial instruments designated as a cash flow hedge, changes in the fair value of the effective portion of the hedg- ing instrument are recognized in other comprehensive income until the hedged item is recognized in profit or loss. The ineffective portion of derivative financial instruments desig- nated as cash flow hedges and fair value changes of derivative financial instruments which do not qualify for hedge accounting are recognized in profit or loss immediately. This is also applicable to components excluded from hedging instruments qualifying as cash flow hedges. At the inception of the hedge ALTANA documents the hedging relationship between the hedged item and the hedging instrument. Additionally, at the inception of the hedge and on an ongoing basis, the Company documents its assessment on whether the hedging instrument actually compensates the change in the fair value of the hedged item (assess- ing hedge effectiveness). Share-Like Employee Incentive Plans In line with its long-term incentive program, ALTANA has issued instruments similar to shares to its employees and accounts for them in accordance with IFRS 2 “Share-based Payment.” These instruments are therefore measured at fair value at the grant date, taking into account the vesting conditions upon which those instruments were granted. The cost of employee compensation is expensed over the required service period. Until settlement of the instruments in cash, the liability is remeasured at its fair value at each reporting date as well as at the exercise date. Changes in the fair value are recognized in profit or loss. Employee Benefit Obligations The accounting for pension liabilities is based on the projected unit credit method in accord- ance with IAS 19, “Employee Benefits,” and the liabilities are measured based on actuarial valuations. Remeasurement gains or losses are fully recognized in other comprehensive income in the period they occur (see Consolidated Statement of Comprehensive Income). The pro- visions therefore generally equal the fair value of the obligations at the respective reporting dates. Other Provisions In accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets,” the Company recognizes other provisions when it has a present legal or constructive obligation 94 Notes to Consolidated Financial Statements


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