Annual Report 2008 in PDF - GKN

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108 Notes to the Financial Statements continued 20 Derivative financial instruments Forward currency contracts GKN plc Annual Report 2008 2008 2007 Current Non-current Current Assets Liabilities Liabilities Assets Liabilities £m £m £m £m £m not hedge accounted 13 (171) — 23 (6) hedge accounted — (6) (2) 1 — Commodity contracts — not hedge accounted — (2) — — (1) Embedded derivatives 49 (11) — 1 (6) Net investment hedges — — — — (17) 62 (190) (2) 25 (30) The amounts in respect of embedded derivatives primarily represent the movement between 1 January 2008 and 31 December 2008 or date of maturity in the value of the embedded derivatives in commercial contracts between European Aerospace subsidiaries and customers and suppliers outside the USA which are denominated in US dollars. Forward foreign exchange contracts, commodity contracts and embedded derivatives are marked to market using published prices, with forward foreign exchange contracts and commodity contracts being settled on a net basis. Hedge accounting Cash flow hedges The Group manages exposure to foreign currency fluctuations on outstanding purchase and sale agreements using forward foreign currency contracts. The Group has adopted transactional foreign exchange hedge accounting in a limited number of contracts. The value of forward foreign exchange contracts subject to hedge accounting was £8 million liability (2007 – £1 million asset). The net cash flows and profit impact will occur during 2009 to 2012 (2007 – during 2008). A £7 million loss was recognised in equity during the year (2007 – £1 million gain) in respect of contracts outstanding at 31 December. An accumulated gain of £1 million was removed from equity during the year and included in the income statement as a £1 million gain in cost of sales. Cash flow hedging was 100% effective during 2008 and 2007. Net investment hedging See note 19. For the purposes of hedge accounting, net investment hedging was 100% effective during 2008 and 2007. 21 Provisions Restructuring Legal and Warranty environmental Other Total £m £m £m £m £m At 1 January 2008 Charge for the year: (28) (13) (21) (34) (96) Additions (21) (7) (4) (4) (36) Unused amounts reversed — 1 — 7 8 Amounts used 26 5 3 7 41 Currency variations (7) (4) (5) (4) (20) At 31 December 2008 (30) (18) (27) (28) (103) Due within one year (23) (10) (10) (6) (49) Due in more than one year (7) (8) (17) (22) (54) (30) (18) (27) (28) (103)
Financial Statements Notes to the Financial Statements 21 Provisions continued Restructuring Restructuring provisions outstanding at 31 December 2008 relate primarily to the estimated future cash outflows in respect of redundancies and onerous contracts (predominantly leases) arising from Group strategic restructuring programmes, details of the charges in respect of which are included in note 3. Amounts are only set aside when irrevocable commitments exist at the balance sheet date and these invariably reflect actual or constructive contractual arrangements which indicate the amount and most likely timing of flows. Cash outflows that are expected to arise beyond 12 months in part relate to lease contracts where the average remaining maturity is 5 years from 31 December as well as phased retirement scheme payments in European Driveline and OffHighway businesses which have between 3 and 5 years to run. Warranty Provisions set aside for warranty exposures either relate to amounts provided systematically based on historical experience under contractual warranty obligations attaching to the supply of goods or specific provisions created in respect of individual customer issues undergoing commercial resolution and negotiation. In the event of a claim, settlement will be negotiated with the customer based on supply of replacement products and compensation for the customer’s associated costs. Amounts set aside represent management’s best estimate of the likely settlement and the timing of any resolution with the relevant customer. Legal and environmental Legal provisions amounting to £9 million (2007 – £5 million) relate to management estimates of amounts required to settle or remove litigation actions that have arisen in the normal course of business. Further details are not provided to avoid the potential of seriously prejudicing the Group’s stance in law. Amounts unused and reversed only arise when the matter is formally settled or when a material change in the litigation action occurs where legal advice confirms lower amounts need to be retained to cover the exposure. As a consequence of primarily legacy activities a small number of sites in the Group are subject to environmental remediation actions, which in all cases are either agreed formally with relevant local and national authorities and agencies or represent management’s view of the likely outcome having taken appropriate expert advice and following consultation with appropriate authorities and agencies. Amounts charged and carried reflect the current best estimates of the likely cost of remediation and inherent timings. Other Other provisions include claims provisions held within the Group’s captive insurance company £10 million (2007 – £8 million), provisions held in respect of onerous loss making contracts £6 million (2007 – £11 million), and long service non-pension and other employee related obligations arising primarily in the Group’s continental European subsidiaries £12 million (2007 – £15 million). Claims provisions and charges are established in accordance with external insurance and actuarial advice. The onerous loss making contract provisions relate to specific noncancellable contractual commitments where it is anticipated that unavoidable net operating losses will arise. Vacant leasehold property provisions included in Restructuring and Other provisions above amount to £5 million (2007 – £1 million). www.gkn.com 109
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GKN plc Annual Report and Accounts
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Our Objective GKN is committed to p
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2008 Performance* Group results sig
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Although we expect 2009 to be a ver
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Constant velocity joints (CVJs) rev
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Off-highway driveshaft Blended wing
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Strategy and business objectives Th
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Operating cash flow performance of
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Restructuring and impairment costs
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2008 2007 Tax charge analysis % % W
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Overseas pensions The principal cou
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GKN received the prestigious Nissan
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GKN Driveline manufactures across a
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2008 2007 GKN Driveline £m £m Sal
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Continuing evolution of powder meta
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Despite a £6 million positive impa
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GKN OffHighway is a first tier supp
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Trading profit of subsidiaries of
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In January 2009 GKN completed the a
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Divisional strategy GKN Aerospace
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Financing The following section des
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Competitive markets and competition
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Living the Values GKN is a group of
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Delivering advanced technology Deli
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Engaging more fully with our employ
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Accident frequency rate (AFR) Numbe
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Contributing to our communities We
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Andrew Reynolds Smith (42) Chief Ex
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Dividend An interim dividend of 4.5
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On joining the Board, a Director re
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Page 79 and 80: Consolidated Statement of Recognise
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Page 89 and 90: 2 Segmental analysis continued Prim
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Page 105 and 106: 14 Other receivables and investment
Page 107 and 108: 18 Net borrowings continued Financi
Page 111: Financial Statements 19 Financial r
Page 115 and 116: 24 Acquisitions There were no acqui
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Page 123 and 124: Independent Auditors’ Report to t
Page 125 and 126: Notes to the Financial Statements o
Page 127 and 128: Group Financial Record For the year
Page 129 and 130: OffHighway GKN OffHighway Ltd GKN W
Page 131 and 132: Unsolicited mail GKN is obliged by
Page 133 and 134: Contact Details GKN plc PO Box 55 I
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Annual Report 2008 in PDF - GKN

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