Annual Report 2010 - SBM Offshore

Financial Review / Financial Statements 2010
services and supply of special components and proprietary
designs and equipment. The Turnkey Services
segment derives its revenues from offshore contracting
and after-sales services. The Lease and Operate
segment comprises the total of earned day-rates on
long-term operating lease and operate contracts. In the
case of a finance lease, revenue is recognized during
the construction period within the Turnkey Systems
segment and, where installation activities are effected,
within the Turnkey Services segment. As of the commencement
date of the finance lease contract, the
interest income is shown in the Lease and Operate
segment.
Management monitors the operating results of operating
segments separately for the purpose of making
decisions about resources to be allocated and for
assessing performance. Segment performance is
evaluated based on net result, which in certain respects
is measured differently from operating profit or loss in
the consolidated financial statements. Inter-segment
revenues are made at prices that approximate market
prices.
Foreign currency translation
Functional and reporting currency
Items included in the financial statements of each of
the Company’s entities are measured using the currency
of the primary economic environment in which
the entity operates (the ‘functional currency’). The
functional currency of the offshore oil and gas activities
is the US Dollar. The consolidated financial statements
are presented in US Dollars, which is the reporting currency
of the Company.
Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of foreign
currency transactions and from the translation
at period end exchange rate of monetary assets and
liabilities denominated in foreign currencies are recognised
in the income statement, except when deferred
in equity as qualifying cash flow hedges and qualifying
net investment hedges.
118 SBM Offshore – Annual Report 2010
At year-end 2010 the most significant rate was the Euro
at US$ 1.338 (opening 2010: US$ 1.434). The average
Euro rate amounted to US$ 1.3247 (2009: US$ 1.392).
Group companies
The result and financial position of all group companies
that have a functional currency different from the
reporting currency are translated into the reporting currency
as follows:
• assets and liabilities for each balance sheet presented
are translated at the closing rate at the date
of the balance sheet;
• income and expenses are translated at the average
exchange rate (unless this average rate is not a
reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in
which case income and expenses are translated at
the date of the transactions); and
• all resulting exchange differences are recognised
as a separate component of equity (Translation
reserve).
On consolidation exchange differences arising from
the translation of the net investment in foreign entities,
and of borrowings of such investments, are taken to
Group equity. When an operation denominated in foreign
currency is sold, such exchange differences are
recognised in the income statement as part of the gain
or loss on sale.
Goodwill and fair value adjustments arising on the
acquisition of a foreign entity are treated as assets and
liabilities of the foreign entity and translated at the closing
rate.
Leases: Accounting by lessor
A lease is an agreement whereby the lessor conveys
to the lessee in return for a payment, or series of payments,
the right to use an asset for an agreed period
of time. Leases in which a significant portion of the risk
and rewards of ownership are retained by the lessor are
classified as operating leases.
When assets are leased out under a finance lease, the
present value of the lease payments is recognised as a
receivable. The difference between the gross receivable
and the present value of the receivable is recognised as
unearned finance income.