Annual Report 2010 - SBM Offshore

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amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that have been impaired are reviewed for possible reversal of the impairment at each balance sheet date. Recoverable amounts are determined based on valuein-use calculations. These calculations require the use of estimates. Non-current assets (or disposal groups) held for sale Non-current assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of the carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. Financial assets The Company classifies its financial assets in the following categories: the Loans and Receivables, the Available for sale and the financial assets at Fair value through profit or loss. The classification depends on the purpose of the financial asset. Management determines the classification at initial recognition. Loans and receivables are non-derivative financial assets with fixed or determined payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company’s loans and receivables include finance lease receivables, other loans and receivables, and other financial assets. Impairment of financial assets The Company assesses whether there is objective evidence that a financial asset or group of financial assets is impaired at the end of each reporting date. A financial asset or a group of financial assets is impaired Financial Review / Financial Statements 2010 and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Company uses to determine whether there is objective evidence of an impairment loss include: • significant financial difficulty of the obligor; • a breach of contract, such as a default or delinquency in interest or principal payments; • the Company, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; • it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; • national or local economic conditions that correlate with defaults on the financial assets. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognised in the income statement. If the financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the income statement. Impairment on trade and other receivables is described in the accounting policy with respect to trade and other receivables. Inventories Inventories are stated at the lower of cost and net SBM Offshore – Annual Report 2010 121
Financial Review / Financial Statements 2010 realisable value. Cost is determined using the first-in first-out method. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Inventories comprise semi-finished products, finished products and spare parts. Semi-finished and finished products are valued at cost including attributable overhead. Spare parts are stated at the lower of purchase price and market value. Construction work in progress Construction work in progress is stated at cost plus profit recognised to date less a provision for foreseeable losses and less invoiced instalments. Cost includes all expenditures related directly to specific projects and attributable overhead. Where instalments exceed the value of the related costs, the excess is included in current liabilities. Advances received from customers are included in current liabilities. Trade and other receivables Trade receivables are amounts due from customers for sales performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non current assets. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. An allowance for impairment of trade and other receivables is established when there is objective evidence that the Company will not be able to collect all amounts due under the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade and other receivables are impaired. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the 122 SBM Offshore – Annual Report 2010 loss is recognised in the income statement. When a trade or other receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited in the income statement. Derivative financial instruments and hedging activities The Company uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with foreign currency and interest rate fluctuations. Such financial instruments are initially recognised at fair value on the date on which a financial contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Derivative financial instruments are presented as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on financial instruments that do not qualify for hedge accounting are taken directly to the income statement. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles using quoted market rates. The fair value of interest rate swap contracts is determined by reference to market rates for similar contracts. For hedge accounting, hedges are classified as: • fair value hedges when hedging exposure to changes in fair value of a recognised asset or liability or a firm commitment (fair value hedge); • cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecasted transaction (cash flow hedge); • hedges of net investments in a foreign operation (net investment hedge). At the inception of the transaction, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge
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Annual Report 2010
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Financial Review / Financial Statem
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1 2 Overview 11 Message from the CE
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Semi-Submersible Drilling Rig Tensi
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Deck view of the FPSO Espirito Sant
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I am pleased to report that the Com
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In addition to these main centres,
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Highlights 2010 Financial • Turno
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Shareholders As the shares are bein
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Corporate Strategy In line with the
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Lease and Operate The lease and ope
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World Map of SBM Offshore Project E
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Report of Board of Management Repor
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Report of Board of Management Compo
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Report of Board of Management requi
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Report of Board of Management In co
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Report of Board of Management Remun
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Report of Board of Management Secti
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Report of Board of Management was a
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Report of Board of Management Actua
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Report of Board of Management With
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Report of Board of Management Infor
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Disconnectable Turret of the FPSO O
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Introduction The relatively high oi
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Turnkey Systems A major highlight o
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Top: Deep Panuke Production Field C
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Report of the Board of Management 0
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At the start of 2010, the Company o
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SBM Offshore employees on board an
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contract will be based on a product
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Semi-Submersible Drilling Rigs The
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Semi-Submersible drilling rig 'Delb
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Top: SBM Services repairing the Sof
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y a large buoyant structure when di
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Annual Report 2010 - SBM Offshore

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