Annual Report 2010 - SBM Offshore

accounting and the risk management objective and
strategy for undertaking the hedge. The documentation
includes identification of the hedging instruments, the
hedged item, or transaction, the nature of the risk being
hedged and how the Company will assess the hedging
instrument’s effectiveness in offsetting exposure
to changes in the fair value of the hedged item or cash
flows attributable to the hedged risk. Such hedges are
expected to be highly effective in offsetting changes
in the fair value of the hedged item or cash flows and
are assessed periodically to determine that they actually
have been highly effective throughout the financial
reporting periods for which they were designated. The
Company uses cash flow hedges and hedges of net
investments in a foreign operation.
Hedges which meet the strict criteria for hedge
accounting are accounted for as follows: the effective
portion of the gain or loss on the hedging instrument is
recognised directly in equity, while the ineffective portion
is recognised in the income statement. Amounts
taken to equity are added or deducted from the recognised
value of the hedged item upon its recognition and
to the income statement when the hedged transaction
affects the income statement. When a hedging instrument
expires or is sold, or when a hedge no longer
meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity at that time remains in
equity and is recognised when the forecasted transaction
is ultimately recognised in the income statement.
If the forecasted transaction is no longer expected to
occur, amounts previously recognised in equity are
transferred to the income statement.
The fair values of various derivative financial instruments
used for hedging purposes are disclosed in the
note 18 - Derivatives financial instruments. Movements
in the hedging reserve in equity attributable to shareholders
are shown in the note 20 - Equity attributable to
shareholders.
Cash and cash equivalents
Cash and cash equivalents consist primarily of highly
liquid investments, such as bank deposits. Bank overdrafts
are shown in borrowings and bank overdrafts as
part of current liabilities in the balance sheet.
Financial Review / Financial Statements 2010
Share capital
Ordinary shares and preference shares are classified
as equity. Incremental costs directly attributable to the
issue of new shares are shown in equity as a deduction,
net of tax, from the proceeds.
When any group company purchases the Company’s
equity share capital (treasury shares), the consideration
paid, including any directly attributable incremental
costs (net of income taxes) is deducted from equity
attributable to the Company’s share holders until the
shares are cancelled or reissued. Where such shares
are subsequently reissued, any consideration received,
net of any directly attributable incremental costs and
the related income tax effects, is included in equity
attributable to the Company’s share holders.
Borrowings (long-term loans and other liabilities)
Borrowings are recognised initially at fair value.
Borrowings are classified as current liabilities unless the
Company has an unconditional right to defer settlement
of the liability for at least 12 months after the balance
sheet date. As of 2007 the attributable transaction
costs are capitalised in financial assets and amortized
to net interest expenses based on the expected
repayment period of the debt for which the costs were
capitalised. Before 2007 the attributable transaction
costs were capitalised in the related property, plant and
equipment. Reference is made to the note 12 - Other
financial assets for details of capitalised transaction
costs.
Deferred income tax
Deferred income tax is recognised, using the liability
method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying
amounts in the financial statements. However,
the deferred income tax is not accounted for if it
arises from initial recognition of an asset or liability in
a transaction other than a business combination that
at the time of the transaction affects neither accounting
nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been
enacted or substantially enacted by the balance sheet
date and are expected to apply when the related
deferred income tax asset is realised or the deferred
income tax liability is settled.
SBM Offshore – Annual Report 2010 123