Panalpina Annual Report 2006

Consolidated and Annual Financial Statements 2006
Normally, the Group consciously decides not to designate derivative instruments for hedge accounting according to
IAS 39 (although they all are hedging-instruments from an economic point of view). Otherwise, the Group can designate
individual derivatives as either:
• a hedge of the exposure to changes in the fair value of a recognized asset or liability (fair value hedge),
• a hedge of the exposure to variability in cash flows associated with a recognized asset or liability or a highly probable
forecast transaction (cash flow hedges) or
• a hedge of net investments in a foreign operation.
For qualifying cash flow hedges, the derivative hedging instrument is recorded at fair value. The portion of any change in fair
value that is an effective hedge is included in equity, and any remaining ineffective portion is reported in income (expense).
If a hedged forecast transaction results in the recognition of a non-financial asset or liability, the cumulative change in fair
value of the hedging instrument that has been recorded in equity is included in the initial carrying value of that asset
or liability at the time it is recognized. For all other qualifying cash flow hedges, the cumulative changes in fair value of the
hedging instrument that have been recorded in equity are included in income (expense) at the time when the forecasted
transaction affects net income.
For qualifying hedges of net investments in foreign operations, the hedging instruments are accounted in a manner similar
to cash flow hedges. The foreign exchange portion of any change in fair value that is an effective hedge is included in
equity as translation reserve. Any remaining ineffective portion is recorded in income (expense). If the hedged subsidiary is
disposed of, then the cumulative amounts that have been recorded in equity are included in income (expense) at the time
of the disposal.
4 Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimations and assumptions that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.
Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in
the note Intangible assets, section Goodwill. The recoverable amounts of cash-generating units (CGU) have been determined
based on value-in-use calculations. These calculations require the use of estimates.
A sensitivity analysis shows that a reduction of free cash flow of the tested CGU of up to 10% at most would not result in an
impairment of goodwill.
Claim provisions
A number of subsidiaries are subject to litigation arising out of the normal conduct of their businesses, as a result of which
claims could be raised against them.
The Group used for the above mentioned provision the conservative actuarial calculation, which requires for the calculation
of the “incurred but not reported reserves (IBNR)”, among other estimations, the overall circumstances which may impact
the future losses, such as the growth of business. If the management decided to use the optimum actuarial calculation
method, which takes only into consideration the linear loss development according to historical figures, the carrying amount
of claim provision would be approximately CHF 2.7 million lower. If the used actuarial calculation would differ by 10%
from the management’s estimates, the carrying amount of claim provision would be approximately CHF 1.8 million higher.
Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgments are required in determining the current
and deferred assets and liabilities for income taxes. Some of these estimates are based on interpretations of existing
tax laws or regulations. Management believes that the estimates are reasonable and that the recognized liabilities for income
tax related uncertainties are adequate. Various internal and external factors may have favorable or unfavorable effects on
the income tax assets. These factors include, but are not limited to, changes in tax laws regulations and / or rates, changing
interpretation of existing tax laws or regulations and changes on management estimations. Such changes that arise could
affect the assets and liabilities recognized in the balance sheet in future periods.
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