Annual Report 2006

Profits and losses from sale and leaseback transactions
resulting in a finance lease are deferred and amortized over
the lease term as other operating income or other operating
expense respectively.
Operating lease payments are treated as operating expenses
and charged to the income statement as incurred.
2.6 Liabilities
2.6.1 Financial liabilities Short-term and long-term bank
borrowings are recognized at fair value and classified by
maturity. They are subsequently measured at amortized cost
using the effective interest method. All other financial liabilities
and derivatives are recognized according to the principles
stated under “Financial assets and derivative financial
instruments“.
2.6.2 Provisions Provisions are recognized only if the
company has a present obligation to a third party as a result
of a past event, it is probable that an outflow of resources
will be required to settle the obligation, and the obligation
can be sufficiently reliably estimated. No provision is made
for future operating losses. Provisions for which an outflow
of resources is not expected within one year, are discounted
as at the balance sheet date.
Costs relating to restructuring are booked as an expense if
management has adopted a restructuring plan, it is probable
that an obligation has arisen therefrom and the amount
of that obligation can be sufficiently reliably estimated. The
restructuring must either be communicated in sufficient
detail or agreed with the employees affected before being
recognized as an expense in the income statement.
2.6.3 Deferred taxes Deferred income taxes are recognized
on the differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding
tax bases and are accounted for using the liability
method. Deferred tax liabilities are generally recognized for
all taxable temporary differences and deferred tax assets are
only recognized to the extent that it is probable that future
taxable profit will be available against which deductible
temporary differences can be utilized. No deferred tax items
Notes to the Consolidated Financial
Statements 2006 of the Mikron Group
are recognized in respect of temporary differences on investments
in subsidiaries, since the Group is able to control the
reversal of such temporary differences and it is probable that
they will not reverse in the foreseeable future.
Deferred tax assets and liabilities are calculated at the rate
that is expected to apply in the period when the asset is realized
or the liability is settled, based on tax rates (and tax
laws) that have been enacted or announced at the balance
sheet date. Changes in deferred taxes are recorded in profit
or loss, except where they relate to items that are charged or
credited directly to equity.
2.6.4 Employee benefits There are a number of employee
benefit plans in existence within the Group, each of which is
aligned with local conditions in the country in question. They
are funded either by means of contributions to legally independent
employee benefit schemes (foundations, insurance)
or by recognition as provision for employee benefit plans in
the balance sheet.
For defined contribution plans, the net periodic cost to be
recognized in the income statement equals the contributions
made by the employer.
In the case of defined benefit plans, the net periodic cost is
determined at each balance sheet date by means of actuarial
valuations by independent experts using the “Projected Unit
Credit“ method. The annual pension expense is recognized
in the income statement. Actuarial gains and losses arising
from the periodic revaluations are recognized in the income
statement on a straight-line basis over the average remaining
service period, if they exceed 10% of the greater of the plan
assets or the benefit obligation. A pension asset will only be
capitalized if such entitlements are available without restriction
in the form of future contribution repayments or reductions
(e.g. in the form of employer contribution reserves).
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