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Annual Report 2008 - AMG Advanced Metallurgical Group NV

Annual Report 2008 - AMG Advanced Metallurgical Group NV

Provisions Provisions

Provisions Provisions have been recorded with respect to environmental, restructuring, warranties and other liabilities. These provisions require management’s judgement with respect to the amounts recorded and the expected timing of payments. Amounts may change due to changes in circumstances surrounding environmental and restructuring liabilities or other liabilities. Timing of payments can change with respect to environmental, restructuring or warranties as the execution of plans may require more or less time than anticipated. As at December 31, 2008, the provisions balance was $35,186 (2007: $24,967). Valuation of financial instruments Fair value of non-derivative financial instruments, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date. Management’s judgement is used to determine the appropriate discount rates used for these calculations. 3. Significant accounting policies (a) Basis of consolidation (i) Consolidation Principles The consolidated financial statements of the Company have been prepared on a historical cost basis, except for derivative financial instruments and financial instruments held for trading which have been measured at fair value. The carrying value of recognized assets and liabilities that are hedged items in fair value hedges that would otherwise be carried at cost, are adjusted to record changes in the fair value attributable to the risks that are being hedged. The consolidated financial statements of the Company include the accounts of all entities when a direct or indirect controlling interest exists through voting rights or other contractual rights at the balance sheet dates and therefore the results of operations and cash flows of the subsidiaries of the Company are presented on a consolidated basis under the control of the Company. All intra-group balances, transactions, income and expenses and profit and losses resulting from intra-group transactions, are eliminated in full. Net income is allocated to the shareholders of the Company and minority interests. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognized in goodwill. The minority interests are disclosed separately in the consolidated statements of income and in the equity section of the consolidated balance sheets. (ii) Associates Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Associates are accounted for using the equity method (equity accounted investees). The consolidated financial statements include the Company’s share of the income and expenses of equity accounted investees from the date that significant influence or joint control commences until the date it ceases. When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. Profits and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. See note 14 for further details. (iii) Joint Ventures A joint venture is a contractual arrangement where two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest. The Group recognizes its interest in the joint venture under the equity method. The consolidated financial statements include the Company’s share of the income and expenses of equity accounted investees from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. When the Group contributes or sells assets to the joint venture, any portion of gain or loss from the transaction is recognized based on the substance of the transaction. When the Group purchases assets from the joint venture, the Group does not recognize its share of the profits of the joint venture from the transaction until it resells the assets to an independent party. (b) Foreign currency (i) Functional and presentation currency The local currency is the functional currency for the Company’s significant operations outside the US, except certain operations in the United Kingdom and Brazil, where the US Dollar is used as the functional currency. The determination of functional currency is based on appropriate economic and management indicators. 84 Notes to the Consolidated Financial Statements

These consolidated financial statements are presented in US Dollars, which is the Company’s functional and presentation currency. All financial information is presented in US Dollars and has been rounded to the nearest thousand, unless otherwise stated. (ii) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Company's entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the balance sheet date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in profit or loss. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate. (iii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to US Dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to US Dollars at the average exchange rates calculated at the reporting date. Foreign currency differences are recognized directly in equity. Since January 1, 2005, the Company’s date of transition to IFRS, such differences have been recognized in the foreign currency translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is transferred to profit or loss. The Company has no foreign operations in hyperinflationary economies. The Company does not hedge its net investments in foreign operations. (c) Financial instruments (i) Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, restricted cash, short term investments, loans and borrowings, related party debt, short term bank debt, unearned revenue and trade and other payables. The Company does not have any non-derivative financial instruments which are classified as held-to-maturity investments or available-for-sale financial assets. Trade and other receivables are recorded at the invoiced amount and do not bear interest. The Company provides an allowance for impairment for known and estimated potential losses arising from sales to customers based on a periodic review of these accounts. Impaired debts are derecognized when it is probable that they will not be recovered. Cash and cash equivalents comprise cash balances and call deposits with maturities of 90 days or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents, as defined above, net of outstanding bank drafts. Restricted cash, which in whole or in part is restricted for specific purposes including guarantees, is included in a separate line item of the balance sheet. It is included in non-current assets. The investments in associates of the Company are accounted for using the equity method of accounting. An associate is an entity in which the Company has significant influence and which is not a subsidiary. Under the equity method, investments in associates are carried in the balance sheet at cost plus post-acquisition changes in the Company’s share of net assets of the associate. The income statement reflects the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of an associate, the Company recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity. Investments in equity instruments whose fair value cannot be reliably measured and must be settled by delivery of those equity instruments are measured at cost less any impairment. If a reliable fair value measurement becomes available, the investment will be remeasured at that fair value and the gain or loss reported in profit and loss. Loans and borrowings are initially recorded at the fair value of the proceeds received less direct issuance costs. After initial recognition, loans and borrowings are subsequently measured at amortized cost using the effective interest method. Trade and other payables and unearned revenue are accounted for at cost. Fair value of non-derivative liabilities, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date. In respect of the liability component of convertible notes, the market rate of interest is Notes to the Consolidated Financial Statements 85

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