Annual Report 2011 - Kongsberg Maritime - Kongsberg Gruppen

2 INTRODUCTION
7 DIRECTORS’ REPORT AND
18 FINANCIAL STATEMENTS
64 CORPORATE GOVERNANCE
76 FINANCIAL CALENDAR AND ADDRESSES
26 KONGSBERG Annual Report 2011
original effective interest rate. Regarding available-for-sale assets, an
asset is impaired when its present fair value is lower than its cost and
the impairment is considered significant or prolonged. Ordinarily,
KONGSBERG would assume that an impairment of more than 20 per
cent of the cost is significant and that a prolonged decline in value as
one lasting for more than nine months is not of a temporary nature. The
assessment are based on the impaired value.
Accumulated losses recognised in the statement of comprehensive
income will also be transferred through profit and loss on the impaired
assets. Impairment is reversed if the reversal is related to a significant
rise in the value after the impairment was recognised. For financial assets
measured at their amortised cost and available-for-sale bonds, any
reversal will be recognised through profit and loss. Upon the reversal of
financial assets that are investments in equity instruments, the change
in value will be recognised in the statement of comprehensive income.
Derivatives
Derivates in the Group comprise forward foreign exchange contracts,
currency options and interest swap agreements. Upon initial recognition,
derivatives are measured at fair value, and identifiable transaction costs
are recognised through profit and loss as they incurred. Changes in the
fair value of derivatives are recognised through profit and loss, unless
they qualify for hedge accounting.
Hedging
KONGSBERG has as policy to limit currency risks, while taking a
pro-active position on the importance of a currency as a competitive
parameter. KONGSBERG’s policy is to hedge all contractual foreign
currency cash flows (project hedges). Additionally, parts of future
projected currency cash flows are hedged in accordance with an
established strategy (prognosis hedges). KONGSBERG has hedged
parts of its obligations with interest rate swaps involving a switch from
floating to fixed interest rates (interest rate hedges).
At initial recognition of the hedge transaction, the Group determines
whether a derivative (or another financial instrument) should be used to:
i) Hedge the fair value of a recognised asset or liability or a firm
commitment (project hedges)
ii) Hedge a future cash flow of a recognised asset or liability, or an
identified highly probable forecast transaction (prognosis hedges and
interest rate hedges)
(i) Fair value hedges (project hedges)
The change in fair value of the hedged item is recognised in the income
statement for the change in value that is hedged. For currency hedges
of future contractual transactions, this implies that the changes in value
on the future transaction associated with changes in the foreign exchange
rate are recognised in the statement of financial position. When
it comes to construction contracts, this means that the part of the
contract that is accrued is recognised at the current exchange rate,
while the part of the contract that is not accrued is recognised as a gain
or loss in connection with changes in the foreign exchange rate. Since
the hedge instrument also is recognised at fair value, this entails
symmetrical recognition of the hedged item and the hedge instrument.
Overall this means that construction contracts are recognised at the
hedged exchange rate.
Hedge accounting ceases in the event:
(a) The hedging instrument expires, or is terminated, exercised or sold
(b) The hedge no longer satisfies the above-mentioned hedge
accounting criteria or
(c) The Group decides to discontinue hedge accounting for other
reasons
In connection with fair value hedges of financial assets or liabilities
recognised at amortised cost, the change in the value of the hedge
instrument is amortised during the remaining period up to maturity of
the hedged item.
(ii) Cash flow hedges (prognosis hedges and interest rate hedges)
By hedging highly probable future cash flows, the effective part of the
change in fair value of the hedge instrument is recognised in the
statement of comprehensive income for the period.
When a hedged transaction occurs, the accumulated change in value of
the hedging instrument is transferred from the statement of
com prehensive income and taken through profit and loss.
If hedging a highly probable forecast transaction subsequently leads
to recognition of a asset or liability, the gain or loss will be reclassified
from the statement of comprehensive income to profit and loss during
the same period(s) in which the asset or liability affects profit or loss,
e.g. over the period of depreciation for an asset.
In connection with hedges where the future transaction becomes a
construction contract, the hedges are allocated to contracts at signing
and occasionally rolled forward. Gains and losses are recognised in line
with the contract`s percentage of completion. This means that construction
contracts that are hedged before signing is recognised to the
originally hedged exchange rate, as could be before the contract was
signed. In connection with cash flow hedges of financial obligations, the
change in value is transferred from the statement of comprehensive
income to profit and loss during the term of the liability.
If a hedging instrument expires without being rolled forward or if the
hedge relationship is discontinued, the accumulated gains and losses are
recognised directly through profit and loss when the hedged transaction
takes place. If the hedged transaction is no longer expected to occur,
the accumulated unrealised gains or losses on the hedge instrument
previously recognised in the statement of comprehensive income are
recognised through profit and loss immediately.
Follow-up of hedging effectiveness
The current forward contracts are expected to be effective throughout
the entire period. KONGSBERG rolls forward contracts forward from
prognosis to project hedging upon signing the contracts. In addition,
forward contracts (project hedges) are rolled over in cases where
receipts/ payments take place later than originally anticipated. At
shorter time differences between the maturity of the forward contracts
and the receipts/ payments KONGSBERG uses bank accounts in
foreign currency, so that the exchange of foreign currency from the
foreign currency bank account falls within the same period as the final
maturity of the forward contract or the receipts/ payments. Hedging
effectiveness will therefore be very high throughout the period.
K) Classification
Assets related to normal operating cycles for goods/services or that fall
due within 12 months are classified as current assets. Other assets are
classified as non-current. Similarly, liabilities related to normal operating
cycles for goods/services or fall due within 12 months are classified as
current liabilities. Other liabilities are classified as non-current.
L) Inventories
Inventories are measured at the lower of cost and net realisable value.
For raw materials and work in progress, net realisable value is calculated
as the estimated selling price in ordinary operations of finished products
less remaining production costs and the costs of the sale. For finished
goods, net realisable value is the estimated selling price in ordinary
operations less estimated costs of completion of the sale. For work in
progress and finished products, the acquisition cost is calculated as
direct and indirect costs. Inventories are valued based on the average
acquisition cost.
M) Receivables
Trade receivables and other receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in an
active market. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective interest
method, less impairment. However, due to the brief term to maturity,
accounts receivable and other receivables will in practice be recognised
at their nominal values less impairment. Accounts receivable in foreign
currencies are recognised at the exchange rates on the date of
reporting.
N) Cash and short-term deposits
Cash and short-term deposits in the statement of financial position
comprise cash-in-hand, bank deposits and short-term liquid investments
that can be immediately converted into a given sum of money, with a
maturity of three months or less.