Annual Report 2001 - KSPG AG

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Consolidated financial statements 2001 of Kolbenschmidt Pierburg AG
Notes
Accounting principles
Deferred taxes
Deferred taxes are duly recognized on
the differences between the values of
assets and liabilities in the consolidated
balance sheet and those in the
individual companies' tax accounts if
such different values entail a higher
or lower taxable income than would be
the case if the consolidated balance
sheet prevailed. Differences between
the investment book value in the tax
accounts and the investee’s equity
are not recognized since, for lack of
any intention to dispose of such investees,
the valuation differences will
not reverse in the foreseeable future.
Deferred tax assets also include tax
reduction claims from the expected
future utilization of tax loss carryovers
(if their realization is reasonably certain).
If the recent history of a company
reports a series of losses, deferred
tax assets from unutilized tax
losses or credits are only recognized
to the extent that the company shows
sufficient taxable temporary differences
or that conclusive substantive
evidence exists which suggests with
reasonable assurance that sufficient
taxable income will be earned by the
company to utilize the hitherto unused
tax losses or credits. Deferred taxes
are determined by applying the local
tax rates current or anticipated in each
country at the time of realization.
Due to the reduction in corporate income
tax rates, resolved and meantime
enacted in Germany under the
tax reform, to a standard 25 percent,
the prior-year deferred tax rate had to
be clipped from 50 to 40 percent in
Germany. Deferred tax assets and liabilities
that reverse in future periods
were adjusted accordingly, to the
debit or credit of net income or equity,
depending on whether initially recognized
in net income or in reserves.
Deferred taxation rates outside of
Germany ranged between an unchanged
32.5 and 38 percent.
Minority interests Minority interests represent those equity as well as to Group net income.
Accruals
Accruals for pensions and similar obligations
are determined according to
the internationally accepted projected
unit credit (PUC) method, which is
predicated not only on expected future
pay and pension increases but
also other actuarial assumptions.
The actuarial gains and losses ensuing
from differences between actuarial
assumptions and actual trends
of the underlying parameters give rise
to a gap between the present value of
portions of a subsidiary’s net income
and equity which are allocable to
shares not held by Kolbenschmidt
Pierburg AG, whether directly, or indirectly
via other subsidiaries. Minority
interests are shown in separate lines,
in addition to debt and stockholders’
the defined benefit obligation (DBO)
and the pension liabilities accrued
in the balance sheet. Actuarial gains
and losses outside a 10-percent corridor
of the DBO are distributed over
the average residual service years of
employees. The fair market value of
any existing pension fund assets is
deducted from pension accruals.
Service cost is treated as personnel
expense while the interest portion of
pension provisions in the fiscal year
is shown within the net financial
result.
Minority interests in losses are offset
against the majority interests in the
Group’s equity and Group net income
unless a contractual obligation exists
for the minority shareholders to absorb
and offset such losses.
The remaining accruals according to
IAS 37 provide at balance sheet date
for all identifiable legal and constructive
commitments and obligations to
third parties if based on past transactions
or events and if their amount,
due date or maturity is uncertain. If
the probability of their utilization exceeds
50 percent, accruals are measured
at the best estimate of settlement
amount. Noncurrent accruals are
shown, if the effect of discounting is
significant, at the settlement amount
discounted as of balance sheet date.
Liabilities Pursuant to IAS 39, liabilities are capital leases are recognized at the
measured at amortized cost, which
as a rule equals their settlement or
repayment amounts. Liabilities under
Prepaid and deferred items Such items are shown to appropriately Public grants and subsidies for
recognize pro rata temporis (p.r.t.)
prepaid rents, interest, insurance
premiums, non-public investment
grants or allowances, etc.
present value of rents. Liabilities denominated
in any non-euro currency
are translated at the mean current rate.
capital expenditures are recognized
as deferred income in line with IAS 20.
Operating income and expenses Net sales (revenues) and other oper- Operating expenses are recognized
Derivative financial instruments
Within the Kolbenschmidt Pierburg
Group, financial derivatives are solely
used to hedge against currency and
interest rate risks from operations.
In the prior-year accounts as of Dec.
31, 2000, valuation units were regularly
created between an underlying
transaction and the offsetting hedge
provided that, if intended and viewed
at arm’s length, both the underlying
transaction and the hedge were interrelated
for one use and functional
purpose, with the result that gains
and losses from the underlying transactions
and the hedge would very
likely level. Where currency forwards
contrasted with an asset or liability
at balance sheet date, currency translation
was based on the hedged rate.
Where currency forwards referred to
cash inflows or outflows in foreign
currency, the derivative was not rec-
ating income are recognized upon performance
of the contract for goods/
services or upon passage of risk to
the customer.
ognized due to the offsetting effect
of the underlying transaction.
An accrual provided for impending
losses if a derivative was used to
hedge proposed currency transactions
and its market value was negative.
Future interest rate differences from
interest rate swaps were not recognized
due to the compensatory effect
of the underlying transaction. Option
premiums paid when contracting interest
rate or currency hedges, were
carried under sundry assets at the
lower of cost or market until the option
was either exercised or expired.
Upon the first-time application of IAS
39 Financial Instruments as from
January 1, 2001, a financial derivative
is initially recognized at settlement
date, which would normally lag just a
few days behind the trading date.
Principally, any changes in the fair
value of financial derivatives are
immediately recognized in net income
unless an effective hedge exists that
when caused or when the underlying
service, etc. is used.
satisfies the criteria of IAS 39. In this
case, the changes in the derivative’s
value would not impact on net income
until after the hedged underlying
transaction has fallen due or
been settled. If the derivative is a
cash flow hedge (CFH) and hence
used to effectively hedge expected
future cash flows, changes in the
financial derivative’s fair value are
recognized under the other reserves
only and not in net income.
Changes in the value of financial derivatives
used in fair value hedges
(FVHs) to effectively hedge the fair
value of recognized assets and liabilities
are posted to net income as
are any changes in the hedged assets
or liabilities (where appropriate, by
adjusting their book values), with the
result that the compensatory effects
are all reflected in the income statement.
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