6. Changes in disclosure
The consolidated income statement shows an additional separate item “other financial result” within the scope of the financial result. This additional item contains the net result from financial assets designated as at fair value through profit or loss as well as those classified as held for trading. In the prior year, this result was included in the item interest and similar income.
On the balance sheet, the deferred items that were individually shown on the prior year’s balance sheet are now included in “IV. Other receivables and assets” and “V. Other current liabilities”.
7. Intangible assets
Purchased intangible assets are recognized at cost and – with the exception of goodwill – are subject to regular straightline amortization, their useful lives ranging between 4 and 15 years. Expenses on research incurred upon generation of intangible assets are immediately recognized as an expense. The same applies as regards development expenses because research and development are iteratively linked and reliable severability therefore does not exist. Sustained impairments are taken into account by extraordinary amortization.
Goodwill – including that from capital consolidation – is subjected to an annual impairment test in accordance with IFRS 3 and IAS 36 and 38. As in prior years, the impairment test per December 31, 2008 again showed that goodwill recognized is not impaired.
For the purpose of the impairment tests, the goodwill’s carrying amounts were assigned to the respective cash generating unit (CGU) “wafer-production”.
Prior to and, for lack of devaluation, also after the impairment test, the carrying amount of the goodwill assigned to the CGU “wafer production” amounted or amounts to k€ 29,587 (prior year: k€ 29,587).
Recoverable amounts were assessed as fair value less cost to sell. Determination was carried out via discounted cash flow procedures. Cash flow forecasts based on the most up-to-date planning approved by management were used for determining the recoverable amount. The forecasts, in turn, were based on the basic assumptions stated below. Basic assumptions are those that, if subjected to change, make for the highest level of sensitivity as regards the recoverable amount of the CGU.
With regard to the CGU “wafer production”, the forecasts are based on the following basic assumptions:
- Prices for raw materials (silicon) decreasing in the short and medium term; basis of this assumption are the long-term contracts concluded with silicon manufacturers.
- Increase of sales volume to at least 1,000 MW in 2011; basis of this assumption is the current expansion of capacities at the German and US locations as well as the market expectations and supply contracts already in existence.
- Annual decrease of the sales’ market prices in a high one-digit percentage range; basis of this assumption are relevant third party market surveys.
Cash flow forecasts for the CGU “wafer production” were derived from the company’s detailed budgeting for a five-year period. For the period beyond that, an extrapolation was performed on the basis of the last detailed forecast year. In doing so, a growth rate of 2.5% (prior year: 3%) was assumed in accordance with growth expectations for SOLARWORLD AG from long-term external surveys.
For determining the recoverable amount, the future cash flows of the CGU “wafer production” were discounted using a risk adequate discounting rate after taxes of some 9.4 % (prior year: 9.3%). External analysts of SOLARWORLD AG corroborate this interest rate.
8. Property, plant and equipment
Property, plant and equipment are measured at cost less regular physical depreciation. Cost comprises all individual expenses directly attributable to the manufacturing process as well as appropriate proportions of the necessary cost of materials and manufacturing overhead. In addition, cost includes depreciation caused by manufacturing and the manufacturing-related pro-rata costs for company retirement benefit plans as well as the voluntary social benefits of the company. Administration costs are considered to the extent to which they can be attributed to manufacturing. Cost also includes – in addition to the purchase price after reduction of discounts, rebates and cash discounts – all directly attributable costs incurred to bring the asset to a location and condition necessary for it to be capable of operating in the manner intended by management. Borrowing expenses are not capitalized.
With regard to own work capitalized in this connection, we refer to item 24.
Useful lives between 15 and 45 years are used as a basis for buildings while buildings and fixtures on leasehold land are depreciated in accordance with the terms of the respective lease agreements or a lesser useful life. Technical equipment and machinery is predominantly assessed with useful lives of up to 10 years. Factory and office equipment is depreciated over a period of 3 to 5 years if subjected to a common level of wear and tear.
Leased property, plant and equipment subject to economic ownership, i.e. cases in which the lessee basically carries all risks and rewards connected with the leased object, are, in accordance with IAS 17, recognized at market value to the extent to which the present value of the lease payments does not turn out to be lower. Depreciation expenses and useful lives equal those of comparable acquired assets.
In accordance with IAS 36, intangible assets and property, plant and equipment are subject to extraordinary depreciation per balance sheet date if impairment is indicated and if the then performed impairment test shows that the recoverable amount of the asset fell below the carrying amount. Irrespective of such indications, an impairment test is performed annually as regards assets assigned to a goodwill-bearing CGU. Insofar, we refer to item 7 above. No indications for impairment of the other essential assets arose in the course of the business year.
9. Investments measured at equity
Investments in other companies accounted for using the equity method are recognized on the balance sheet at cost in consideration of changes that occurred after the acquisition date regarding the Group’s participation in the investee’s equity, of the hidden reserves and burdens recognized at acquisition as well as of the unrealized proportionate intercompany results from transactions to the investee. The goodwill connected with the investment is included in the carrying amount of the investment and is subject to neither regular amortization nor separate impairment tests.
The consolidated income statement contains the Group’s share in the profit or loss of the investee, the effects of the development of the disclosed hidden reserves and burdens included. This concerns profit allocable to the investor and, thus, profit after tax and minority interests in the investee’s subsidiaries. The Group recognizes any changes recognized directly in the investee’s equity to the extent of its share and, if applicable, shows this in the scope of the change in equity statement. Unrealized intercompany results from transactions of the investee to the Group are eliminated in accordance with the latter’s share in the investee.
The financial statements of the associate companies are prepared as per the same balance sheet date as those of the parent. To the extent to which it is necessary, adjustments are made to conform the associates’ accounting policies to those of the investor.
After application of the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with respect to the Group’s investment. As per each balance sheet date, the Group determines whether there is any evidence indicating that the share in an associate could be impaired. If this is the case, the difference between the recoverable amount of the share in the associate and the carrying amount of the share is recognized in profit or loss.
10. Inventories
Inventories include raw materials and supplies, work in process and finished goods, merchandise and prepayments for inventories. Purchased inventories are recognized at acquisition cost that, depending on the type of inventory, is determined either on the basis of average costs or in accordance with the first-in-first-out (FiFo) method. Inventories of the Group’s own making are recognized at production cost. In addition to the individual costs, cost includes adequate proportions of the necessary cost of materials and manufacturing overhead based on regular capacity utilization of the production facilities. Cost also includes depreciation caused by manufacturing which can be directly allocated to the manufacturing process and, to the extent to that they are manufacturing-related, pro-rata expenses for company retirement benefit plans and voluntary social benefits. Administration costs are taken into account to the extent to that they concern manufacturing. Borrowing costs are not taken into account.
Measurement per balance sheet date occurs at the respective lower amount of cost on the one hand side and net realizable value on the other. The latter is the estimated sales proceed of the final good realizable in the normal course of business less estimated costs until completion of the good as well as estimated necessary distribution costs.
Finished goods and merchandise are disclosed as one line item on the balance sheet due to the prevailing manufacturing circumstances in both company and industry.
Some of the prepayments recognized in inventories were paid in US dollar. Measurement was carried out at historic rate as per payment date because the prepayments are no monetary items in accordance with IAS 21.16. Though these prepayments are stipulated to be non-interest bearing, the circumstances, however, imply that the respective agreements contain a financing component, and therefore an implicit or matched maturity interest rate is compounded.
11. Trade receivables
Trade receivables are accounted for at nominal value. Should doubts exist with regard to the collectability of the debt, the receivables are recognized at lower realizable value. In part, allowances are made using a contra account. Receivables stated in foreign currencies are accounted for at an average rate of bid rate and asked price per balance sheet date. The decision whether an allowance is made via contra account or by directly reducing the carrying amount depends on the probability of the expected loss.
Receivables from construction contracts were accounted for in accordance with the percentage-of-completion-method as set forth by IAS 11.
We refer to our statements in item 22 (revenue and expense recognition).
12. Other receivables and assets
As a basic principle, other receivables and assets are accounted for at nominal value. Identifiable individual risks and general credit risks are taken into consideration by making corresponding value adjustments.
13. Other financial assets
Other financial assets mainly include securities. These are categorized either as financial assets “measured at fair value through profit or loss”, “held-to-maturity investments”, “financial assets available for sale” or “loans and receivables”. Upon initial recognition, they are measured at fair value plus transaction costs. This does not, however, apply to financial assets categorized as “measured at fair value through profit or loss” as these are initially recognized at fair value devoid of transaction costs.
As per balance sheet date, no securities categorized as “held-to-maturity investments” exist.
Securities are “measured at fair value through profit or loss” if they are either designated as such or “held for trading”.
Securities are categorized as “held for trading” if they were acquired with the intention to sell them in the short term.
They are designated as “at fair value through profit or loss” if they are part of a portfolio that is evaluated and managed on the basis of fair values. Acquisition and sale of securities take place with regard to revenue-optimized liquidity management and are, for the most part, centrally managed by SOLARWORLD AG.
Financial assets “at fair value through profit or loss” are recognized at fair value. Each profit or loss resulting from measurement is recognized with effect on income. The recognized net gain or loss also includes possible dividends and interest of the financial asset.
Securities categorized as “financial assets available for sale” are recognized at fair value. Any profit or loss resulting from the measurement is recognized in the scope of the IAS 39 reserve, thereby not affecting profit or loss.
As a general rule, fair values recognized correspond with the market prices of the financial assets. Should these figures be unavailable, they are calculated in application of measurement methods based on discounted cash flow analyses and observable current market parameters. If corresponding market parameters are unavailable, fair values are estimated in consideration of indicative evaluations and other information available.
Securities categorized as “loans and receivables” are measured in accordance with the effective interest method at amortized cost less possible impairments.
In consideration of IFRIC 14 and IAS 19, SOLARWORLD AG capitalized liability insurances in other financial assets. These insurances serve as insolvency insurance with regard to early retirement obligations. Recognition is based on the insurance company’s statements regarding the asset value and conducted in the amount in that the insurance value exceeds the amount of the early retirement obligations (plan asset surplus).
14. Liquid funds
Liquid funds include cash and cash equivalents in the form of cash accounts held and current investments made with banks that fall due within three months when acquired. They are categorized as “loans and receivables” and measured at amortized cost less possible impairments in accordance with the effective interest method.
15. Assets and liabilities of assets held for sale and discontinued operations
Individual noncurrent assets, asset groups or assets of discontinued operations are recognized as “assets held for sale” if their carrying amounts are largely realized via sales transactions as opposed to via continued usage and if, additionally, they meet the criteria set forth in IFRS 5. Regular depreciation or amortization on these assets ceases. Impairments are only recognized if the fair value less costs to sell is lower than the carrying amount. Any impairment previously recognized needs to be reversed if the fair value less costs to sell is increased later on. The addition is limited to the impairments previously recognized for the respective assets.
The item “liabilities of assets held for sale” includes liabilities that are part of a discontinued operation.
Expenses and income from discontinued operations as well as gains and losses from their measurement at fair value less costs to sell are disclosed as result of discontinued operations on the face of the income statement. Gains and losses from the sale of discontinued operations are also recognized in this line item.
16. Financial liabilities
At first-time recognition, financial liabilities are measured at fair value. The transaction costs directly attributable to the acquisition are also recognized with regard to all liabilities that are, subsequently, not measured at fair value through profit or loss.
Trade liabilities and other original financial liabilities are measured at amortized cost in accordance with the effective interest method.
Upon first-time recognition, financial guarantees issued by the Group are recognized at fair value less transaction costs directly connected with issuing the guarantee. Subsequently, the liability is measured at the best estimate of the expenses required for meeting the current obligation per balance sheet date or at the higher recognized amount less accumulated amortization.
17. Derivative financial instruments and hedging
Financial derivatives not included in an effective hedging relationship in terms of IAS 39 are categorized as “held for trading” and are, thus, measured at fair value through profit or loss.
SOLARWORLD Group utilizes derivatives for hedging interest rate risks and changes in foreign currency exchange rates resulting from operating activities, financial transactions and investments.
Upon first-time recognition and subsequent measurement, derivatives are measured at fair value. The recognized fair values of derivative financial instruments for which there is an active market correspond with the market price. Derivatives for which no active market exists are measured in application of accepted measurement models on the basis of discounted cash flow analyses and by reverting to current market parameters.
SOLARWORLD Group applies hedge accounting in accordance with IAS 39 for cash flow hedges.
The decisive factor for recognition of changes in fair value – recognition on the balance sheet through profit or loss or recognition in equity not affecting profit and loss – is whether or not the derivative is included in an effective hedging relationship in accordance with IAS 39. If hedge accounting is not applied, changes of the derivatives’ fair values are immediately recognized through profit or loss. If, however, an effective hedge relationship in terms of IAS 39 exists, the hedging relation as such is accounted for.
At inception of the hedging relation, the relation between hedged item and hedging instrument is documented including risk management objectives. In addition, both at inception and in the course of the hedge, documentation is carried out continuously as to whether the designated hedging instrument is highly effective with regard to compensation of cash flow changes in the hedged item.
The effective part of the change in fair value of a derivative or a non-derivative financial instrument designated as a hedging instrument is recognized in equity. Profit or loss falling upon the ineffective part is immediately recognized through profit or loss in either “other operating income” or “other operating expenses”.
Amounts recognized in equity are transferred to the income statement in that period in which the hedged item becomes effective through profit or loss. Recognition on the income statement occurs within the same item in which the hedged item is recognized. If, however, a hedged forecast transaction leads to the recognition of a non-financial asset or a non-financial liability, the profits and losses previously recognized in equity are derecognized and taken into consideration at initial determination of cost of the asset or liability.
Hedge accounting is discontinued if the hedging relationship is revoked, the hedging instrument expires or is sold, terminated or exercised or is no longer appropriate for hedging purposes. All profits or losses recognized in equity at this time remain in equity and are only accounted for through profit or loss once the forecast transaction is also recognized on the income statement. If the transaction is no longer expected to occur, the entire profit recognized in equity is immediately transferred to recognition on the income statement.
18. Accrued investment grants
Investment grants accounted for are accrued in application of IAS 20 and released to income over the course of the useful lives of the respective assets. Thus, the item is allocated to the periods of useful lives of the subsidized property, plant and equipment, and gradually increases future business years’ pre-tax income. This increase in income occurs alongside amortization and depreciation expenses of corresponding amounts, which are, therefore, neutralized upon balancing. In addition, tax effects will arise whereas income- increasing reversals of the accrued investment grants occur income tax exempt to the extent to which they result from tax-exempt investment grants.
Income from investment tax credits also falls into the application of IAS 20. Claims for tax credits are recognized if there is reasonable assurance that the material requirements for receipt are met and they are granted. The claims are measured at present value.
19. Retirement benefits
Group retirement benefits predominantly occur via defined contribution plans. The company pays contributions into a state or private pension fund on the basis of statutory or contractual obligations or on a voluntary basis and, once the contributions are paid, has no further benefit obligations. The annual contributions are recognized as personnel expenses.
A defined benefit plan exists in one case. Pension provisions are measured in accordance with the actuarial projected unit credit method as required by IAS 19 for defined benefit plans. Actuarial profits and losses are recognized as income or expense if the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceed 10 % of the present value of the defined benefit obligation at that date.
The interest proportion included in the pension expenses is recognized in the financial result.
20. Other provisions
Other provisions are recognized to the extent to which an obligation to third parties exists that will probably make for a future outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the best estimate of the extent of the obligation. Provisions for obligations that will probably not make for an outflow of resources in the year following the reporting year are recognized at present value of the expected outflow of resources.
If a provision cannot be set up because some criteria is not met but the possibility of an outflow of resources embodying economic benefits is all but remote, the respective obligations are recognized as contingent liabilities.
21. Other liabilities
Accrued liabilities included in the balance sheet item “other liabilities” are recognized for services and goods received that do not yet meet the requirements for payment. With regard to these liabilities, future outflow of resources is, on the merits, certain and is merely subject to minor uncertainties as regards the amount. Measurement is conducted at best estimate of the expenditure required.
A proportion of the customer advances recognized in other liabilities is denominated in US dollar. As the customer advances are no monetary items in terms of IAS 21.16, they were recognized at historic exchange rates valid at the date of collection. Though these customer advances are stipulated to be non-interest bearing, the circumstances, however, imply that the respective long-term agreements contain a financing component, and therefore a compounding was conducted at matched maturity or implicit interest rate.
22. Revenue and expense recognition
Revenue from the sale of goods or products is recognized at the time the significant risks and rewards are transferred if – as commonly true – the other requirements (no continued involvement, reliable estimation of the amount of revenue and probability of inflow) are also met.
Revenue from project business is recognized in accordance with the percentage of completion method set forth by IAS 11. Under this method, a pro-rata profit realization is recognized by reference to the state of completion if the assessment of the state of completion, total costs and total revenue of the respective contract can be reliably estimated in terms of IAS 11. The state of completion is assessed in accordance with the cost-to-cost method pursuant to IAS 11.30a. If the stated requirements are met, the overall contract revenue is recognized on a pro-rata basis in compliance with the state of completion. Contract expenses include the costs directly attributable to the contract and a proportion of overhead. Borrowing expenses are not recognized.
Grants related to expenses are recognized on an accrual basis through profit corresponding to the occurence of the respective expenses.
Operating expenses are recognized when goods and services are received or at the time of their occurrence respectively. Provisions for warranties are set up upon realization of the corresponding revenue. Interest income and expenses are recognized on an accrual basis.
