 |
Print
page |
||||||||||
| Accounting Policies General The annual report for 2003 for J. Lauritzen A/S has been prepared in compliance with the Danish Financial Statements Act for Class C (large) companies and applicable Danish accounting standards. Changes in accounting policy Changes to the Danish Financial Statements Act allow companies to present their accounts in their functional currency. Transactions on the international shipping markets, in which JL operates, utilize the US dollar as the functional currency, therefore revenues and expenses are denominated in USD. Using DKK as the reporting currency gave a net result for 2003 of DKK 443.7 million compared to a deficit of DKK (156) million in 2002, Equity at year-end 2003 was DKK 1,578 million (DKK 1,018 million at year-end 2002). Comparative figures for 2002 including main and key figures and notes have been restated in line with this change. A further specification of the effect on equity of the change in reporting currency is stated on page 38. Recognition and measurement Revenue is recognised in the income statement as earned, including adjustments for the value of financial assets and liabilities which are measured at fair value or amortised cost. All costs incurred in generating earnings for the period, including depreciation, amortisation and impairment are recognised in the income statement. Assets are recognised in the balance sheet when it is probable that future economic benefit will flow to JL, and the asset can be measured reliably. Liabilities are recognised in the balance sheet when it is probable that there will be an outflow of future economic benefit from JL, and that the liability can be measured reliably. If it cannot, the liability is recognised in contingent liabilities. Upon initial recognition, assets and liabilities are measured at cost, and are subsequently measured as described in accounting policies for the balance sheet. Certain assets and liabilities are measured at amortised cost implying the recognition of a constant effective interest rate to maturity. Amortised cost is calculated as original cost less repayments of principal, plus or minus the accumulated amortisation of the difference between the cost and the nominal amount. Recognition and measurement take into account any predictable risks and losses occurring after balance sheet date and prior to the preparation of the annual report, which confirm or invalidate the situation and conditions existing at balance sheet date. Basis of consolidation The Annual Report comprises the Parent Company, J. Lauritzen A/S, and subsidiaries in which the Parent Company directly or indirectly holds more than 50% of the voting rights or in some other way has a controlling influence (collectively termed JL). Enterprises in which JL holds between 20% and 50% of the votes and exercises significant influence but not control are classified as associates. The Consolidated Financial Statements are prepared on the basis of the financial statements of the Parent Company and its subsidiaries, by combining items of a uniform nature and eliminating inter-company transactions and balances, and are based on financial statements prepared in compliance with JL’s accounting policy. Company acquisitions, disposals and those formed during the year are included in the income statement during the period of JL’s ownership. Comparative figures are not adjusted for new company acquisitions, disposals or liquidations. On acquisition of companies, the purchase method is applied, according to which identifiable assets and liabilities acquired are measured at their fair values on acquisition date. Provision is made for costs relating to plans announced and adopted to restructure the acquisition. Goodwill is defined as a positive difference between the purchase price and the fair value of the acquired and identified assets and liabilities, including restructuring provisions, and is recognised in the balance sheet as an intangible asset and is amortized on a systematic basis in the income statement based on an individual assessment of its service life, though not exceeding ten years. Negative goodwill, where the value of the acquired and identified assets and liabilities exceeds the cost of acquisition, is recognised in the balance sheet under accruals, and transferred to the income statement as unfavourable developments occur. Negative goodwill not related to any anticipated adverse development is recognised in the balance sheet at acquisition date and subsequently recognised in the income statement over the average service lives of non-monetary assets. Goodwill and negative goodwill from acquired companies may be adjusted until the end of the year following the year of acquisition. Gains or losses on the disposal or liquidation of subsidiaries or associates are stated as the difference between the proceeds from disposal or liquidation and the book value of the net assets at the date of disposal or liquidation. This includes any unamortized goodwill as well as any anticipated disposal or liquidation costs. Minority interests Subsidiaries’ accounts are fully recognised in the Consolidated Financial Statements. Minority interests’ proportionate share of the subsidiaries’ result and equity are recognised separately in the income statement and balance sheet. Translation of foreign currencies Transactions denominated in foreign currencies are translated at the exchange rate of the date when initially recognised. Gains and losses arising between the exchange rate of the transaction date and that of the settlement date are recognised in the income statement under financial items. Receivables, payables and other monetary items in foreign currencies that have not been settled at balance sheet date are translated at the exchange rates then prevailing. Any differences between the exchange rates at balance sheet date and transaction date rates are recognised in the income statement under financial items. When consolidating foreign subsidiaries or associated companies that are independent entities, the income statement is translated at average exchange rates. Balance sheet items are translated at the exchange rates at balance sheet date. Foreign exchange differences arising on the translation of the opening equity of foreign subsidiaries at the exchange rates at balance sheet date, and on translation of the income statements from average exchange rates to the exchange rates at balance sheet date, are recognised under equity. Exchange rate adjustments on inter-company accounts with independent foreign subsidiaries regarded as part of the total investment in the subsidiary are recognised under equity. Similarly, exchange rate adjustments on loans and other financial instruments entered into in order to hedge investments in foreign subsidiaries are recognised under equity. On translation of the accounts of foreign subsidiaries that are integrated entities, monetary items are translated at the exchange rates at balance sheet date. Non-monetary items are translated at the rate acquisition date or at the date of a subsequent revaluation or write-down of the asset. Income statement items are translated at transaction date exchange rates except for items deriving from non-monetary items that are recognised at the rates stated above. Derivative financial instruments Derivatives are recognised in the balance sheet, initially at cost and thereafter at fair value. Positive and negative fair values of derivatives are recognised under other receivables and payables respectively. Changes in the fair value of derivatives designated as, and qualifying for, recognition as a hedge for the fair value of a recognised asset or liability are recognised in the income statement together with changes in the value of the hedged asset or liability. Changes in the fair value of derivatives designated as, and qualifying for, recognition as a hedge of future assets or liabilities are recognised directly in equity. Income and expenses relating to such hedging transactions are transferred from equity on realisation of the hedged asset or liability and are recognised in the same line item as the hedged asset or liability. For long-term loans raised in foreign currencies and used for hedging JL’s future currency income, exchange rate adjustments arising from the difference between the original rate and the balance sheet rate are recognised under equity. Exchange rate adjustments are recognised in the income statement when instalments are paid. Derivatives used to hedge net investments in independent foreign subsidiaries or associated companies are recognised under equity. For derivatives that do not qualify for hedge accounting, changes in fair value are recognised in the income statement as they occur. Segment information Segment information on key business areas is disclosed in line with the JL’s internal financial management, risks and accounting policies. JL has only one geographical segment because JL considers the global market as a whole and individual vessels are not limited to specific parts of the world. Fixed assets in a segment comprise those that are directly attributable to the segment’s operations, including intangible fixed assets, tangible fixed assets and participating interests in associated companies. Current assets in a segment comprise those that are directly employed in the segment’s operations, including stocks, trade and other receivables, prepayments and liquid assets. Liabilities in a segment comprise those that are directly employed in the segment’s operations, including trade payables, accruals and other liabilities. Income statement Revenues Revenues comprise freight and demurrage revenues from the vessels, and land-based operations. Revenues and operating costs for pools operated by the company are included in the income statement. Operating cost of vessels Operating cost of vessels includes maintenance and repairs, insurance of hulls and machinery, consumption of lubricants and supplies, etc. Other operating costs Other operating costs include bunker oil, port costs, agent’s commissions and other voyage related costs. Results of participating interests in subsidiaries and associated companies A proportionate share of the pre-tax results in the subsidiaries, after full elimination of inter-company profits/losses and deductions for amortised goodwill, is recognised in the Parent Company’s income statement. The share of the subsidiaries’ tax on profits and extraordinary items is recognised under tax on ordinary result and under extraordinary items respectively. A proportionate share of the pre-tax results in the associated companies, after proportional elimination of inter-company profits/losses and deductions for amortised goodwill, are recognised in the Parent Company’s income statement and in the consolidated income statement of JL. The share of the associated companies’ tax on profits and extraordinary items is recognised under tax on ordinary result and under extraordinary items respectively. Financial items Financial items include interest income and expense, realised and unrealised exchange gains and losses, financial expenses in respect of finance leases, adjustments to the value of securities and other financial income and expenses. Tax on the result for the year Corporation tax for the year comprises the actual tax liability for the year and adjustments for deferred tax. The proportion of corporation tax for the year attributable to the year’s result is recognised in the income statement and the element of corporation tax attributable to items under equity is recognised under equity. J. Lauritzen A/S is jointly taxed with Vesterhavet A/S and various Danish and foreign subsidiaries. Balance sheet Intangible fixed assets Goodwill Goodwill is amortized on a straight line basis over its estimated service life, although not exceeding ten years. Goodwill is subject to a regular impairment test. Should it be determined that a significant reduction in the value of the asset has occurred, the asset is written down to the lower value. Patents and Rights Patents and rights are measured at cost less accumulated amortisation. Patents are amortised over the remaining term of the patent although not exceeding ten years. Tangible fixed assets Vessels Vessels are measured at cost less accumulated depreciation and accumulated impairment losses. Rebuilding of vessels is capitalised if the rebuilding is intended to extend the service life and/or improve its earnings potential. Rebuilding is depreciated over the residual depreciation period. Costs of other improvements and maintenance of vessels, including dry-docking costs associated with routine maintenance, are recognised in the income statement as incurred. Vessels under construction are measured at cost incurred until the time the vessel is taken into service including interest expenses on financing during the construction period. All further financing costs are recognised in the income statement. Vessels are depreciated on the straight line method to a residual value deemed to be 10% of the purchase price. Impairment tests of vessels are carried out annually on an asset by asset basis. Vessels are written down to recoverable value if this is significantly lower than the book value. When a vessel has been written down to its residual value, it continues to be amortised on a straight line method based on an assessment of the residual service life and a conservative estimate for scrap value. Financially leased vessels For financial leasing contracts, the purchase price is valued at the lower of the fair value and the net present value of the future leasing payments. When calculating net present value, the interest rate applies as the discount rate. Land Land is measured at cost. Buildings Buildings are measured at purchase price less accumulated depreciation. Machinery, tools and equipment Machinery, tools and equipment are measured at purchase price less accumulated depreciation. Depreciation Straight-line depreciation is applied as follows:
Gains and losses on the disposal of tangible assets are calculated as the difference between the sales price less cost of sales and the net book value at the time of sale. Gains and losses on the disposal of machinery and equipment are recognised in the income statement under “other sales and administrative costs”. Gains and losses on the disposal of vessels are recognised in the income statement as a separate line item. Financial fixed assets Participating interests in subsidiary and associated companies are recognised in the Annual Report under the equity method. Investments in subsidiary and associated companies are recognised in the balance sheet at a proportionate share of the Company’s net asset values calculated in accordance with JL’s accounting policies, and adjusted for unamortized goodwill, negative goodwill not recognised as income and unrealised inter-company profits and losses. Subsidiaries and associates with a negative equity value are measured at USD 0 (nil), and any receivables due from these companies are written down by the parent’s share of the negative equity value insofar as they are deemed irrecoverable. Should the negative equity value exceed the receivables, the residual amount is recognised under provisions insofar as the Parent Company has a legal or actual obligation to cover the Company’s negative balance. Net revaluations of investments in subsidiary and associated companies are transferred under equity to the net revaluation reserve according to the equity method insofar as the equity value exceeds the acquisition price. Stocks Bunker oil is measured at purchase price according to the FIFO principle. Major spare parts purchased and stored ashore for subsequent use are measured at purchase price less individually assessed write-down. Other stocks are recognised at purchase price. Receivables Receivables are recognised at amortised cost. Provisions for bad debts are determined on the basis of an individual assessment of each receivable. Prepayments Prepayments recognised under assets include payments relating to costs in subsequent periods after the balance sheet date. Securities Securities are recognised at fair value, which for listed securities is the market price on balance sheet date. Equity Proposed dividend is recognised as a separate item under equity until adopted at the Annual General Meeting, when it is recognised as a liability. Corporation tax Corporation tax payable and receivable is recognised in the balance sheet as tax calculated on the taxable income for the year, adjusted for tax on previous year’s taxable income. Deferred tax is measured according to the balance sheet liability method as all temporary differences between the book value of the assets and liabilities and their value for taxation purposes. However, deferred tax on temporary differences concerning goodwill amortisation, where not deductible for tax purposes, is not included. Other items where a temporary difference arose at the time of acquisition without affecting results or taxable income, are not included. Where alternative tax rules can be applied when calculating tax values, deferred tax is assessed on the basis of the projected use of the asset or settlement of the liability respectively. Deferred tax assets, including the tax value of tax losses carried forward, are recognised at the value at which they are expected to be employed, either by offsetting them against tax on future income or on deferred tax liabilities within the same legal taxation unit and jurisdiction. Financial liabilities Mortgage debt and debt to credit institutions is recognised at the draw down date as the proceeds received less any transaction costs incurred. Subsequently, financial liability is measured at amortised cost equivalent to the net present value using the internal rate of return, such that the difference between the proceeds and the nominal value is recognised in the income statement over the lifetime of the loan. Financial liabilities also include lease obligations on finance leases. Other liabilities comprising of trade payables and other amounts payable are measured at amortised cost. Accruals Accruals include any negative goodwill as described under consolidation policy above, and payments received relating to income in periods after balance sheet date. Cash flow statement The cash flow statement has been prepared according to the indirect method based on the consolidated accounts, and shows the cash flows from operating, investing and financing activities for the year. Cash flows from operating activities are calculated as JL’s share of the results for the year adjusted for non-cash operational items, changes in working capital and corporation tax payments. Cash flows from investment activities cover payments related to acquisitions and disposals of companies and activities and of intangible, tangible and financial fixed assets. Cash flows from financing activities comprise changes in the size and mix of JL’s share capital including related costs, raising and re-payment of interest-bearing debt, plus payment of dividends to shareholders. Liquid assets include bank deposits and short term deposits that can be freely exchanged into cash funds and where there is insignificant risk of value fluctuations, less short term bank loans. |