OTROS CONSEJEROS EXTERNOS

Note 1 Group accounting policies Eitzen Bulk Shipping A/S is a public limited com- pany domiciled in Denmark. Eitzen Bulk Shipping A/S is a result of the merger between Damp- skibsselskabet Orion A/S and Shipholding Hold- ing A/S, both companies with Camillo Eitzen & Co ASA Group. The merger was approved on the shareholders meeting in Dampskibsselskabet Orion A/S and Shipholding Holding A/S, respec- tively, on 21 December 2009 in accordance with the merger plan on 20 November 2009. Dampskibsselskabet Orion A/S has in connec- tion with the merger taken over all assets and li- abilities of Shipholding Holding A/S. Dampskibs- selskabet Orion A/S has in the same connection changed its name to Eitzen Bulk Shipping A/S. Please refer to the section below in regard to the accounting policies for common control transactions.

The annual report for the period 1 January – 31 December 2009 comprises both the consoli- dated fi nancial statements of Eitzen Bulk Ship- ping A/S and its subsidiaries (the Group) and the separate parent company fi nancial statements. The annual report of Eitzen Bulk Shipping A/S for 2009 has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclo- sure requirements for annual reports of listed companies, see the OMX Nordic Exchange Co- penhagen A/S’ disclosure requirements for an- nual reports of listed enterprises and the statu- tory order on the adoption of IFRS by enterprises subject to the Danish Financial Statements Act issued pursuant to the Danish Financial State- ments Act.

Basis of preparation

The annual report has been prepared on the historical cost basis except all fi nancial assets and liabilities held for trading and all fi nancial assets that are classifi ed as available for sale. These fi nancial assets and liabilities have been measured at fair value. The carrying values of recognised assets and liabilities that are hedged items in fair value hedges and otherwise car- ried at cost are adjusted to record changes in the fair values attributable to the risks that are being hedged.

The accounting policies set out below have been used consistently in respect of the fi nancial year and the comparative fi gures.

The annual report has been presented in USD thousands (USD ´000), except when otherwise indicated.

Accounting standards effective in 2009 Eitzen Bulk Shipping has adopted all new or amended and revised accounting standards and interpretations (IFRSs´) endorsed by the EU ef- fective for the accounting period beginning on 1 January 2009. Based on an analysis made by Eitzen Bulk Shipping A/S, most of the IFRSs ef- fective for 2009 have no material impact or are not relevant to the Group. However, the follow- ing revised standard has a material impact on the presentation and disclosure of the consoli- dated fi nancial statements:

• IAS 1 (Revised), `Presentation of Financial Statements´. The revised standard separates owner and non-owner changes in the equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity. In addition, the standard introduces the state- ment of comprehensive income: It presents all items of recognised income and expense, either in one single statement, or in two link statements. The Group has elected to present two statements. Since the change in accounting policy only impacts presentation aspects, there is no impact on net profi t, eq- uity or earnings per share.

• IFRS 8 replaced IAS 14 Segment Reporting upon its effective date. The Group previously had one segment. After the merger the Group operates in two global business segment based on operator and shipholding activities within the dry bulk cargo industry.

• Amended IFRS 7’ Financial Instruments: Dis- closure’. This amendment concerns disclo- sure about fi nancial instruments and requires presentation of additional disclosures about fi nancial instruments that are recognized at fair value, including fair value hierarchy and further disclosures about liquidity risks. • ‘Improvements to International Financial

Reporting Standards 2008’, which has led to change in terminology and presentation, but does not affect recognition or measurement. Common control transactions

Common control transactions are accounted for using the pooling of interest method. The re- ceiving company of the net assets initially rec- ognizes the assets and liabilities transferred at their carrying amount. The result of operations

for the period in which the transfer occurs is presented as though the transfer had occurred at the beginning of the period. Financial state- ments and fi nancial information for prior years are restated to provide appropriate comparative information.

The fi gures for 2008 in regard to the con- solidated fi nancial statements of Eitzen Bulk Shipping A/S are prepared on the basis of the consolidation of the audited reports for the companies that constituted the dry cargo activi- ties within the Eitzen Group, i.e. Eitzen Bulk A/S, Eitzen Bulk Shipholding A/S, Sibulk (Singapore) Pte Ltd. as well as the audited report for Damp- skibsselskabet Orion A/S.

Basis of consolidation

The consolidated fi nancial statements com- prise the parent company Eitzen Bulk Shipping A/S and subsidiaries in which Eitzen Bulk Ship- ping A/S has control, i.e. the power to govern the fi nancial and operating policies so as to obtain benefi ts from its activities. Control is obtained when the Company directly or indirectly holds more than 50% of the voting rights in the sub- sidiary or which it, in some other way, controls. Enterprises over which the Group exercises sig- nifi cant infl uence, but which it does not control, are considered associates. Signifi cant infl uence is generally obtained by direct or indirect owner- ship or control of more than 20% of the voting rights but less than 50%.

When assessing whether Eitzen Bulk Shipping A/S exercises control or signifi cant infl uence, potential voting rights which are exercisable at the balance sheet date are taken into account. The consolidated fi nancial statements have been prepared as a consolidation of the par- ent company’s and the individual subsidiaries’ fi nancial statements prepared according to the Group accounting policies. On consolidation, intra-group income and expenses, sharehold- ings, intra-group balances and dividends, and realised and unrealised gains on intra-group transactions are eliminated. Unrealised gains on transactions with associates are eliminated in proportion to the Group’s ownership share of the enterprise. Unrealised losses are eliminated in the same way as unrealised gains to the ex- tent that impairment has not taken place. The accounting items of subsidiaries are in- cluded in full in the consolidated fi nancial

Notes to the Financial Statements

statements. Non-controlling interests’ share of the profi t/loss for the year and of the equity of subsidiaries which are not wholly owned are included in the Group’s profi t/loss and equity, respectively, but are disclosed separately. Foreign currency translation

For each of the reporting entities in the Group, a functional currency is determined. The func- tional currency is the currency used in the pri- mary fi nancial environment in which the report- ing entity operates. Transactions denominated in other currencies than the functional currency are foreign currency transactions.

On initial recognition, foreign currency transac- tions are translated to the functional currency at the exchange rates at the transaction date. Foreign exchange differences arising between the transaction date and at the date of payment are recognised in the income statement as fi - nancial income or fi nancial expenses.

Receivables and payables and other monetary items denominated in foreign currencies are translated to the functional currency at the exchange rates at the balance sheet date. The difference between the exchange rates at the balance sheet date and at the date at which the receivable or payable arose or was recognised in the latest annual report is recognised in the income statement as fi nancial income or fi nan- cial expenses.

In the consolidated fi nancial statements, the income statements of entities with another functional currency than USD are translated at the exchange rates at the transaction date and the balance sheet items are translated at the exchange rates at the balance sheet date. An average exchange rate for each month is used as the transaction date exchange rate to the extent that this does not signifi cantly distort the presentation of the underlying transactions. Foreign exchange differences arising on trans- lation of the opening balance of equity of such foreign operations at the exchange rates at the balance sheet date and on translation of the income statements from the exchange rates at the transaction date to the exchange rates at the balance sheet date are recognised in other comprehensive income and presented in equity under a separate translation reserve.

Derivative fi nancial instruments and hedging Eitzen Bulk Shipping uses derivative fi nancial in- struments such as forward currency contracts,

bunker hedge and FFA’s to hedge part of risks. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivate contract is entered into and are subse- quently re-measured at fair value. Derivates are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivates that do not qualify for hedge accounting are taken directly to profi t or loss. The fair value of forward currency contracts is calculated by reference to current forward ex- change rates for contracts with similar maturity profi les. The fair value of bunker and the fair value of FFA’s are determined by reference to market values for similar instruments. For the purpose of accounting, hedges are classifi ed as: • fair value hedges when hedging the exposure to change in fair value of a recognised asset or liability or an unrecognised fi rm commit- ment (except for foreign currency risk); or • cash fl ow hedge when hedging exposure to

variability in cash fl ow that is either attribut- able to a particular risk associated with a rec- ognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised fi rm commitment. At time of entering into a hedge relationship, Ei- tzen Bulk Shipping designates and documents the hedge relationship to which Eitzen Bulk Shipping wishes to apply for hedge account- ing and the risk management objectives and strategy for undertaking the hedge. The docu- mentation includes identifi cation of the hedging instrument, the hedges item or transaction, the nature of the risk being hedged and how the en- tity will assess the hedging instrument’s effec- tiveness in offsetting the exposure to changes in the hedged item’s fair value or cash fl ows at- tributable to the hedged risk, Such hedges are expected to be highly effective in achieving off- setting changes in fair value or cash fl ows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the fi nancial reporting periods for which they were designated.

The criteria for classifying a derivate as a hedg- ing instrument are as follows:

• the hedge is expected to be effective in achieving offsetting changes in fair value or cash fl ows attributable to the hedged item — a hedging effi ciency within the range of

80—125 per cent over the life of the hedging relationship is expected,

• the effectiveness of the hedge can be reliably measured,

• there is adequate documentation when the hedge is entered into that the hedge is ex- pected to be effective,

• for cash fl ow hedges of forecast transaction, the transaction must be highly probable, and • the hedge is evaluated regularly and has

proven to be effective.

Hedges which meet the criterias for hedge ac- counting are accounted for as follows:

Fair value hedges

Derivatives designated as hedging instruments are measured at fair value and changes in fair value are recognised in the income statement. Correspondingly, a change in the fair value of the hedged item attributable to the hedged risk is recognised in the income statement. The fair value hedge accounting is discontinued if the hedging instrument expires or is sold, ter- minated or exercised, or the hedge no longer meets the criteria far hedge accounting stated above.

Cash fl ow hedges

Changes in the fair value of a hedging instru- ment that meet the criteria for cash fl ow hedge accounting are recognised in comprehensive income. The ineffective part of the hedging in- strument is recognised directly in the income statement. Gains and losses that are recog- nised in comprehensive income are taken to the income statement in the same period or periods as the cash fl ow which comprises the hedged item is recognised in the income statement. The principle also applies if the hedged forecasted transaction results in an asset or liability being recognised in the balance sheet. If the cash fl ow hedge no longer meets the criteria for hedge ac- counting, hedge accounting is discontinued. The cumulative gain or loss of the hedging instru- ment recognised in comprehensive income re- mains separately recognised in comprehensive income until the forecast transaction occurs. If the cash fl ow hedged transaction is no longer expected to occur, any previously accumulated gain or loss of the hedging instrument that has been recognised in comprehensive income will be carried to profi t or loss. Derivates not ac- counted for as hedging instruments are clas- sifi ed as fi nancial assets at fair value through profi t or loss and measured at fair value.