Application of the following accounting pronouncements by the IASB is not yet mandatory and they have not yet been endorsed by the EU. They have also not been applied to date by the SKW Metal- lurgie Group, and the SKW Metallurgie Group believes that these will not have any material impact on the SKW Metallurgie Group’s consolidated financial statements:
t Annual improvements 2011 (various standards and interpretations) t Amendments to IFRS 1 (Government Loans)
t IFRS 9 (2010) (Financial Instruments)
t Amendments to IFRS 10, IFRS 12 and IAS 27 (Investment Companies)
The 2011 annual improvements encompass a large number of changes to various standards. The changes are to be applied for fiscal years beginning on or after January 1, 2013. The amendments affect the following standards:
t IFRS 1 First-time Application of International Financial Reporting Standards t IAS 1 Presentation of Financial Statements
t IAS 16 Property, Plant and Equipment t IAS 32 Financial Instruments: Presentation t IAS 34 Interim Reporting
IFRS 1 clarified that it is possible, under certain conditions, to apply IFRS 1 repeatedly, and that first-time applicants of IFRS may apply the regulations of IAS 23, Borrowing Costs, from the date of the transition to IFRS or from an earlier date according to IAS 23.28. IAS 1 demands that enterprises prepare a third balance sheet as of the start of the comparable period, if accounting and valuation methods are applied retroactively or if balance sheet items have been adjusted or reclassified retroac- tively. The changes to IAS 1 clarify that an obligation to prepare the third balance sheet only applies if the retroactive adjustments have a material impact on the information in the third balance sheet. In addition, it clarifies that no information has to be provided in the notes on the third balance sheet. The changes in IAS 16 clarify that replacement parts, replacement equipment and maintenance equipment are to be classified as property, plant and equipment if they meet the definition criteria for this. Otherwise they are to be treated as inventories. The changes to IAS 32 clarify that income taxes in connection with disbursements to holders of an equity instrument and in connection with the costs of an equity transaction are to be treated according to IAS 12. The change to IAS 34 brings this standard into line with IFRS 8, Business Segments. This clarifies that the disclosure of segment assets and liabilities in the interim report is only required if this is also part of regular reporting to the primary decision maker in the company, and that there have been major changes in this regard since the last published annual financial statements.
skw.–111 N o tes t o the st ateme N ts
The amendments to IFRS 1 (Government Loans) introduces a new exception to what is fundamen- tally retrospective application of the IFRS by first-time applicants. Accordingly, the regulation in IAS 20.10A applies. This states that government loans that are granted at an interest rate that is lower than the market rate must be carried according to the regulations of IAS 39 (or in future IFRS 9) and thus at their fair value, and prospectively for government loans with lower interest rates that are granted on or after the transition date. For government loans that already exist on the transition date, the valuation can thus be performed based on the previous accounting standards for the IFRS opening financial statements. Voluntary retrospective application is permitted, to the extent that information was already available on the fair values of loans granted earlier when these were carried in the financial statements for the first time.
The IASB published IFRS 9, Financial Instruments, in November 2009. This standard includes the first of three phases of the IASB project to replace the current IAS 39, Financial Instruments: Rec- ognition and Measurement. IFRS 9 changes the recognition and measurement requirements for fi- nancial assets, including various hybrid contracts. It uses a uniform approach of carrying a financial asset at amortized cost or fair value, which replaces the various regulations in IAS 39. The approach in IFRS 9 is based on how an enterprise manages its financial instruments (its business model) and the type of contractually agreed cash flows from financial assets. In addition, the new standard also requires an impairment method that is to be applied uniformly across the board, which replaces the various methods in IAS 39. IFRS 9, which was amended in October 2010, also includes regulations on the classification and valuation of financial liabilities and their derecognition. Application of the new standard is mandatory for fiscal years beginning on or after January 1, 2015; however, earlier ap- plication is permitted. The European Financial Reporting Advisory Group has already postponed the recommendation for endorsing IFRS in the EU in order to take more time for evaluating the results of the IASB project to improve accounting for financial instruments. However, a reliable estimate of the impact of application of IFRS 9 can only be made when a detailed analysis has been performed. In October 2012 the IAS published changes to IFRS 10, IFRS 12 and IAS 28 in “Investment Entities”, which relate to accounting for investment companies. The changes include a definition of invest- ment entities and as a rule they exclude such investment entities from the obligation to consolidate subsidiaries under IFRS 10; instead these are to be recognized in income at fair value. In addition, information must be provided in the notes for investment entities. The changes are to be applied for fiscal years beginning on or after January 1, 2014, earlier application is permitted. At present, the SKW Metallurgie Group does not currently believe that the changes are relevant to the SKW Metal- lurgie Group. skw.–112 tes t o the st ateme N ts
B.
GRoUP oF CoNsoLIDateD ComPaNIes
aND CoNsoLIDatIoN methoDs
SKW Stahl-Metallurgie Holding AG’s consolidated financial statements as of December 31, 2012 com- prise the annual financial statements of the top-level group company and the financial statements of the subsidiaries included in the group.
Subsidiaries are all companies for which the company has control of the financial and business policy, as a rule accompanied by voting rights of more than 50%. When assessing whether or not there is a controlling influence, if necessary the existence and impact of potential voting rights that can currently be exercised or converted are taken into account. As a rule, subsidiaries are included in the consolidated financial statements (full consolidation) from the date on which control is trans- ferred to the group. They are deconsolidated on the date on which control ends.
Subsidiaries’ capital is consolidated according to IAS 27 (consolidated and single entity financial statements) in conjunction with IFRS 3 (business combinations) by offsetting the carrying amount of the interest with the subsidiary’s newly valued equity on the date of acquisition (revaluation method). The acquisition of business operations is accounted for using the acquisition method. The compensation transferred during a business combination is to be measured at fair value. This is the total of the fair values on the date that the transferred assets are exchanged, the debts taken over from the former owners of the acquired company and the equity instruments issued by the group in exchange for control of the acquired company. As a rule, the costs associated with a business combination are to be recognized as expenses when these are incurred. Assets, debts and contingent liabilities identifiable within the scope of a company merger are measured at their respective fair values at the date of acquisition at the time of their initial consolidation, irrespective of the scope of the non-controlling interests.
Goodwill is the excess amount from the total of the compensation transferred, the amount of all non- controlling interests in the acquired company, the fair value of the equity interest previously held by the acquiring party in the acquired company and the balance of the amounts of acquired identifiable assets and the acquired debt on the date of the acquisition. In the event that, after this has been re- assessed, the proportion of the fair value of the acquired identifiable net assets attributable to the group is larger than the amount of the compensation transferred, the amount of the non-controlling interests in the acquired company and the fair value of the equity interest previously held by the ac- quiring parts in the acquired company (if present), the excess amount is to be recognized in income immediately as profit.
The earnings of the subsidiaries acquired or sold during the course of the year are carried or no longer carried on the consolidated income statement from the date of the start or end of the opportu- nity to exercise control.
There were no sales or acquisitions of companies in the SKW Metallurgie Group in fiscal year 2012. Intragroup transactions, balances and unrealized gains from transactions between group companies are eliminated. Unrealized losses are also eliminated, unless the transaction indicates impairment of the transferred asset.
skw.–113 N o tes t o the st ateme N ts
The portion of the consolidated equity and the consolidated annual earnings due to non-controlling interests is shown separately from the portions due to the shareholders of the parent company. The balance sheet dates of the companies included in consolidation are the same as that of the parent company.
The group of consolidated companies has not changed compared to December 31, 2011 and can be seen in Section E of these Notes.
associates
Associated companies are companies over which the group has a key influence but does not control; as a rule there it holds between 20% and 50% of voting rights. Investment in associates are equity- accounted and are initially carried at cost. The difference between the costs of the interests in associ- ated companies and the SKW Metallurgie Group’s interests in these companies’ net assets is initially allocated to adjustments from the measurement of the acquired net assets at fair value. The excess amount is goodwill. The goodwill which results from the acquisition of an associated company is included in the carrying amount of the associated company and is not subject to scheduled amor- tization, but rather the entire carrying amount of the associated company is tested for impairment. The group’s share of the profits and losses of associated companies is recorded from the date of the acquisition in the income statement, the share of changes to reserves is recorded under consolidated reserves. The accumulated changes after the acquisition are offset against the book value of the interest.
Jamipol Ltd. was included in the consolidated financial statements at equity. The foundation for this is the interim financial statements prepared as of the group’s balance sheet date.