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Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
obligations may be small. Assessment of fair value and likelihood
is made at each reporting date. Provisions are measured at the
management’s best estimate of the expenditures expected to be
required to settle the obligation at the reporting date, and are
discounted to present value where the effect is material and the
distribution in time can be reliably estimated. In 2011 REC
recognized significant provisions in relation to the close down
of parts of the Norwegian operations (see notes 4 and 20).
2.18 PENSION/POST RETIREMENTOBLIGATIONS
A defined benefit plan is a pension plan that defines an amount of
pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and
compensation. The liability recognized in the statement of financial
position in respect of defined benefit pension plans is the present
value of the defined benefit obligation at the reporting date less
the fair value of plan assets.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are charged or credited to equity
via other comprehensive income in the period in which they arise.
Gains or losses on the curtailment or settlement of a defined
benefit plan are recognized when the curtailment or settlement
occurs. A curtailment occurs when the Group either is demonstrably
committed to make a material reduction in the number of
employees covered by a plan; or amends the terms of a defined
benefit plan such that a material element of future service by
current employees will no longer qualify for benefits, or will qualify
only for reduced benefits. In 2011, the REC Group recognized gains
on the curtailment of defined benefit plans in connection with
restructuring in Norway (see note 19).
For defined contribution plans, the RECGroup has no further
payment obligations once the contributions have been paid. The
contributions are recognized as employee benefit expensewhen they
are due.When sufficient information is not available to use defined
benefit accounting for amulti-employer plan that is a defined benefit
plan, the plan is accounted for as if it were a defined contribution plan,
which for RECGroup is relevant for an early retirement plan in
Norway and a pension plan in Sweden (see note 19).
2.19 REVENUE RECOGNITION
Revenues are primarily generated from sale of goods: polysilicon,
silane gas, wafers, solar cells and solar modules. Starting in 2010,
REC Group has also realized revenues from sale of PV systems.
Revenue comprises the fair value for the sale of goods and services,
net of value-added tax, rebates, discounts and expected returns.
Revenues are normally reported gross with a separate recording of
expenses to vendors of products or services. Revenue is recognized
when persuasive evidence of an arrangement exists, delivery has
occurred (transferred significant risks and rewards of ownership
and control) or services have been rendered, the price is fixed or
determinable, collectability is reasonably assured (probable that
future economic benefits will be realized) and the costs can be
measured reliably. Recognition of revenues from construction
contracts also depends on being able to measure reliably the stage
of contract completion.
The REC Group’s opinion is that it has no significant difficulties in
deciding when delivery has occurred, except to some extent for the
PV system projects. Delivery is normally according to terms in the
relevant contracts. When REC products are sold with a right of
return for damaged goods, experience is used to estimate and
provide for such returns at the time of sale. For the PV system
projects, judgment is needed to decide if it is a construction
contract or sale of goods or services, which affects when revenue
shall be recognized. In 2010 the REC Group had limited experience
in sale of PV systems and the probability of realizing future
economic benefits effectively limited some revenue recognition for
2010. Sales of PV systems that are realized by sale of special
purpose entities are also accounted for as mentioned above.
When sub-contractors are used to perform parts of the production,
e.g. wafer cutting or solar cell or module production, revenues are
not recognized on the delivery to these sub-contractors. Instead a
cost for the production service is recognized at the time the
revenue for sale to the customer is recognized.
The REC Group has some long-term contracts in different segments
where sales prices and volumes are predetermined, with some
adjusting mechanisms. The contracts are often take-and/or-pay
contracts. The volumes and prices may vary between years, and
some are declining over time and some increasing. The customer
may also be able to choose various product types and qualities each
period. The REC Group has determined that each year’s prices and
quantities are separate deliveries and revenues should be
recognized according to the contract terms for the individual year.
Some products, primarily solar modules, are sold with product
warranties. The expected warranty amounts are recognized as an
expense at the time of sale, and are adjusted for subsequent
changes in estimates or actual outcomes (see notes 4 and 20).
2.20 INTEREST AND DIVIDEND INCOME
Interest income is accrued on a time basis. Dividend income from
investments is recognized when the shareholders’ rights to receive
payment have been established, normally on the declaration date.
2.21 LEASES
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership
to the lessee. Other leases are classified as operating leases. The
evaluation is based on the substance of the transaction. The criteria
that primarily has been the decisive factor for the REC Group in
concluding that a finance lease exists is when the present value of
the minimum lease payments amounts to at least substantially all
of the fair value of the leased asset at the inception of the lease. In
determining minimum lease terms and payments it has been taken
into consideration the possibility of termination of contracts.