Basic HTML Version
71
Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
Capacity lease contracts means any finance lease arrangements
in which a supplier conveys a right to a member of the Group to
use assets together with related services, including arrangements
to provide a member of the Group with rights to capacity or
take-or-pay and similar contracts. The fulfillment of the
arrangement is dependent on the use of specific assets, and the
arrangement conveys a right to use the asset, as defined in IFRIC 4
and IAS 17. Such finance lease liabilities are exempt from the net
debt definition. Also, even though not explicitly stated in the
agreement, for the calculation of the interest cover ratio REC has
interpreted that interest expenses reported for capacity lease
contracts are not costs related to financing, and has consequently
excluded these from the calculation of net interest paid.
The covenants are measured at the end of each quarter.
From the 12month period which ended on September 30, 2011
the leverage ratio (net debt/EBITDA) was not to exceed 3.50. For
subsequent quarters the 12month maximum leverage ratio
requirement decreases steadily to 2.50 for the period ending
December 31, 2012 and for each relevant period thereafter.
The equity ratio shall never be lower than 30.00 percent.
The interest cover ratio in respect of any 12month period shall be
equal to or exceed specified ratios. The measurement started for
the period ending September 30, 2011 with the ratio 2.25 and
increases steadily to 3.25 for the period ending March 31, 2013
and for each relevant period thereafter.
The credit facility contain, among other things negative pledge
clauses, restrictions in providing any security interest on any of the
REC Group’s assets, acquiring or disposing of assets or businesses,
providing of financial support and incurring financial indebtedness.
In the event of change of control of REC ASA’s shares, the loans shall
be repaid in full, see the report from the Board of Directors. There
are no restrictions on annual capital expenditure.
See note 33 for amendments to the bank credit facility agreement
after the reporting period.
CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
4.1 CRITICAL JUDGMENTS IN APPLYING THE
REC GROUP’S ACCOUNTING POLICIES
Management’s judgments in applying the REC Group’s accounting
policies having the most significant effect on amounts recognized in
the financial statements or reported as note disclosures are
discussed below and in the relevant notes.
(A) Deferred tax on undistributed earnings
According to current regulations and tax treaty between Norway
and the USA, withholding tax of 15 percent would apply on any
dividends paid by the REC Group’s operations in the USA to the
parent company in Norway. REC ASA controls the distribution of
future dividends from the US operations, and has determined that
those profits will not be distributed in the foreseeable future.
Consequently, REC ASA has not recognized a deferred tax liability
on these undistributed earnings. If, at a later point in time these
evaluations change or dividends are distributed under the current
regulations and tax treaty, additional tax expense will be recognized
in the relevant periods.
(B) Functional currencies
The REC Group’s presentation currency and the parent company’s
(REC ASA’s) functional currency is Norwegian Krone. The
management has evaluated the functional currency of the different
REC entities. For some entities the facts and circumstances are
mixed and the conclusion is not readily apparent, as revenues and
expenses currently are in several currencies and deliveries are
made to several countries. Currently, pricing is determined by
demand for products in several markets and from government
incentives. Government incentives and the relative attractiveness
of selling to different countries change over time. Europe is
currently, and in the foreseeable future, the main market for
REC Solar cells and modules entities, and it has been determined
that EUR is the functional currency for these. The changes in facts
and circumstances during 2011 that led to change in management’s
judgment of the composition of Cash-generating units also affected
management’s judgment of functional currency for the Singaporean
entities, and now it evaluates that EUR is the functional currency of
all the entities in the integrated plant in Singapore.
Functional currency affects the reporting of currency gains and
losses and exchange differences as well as hedging strategies and
effects. The evaluation of what is the functional currency for the
separate entities may change over time if there are relevant and
significant changes in facts or circumstances. A change in functional
currency must be made prospectively from the date of the change.
(C) Development expenditures
TheRECGroup conducts numerous research and development
activities and projects. Some costs incurred in the development phase
of an intangible assetmay be capitalized if the recognition criteria are
fulfilled. Costs that at the time they are incurred do not fulfill the
requirements are expensed and cannot be capitalized at a later stage.
Consequently, theremay be development costs that cannot be
capitalized because theRECGroup cannot demonstrate that all
requirements are fulfilled at the relevant points in time. At year-end
04