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Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
Principal amounts and fair values of interest rate swaps at December 31, 2011
PRINCIPAL AMOUNT
(CURRENCY INMILLION)
FAIR VALUE
(NOK INMILLION)
PAY FIXED RATE
USD (2014)
100
-42
NOK (2021)
160
-12
NOK (2013)
380
-1
EUR (2013)
60
-1
RECEIVE FIXED RATE
NOK (2014)
650
19
NOK (2018)
700
42
EUR (2014)
60
13
Total
17
The table above shows contractual principle currency amounts in interest rate swaps and a specification of fair values, equaling carrying
amounts, at December 31, 2011 distributed by year of maturity and currency. The interest rate swaps have one fixed interest rate
against a floating interest rate and there are no other cash flows or principal amounts. The interest rate swaps of NOK 650million and
NOK 700million, where REC ASA is paying floating interest rate, are fair value hedges of the REC01 and REC03 NOK bonds’ fixed rates.
The remaining interest swaps are general interest hedging.
Estimated contractual cash flows in embedded foreign exchange forward contracts at December 31, 2011
(USD INMILLION)
TOTAL
2012
2013
2014
2015
Total contract value
232
122
66
23
22
Total contract value represents the estimated total contract value for sales of wafers in USD to customers that do not have USD as their
functional currency and USD is not regarded as commonly used currency in the countries of the purchasers or seller (see note 4.1(D)).
RECWafer has entered into sales contracts in USD which is not in the functional currency of either of the contracting parties and USD is
not regarded as commonly used currency in the countries of the purchasers or seller (see note 4.1(D)). For accounting purposes this shall be
reported as if the commodity sales contracts were in NOK and forward purchases of USD shall be separated and measured at fair value
(embedded derivatives) with changes in fair values recognized to profit or loss. The reasons for entering into the sales contracts in USD
were partially requests by customers and to provide economic hedges of future purchases of polysilicon in USD in line with REC’s finance
policy at that time.
These wafer sales contracts state future cash flows, with some limited adjustment mechanisms. However, RECWafer has in 2010 and 2011
experienced that contracts have not been complied with, renegotiated or terminated. If it is probable that a customer will not honor the
contract based on individual assessment, REC has made downward adjustment of the estimated future cash flows. The cash flows in some
contracts that are disputed by the customers have been reduced to the amount of any bank guarantee or zero. Future cash flows at
December 31, 2011 have been decreased compared to the cash flows estimated at December 31, 2010 for the period from2012 by
USD 204million. Cash flows have been reduced to the most likely amount, but are uncertain and the actual outcome could be higher or
lower (see notes 25 and 30).
HEDGING ACTIVITIES 2011
Fair value hedging
REC ASA issued a NOK 1,250million (REC01) 11 percent fixed rate bond in the third quarter 2009, with maturity in September 2014.
The 11 percent fixed rate consists of a five year fixed interest plus a credit spread of 6.9 percent. At the same time, REC ASA entered into
interest rate swaps to convert the fixed interest rate to a (six months) floating NIBOR rate. In April 2011, REC ASA issued two new senior
unsecured bonds in the Norwegian market, NOK 500million (REC02) and NOK 700million (REC03) with five and seven year tenors
respectively. As part of the bond offering, REC bought back NOK 600million of the existing REC01 bond. REC ASA entered into interest rate
swaps to convert the fixed interest rate of REC03 to a (six months) floating NIBOR rate. The fixed rate bonds REC01 of NOK 650million
remaining and REC03 of NOK 700million in combinations with fixed-to-floating interest rate swaps, with matching terms and conditions as
the bonds, have been designated as fair value hedge relationships.
The fair value of the interest rate derivatives at December 31, 2011 designated and effective as hedge instruments was a gain of
NOK 61million excluding accumulated interest, and a loss of NOK 61million on the bonds.