Financial instruments

Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, marketable securities, trade and other accounts receivable and payable, long-term receivables, borrowings and investments. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies found in these notes.

Financial instruments are classified as assets or liabilities in accordance with the substance of the contractual arrangement. Therefore interest, dividends, gains and losses relating to these financial instruments classified as an asset or a liability are reported as expense or income. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.

Hedging

The Group uses forward exchange contracts to mitigate exposure to foreign currency risk out of projects and regularly business in foreign currency. According to the Group’s hedging policy most forward contracts are used for highly probable future Cash flows for these projects or regularly sales and can therefore be classified as cash flow hedges. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash-flow hedge are recognised directly in the hedging reserve in shareholders’ equity. If the hedged cash flow results in the recognition of an asset or a liability, all gains or losses previously recognised directly in equity are transferred from equity and included in the initial measurement of the cost or carrying value of the asset or liability. Otherwise, for all other cash-flow hedges, gains and losses initially recognised in equity are transferred from hedging reserve to net profit or loss in the same period or periods during which the hedged firm commitment or forecast transaction affects the income statement. If a forward exchange contract is not classified as cash flow hedge the fair values respectively any changes of these contracts are reported as profit or loss in the income statement.

When the committed or forecast transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is transferred to the income statement.

All investments in a foreign entity are long-term investments and presently a sale of such investments is not expected to occur in the foreseeable future. According to the Group’s hedging policy there are no hedges of net investments in foreign currencies.

Derivative financial instruments

Major part of derivative financial instruments are designated as hedging instruments. Fixed forward exchange rate contracts are used for hedging of currency risks and interest swaps are used for hedging of interest risk.

Research and development costs

Expenditures for research and development are charged against income in the period incurred because the criteria for capitalisation (IAS 38) are not met. In 2004 EUR 21,114 thousand and in 2003 EUR 25,470 thousand have been recognised as an expense.

Revenue recognition (except for construction contracts)

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably. Sales are recognised net of sales taxes and discounts when delivery has taken place and transfer of risks and rewards has been completed.

Interest is recognised on a time proportion basis that reflects the effective interest rate of the asset. Dividends are recognised when the shareholders’ right to receive payment is established.

Borrowing costs

Borrowing costs are generally expensed as incurred.

Impairment of assets

Property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount (the higher of fair value less costs to sell and value in use), an impairment loss is recognised in income for items of property, plant and equipment and intangibles carried at cost. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit.