m. Other Accounting and Valuation Principles
Estimations for Construction Contracts
The accounting for construction contracts is based on estimations for costs and recoverable earnings. Although these estimations are based on all information available on balance sheet date changes after the balance sheet date are possible. These changes could lead to adjustments of assets and may influence earnings in subsequent periods.
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, non-current 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 assets and financial liabilities are recognized in the consolidated balance sheet, if the Group qualifies as a party to the contract concerning the contract regulations of the financial instrument.
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 realize the asset and settle the liability simultaneously.
Hedging
The Group uses forward exchange contracts to mitigate exposure to foreign currency risk out of projects 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 regular sales. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are recognized directly in the hedging reserve in shareholders’ equity. Otherwise, for all other cash flow hedges, gains and losses initially recognized 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 does not qualify as a cash flow hedge the fair values respectively any changes of these contracts are reported as profit or loss in 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
Fixed forward exchange rate contracts are used for hedging of currency risks and interest swaps are used for hedging of interest risk. Derivative financial instruments are valued at their fair value on the balance sheet date and are recognized as other receivables, other liabilities respectively liabilities to banks and other financial liabilities.
Research and development costs
Expenditures for research and development are charged against income in the period incurred because the criteria for capitalization (IAS 38) are not met. In 2006 EUR 35,417 thousand and in 2005 EUR 27,148 thousand were recognized as an expense.
Revenue recognition (except for construction contracts)
Revenue is recognized 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 recognized net of sales taxes and discounts when delivery has taken place and transfer of risks and rewards has been completed.
Interest is recognized on a time proportion basis that reflects the effective interest rate of the asset. Dividends are recognized 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 recognized 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.
