Financial Review / Financial Statements 2010
18. Derivative financial instruments For a description of the financial risk management objectives and policies, reference is made to note 28 Financial Risk Management.
has firm commitments or forecasts. Furthermore, the Company held several interest rate swap contracts designated as hedges of variable interest rate bearing debt.
At 31 December 2010, the Company held several forward exchange contracts designated as hedges of expected future transactions for which the Company
The fair value of the derivative financial instruments included in the balance sheet can be summarised as follows:
in thousands of US$
Interest rate swaps cash flow hedge Forward currency contracts cash flow hedge Forward currency contracts fair value hedge Forward currency contracts net foreign investment hedge Commodity swap cash flow hedge Total
2009
2010 2009 Liabilities 173,456 123,327
22,294
91,174
37,850
21,847
41,463
69,327
(3,613)
3,548
895
1,172
5,064
2,376
(4,169)
352 429 126,569
67 61,106
196,475
2,266 172,120
352 429 (69,906)
(2,266) 67 (111,014)
The ineffective portion recognised in the income statement (see note 5 - Net financing costs) arises from cash flow hedges and amounts to US$ 29.3 million (2009: US$ 3.0 million). There was no ineffectiveness recognised in the income statement related to foreign investment hedges (2009: none). The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet. Forward currency contracts The notional principal amounts of the outstanding forward currency contracts at 31 December 2010 were US$ 3.1 billion (2009: US$ 2.3 billion) of which US$ 2.7 billion will mature in the next 12 months. Gains and losses recognised in the hedging reserve on forward currency contracts as of 31 December 2010 are recognised in the income statement in the period or periods during which the hedged transaction affects the income statement. This is mainly within 12 months from the balance sheet date unless the gain or loss is included in the initial amount recognised in the carrying
2010 Net (142,390)
2009
2010 Assets 31,066
(101,033)
amount of fixed assets, in which case recognition is over the lifetime of the asset, or the gain or loss is included in the initial amount recognised in the carrying amount of the cost incurred on construction contracts in which case recognition is based on the ‘percentageof-completion method’. Interest rate swaps The principal amounts of the outstanding interest rate swap contracts at 31 December 2010 were US$ 1.8 billion (2009: US$ 1.6 billion). The most important floating rate is US$ 3-month LIBOR. Gains and losses recognised in the hedging reserve in equity on interest rate swap contracts as of 31 December 2010 will be continuously released to the income statement until the final repayment of the bank borrowings (see note 20 - Equity attributable to shareholders) . Details of interest percentages of the long-term debt are included in the note 21 - Long-term loans and other liabilities.
SBM Offshore – Annual Report 2010
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