PDF, 3.2 MB - Pfleiderer AG

Sales of receivables are treated within the Group in accordance with SFAS 140 (Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). In accordance
with SFAS 140, a company has to recognize the financial and servicing assets that it controls and
the liabilities that it has incurred and derecognize these financial assets when control has been
surrendered in accordance with the criteria listed in SFAS 140.
The Group treated the receivables transferred under an asset-backed securities program until
June 2004 as a sale of receivables. Thereby, the transfer is only recognized as a sale when the
receivables are beyond the reach of the Company and its creditors. This also applies in the case
of the insolvency or other receivership of the creditor’s assets. In addition, the right to pledge
or exchange the transferred receivables must be surrendered and the entitlement or obligation
to repurchase them must be excluded. Active receivables were transferred and sold under an
asset-backed securities program for the last time in June 2004. All the sold receivables had been
collected and the asset-backed securities program was accordingly terminated by the end of
October 2004.
A factoring program commenced in July 2004 in the Business Segment Engineered Wood. Under
this, the factor purchases the Group’s receivables up to an individual or total limit, and assumes
the risk for the debtor’s insolvency (nonrecourse factoring). This is accounted for in the same
way as the asset-backed securities program described above.
Inventories
Inventories are valued at the lower of cost or market on the basis of individual values or the
weighted average method. The first in-first out method (FIFO) is also used in justified individual
cases. Market value is generally determined by referring to replacement costs. The ceiling for
determination of market value is the estimated selling price in the ordinary course of business
less the estimated costs of completion and the estimated costs necessary to make the sale
(net realizable value). The floor for determination of market value is the net realizable value less
a normal profit margin.
Production costs include direct material and production costs and an adequate portion of the
material and production overheads resulting from the production process.
All foreseeable risks in the inventories resulting from reduced saleability or obsolescence are
reflected by appropriate provisions. Markdowns are recorded for slow-moving items.
Use of Financial Instruments
The Group transacts business worldwide in numerous international currencies, so that it is
generally exposed to exchange rate fluctuations. Pfleiderer uses financial instruments in order
to reduce various kinds of market risks.
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FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP