TomTom 2005 Annual Report Download - page 64

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Financial฀instruments฀and฀hedge฀policy
The฀Group’s฀activities฀expose฀it฀primarily฀to฀the฀financial฀
risks฀of฀changes฀in฀foreign฀exchange฀rates.฀The฀Group฀
uses฀derivative฀financial฀instruments฀(primarily฀foreign฀
currency฀forward฀contracts)฀to฀mitigate฀its฀risks฀
associated฀with฀foreign฀currency฀fluctuations฀relating฀to฀
certain฀firm฀commitments฀and฀forecasted฀transactions.฀
The฀use฀of฀financial฀derivatives฀is฀governed฀by฀the฀
Group’s฀policies฀approved฀by฀the฀Supervisory฀Board,฀
which฀provide฀written฀principles฀on฀the฀use฀of฀financial฀
derivatives฀consistent฀with฀the฀Group’s฀risk฀management฀
strategy.฀The฀Group฀does฀not฀use฀derivative฀financial฀
instruments฀for฀speculative฀purposes.฀Derivative฀financial฀
instruments฀are฀initially฀measured฀at฀fair฀value฀on฀the฀
contract฀date,฀and฀are฀marked฀again฀to฀fair฀value฀at฀
subsequent฀reporting฀dates.฀Changes฀in฀the฀fair฀value฀of฀
derivative฀financial฀instruments฀are฀recognised฀in฀the฀
profit฀and฀loss฀account฀as฀they฀arise,฀since฀hedge฀
accounting฀is฀not฀applied฀by฀the฀Group.
Retirement฀benefit฀costs
Payments฀to฀defined฀contribution฀retirement฀benefit฀
plans฀are฀charged฀as฀an฀expense฀as฀they฀fall฀due.฀
Payments฀made฀to฀state-managed฀retirement฀benefit฀
schemes฀are฀dealt฀with฀as฀payments฀to฀defined฀
contribution฀plans฀where฀the฀Group’s฀obligations฀under฀
the฀plans฀are฀equivalent฀to฀those฀arising฀in฀a฀defined฀
contribution฀retirement฀benefit฀plan.฀
Stock฀compensation฀expense
The฀Group฀issues฀share฀options,฀which฀qualify฀as฀
equity-settled฀share-based฀payments,฀to฀eligible฀
employees฀including฀members฀of฀management.฀
Equity-settled฀share-based฀payments฀are฀measured฀at฀fair฀
value฀at฀the฀date฀of฀grant.฀The฀fair฀value฀determined฀at฀
the฀grant฀date฀of฀the฀equity-settled฀share-based฀
payments฀is฀expensed฀on฀a฀straight-line฀basis฀over฀the฀
vesting฀period,฀based฀on฀the฀Company’s฀estimate฀of฀
shares฀that฀will฀eventually฀vest.฀Fair฀value฀is฀measured฀by฀
use฀of฀the฀Black฀and฀Scholes฀model.฀The฀expected฀life฀of฀
the฀share฀options฀used฀in฀the฀model฀has฀been฀adjusted,฀
based฀on฀management’s฀best฀estimate,฀for฀the฀effects฀of฀
non-transferability,฀exercise฀restrictions,฀and฀behavioural฀
considerations.฀At฀each฀balance฀sheet฀date,฀the฀entity฀
revises฀its฀estimates฀of฀the฀number฀of฀options฀that฀are฀
expected฀to฀become฀exercisable.฀It฀recognises฀the฀
impact฀of฀the฀revision฀of฀original฀estimates,฀if฀any,฀in฀the฀
income฀statement,฀and฀makes฀a฀corresponding฀
adjustment฀to฀equity฀(stock฀compensation฀reserve)฀over฀
the฀remaining฀vesting฀period.฀The฀proceeds฀received฀net฀
of฀any฀directly฀attributable฀transaction฀costs฀are฀credited฀
to฀share฀capital฀(nominal฀value)฀and฀share฀premium฀when฀
the฀options฀are฀exercised.
Taxation
The฀income฀tax฀charge฀is฀based฀on฀the฀profit฀for฀the฀year฀
and฀includes฀deferred฀taxation.฀
Deferred฀taxes฀are฀calculated฀using฀the฀liability฀method.฀
Deferred฀income฀taxes฀reflect฀the฀net฀tax฀effects฀of฀
temporary฀differences฀between฀the฀carrying฀amounts฀of฀
assets฀and฀liabilities฀for฀financial฀reporting฀purposes฀and฀
the฀amounts฀used฀for฀income฀tax฀purposes.฀Deferred฀tax฀
assets฀and฀liabilities฀are฀measured฀using฀the฀tax฀rates฀
expected฀to฀apply฀to฀taxable฀income฀in฀the฀years฀in฀which฀
those฀temporary฀differences฀are฀expected฀to฀be฀
recovered฀or฀settled.฀The฀measurement฀of฀deferred฀tax฀
liabilities฀and฀deferred฀tax฀assets฀reflects฀the฀tax฀
consequences฀that฀would฀follow฀from฀the฀manner฀in฀
which฀the฀Company฀expects,฀at฀the฀balance฀sheet฀date,฀
to฀recover฀or฀settle฀the฀carrying฀amount฀of฀its฀assets฀
and฀liabilities.
Deferred฀tax฀assets฀are฀recognised฀when฀it฀is฀probable฀
that฀sufficient฀taxable฀profits฀will฀be฀available฀against฀
which฀the฀deferred฀tax฀assets฀can฀be฀utilised.฀At฀each฀bal-
ance฀sheet฀date,฀the฀Company฀reassesses฀unrecognised฀
deferred฀tax฀assets฀and฀the฀carrying฀amount฀of฀deferred฀
tax฀assets.