Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP [2 ed.] 0470178442, 9780470178447

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International Trends in Financial Reporting under IFRS

International Trends in Financial Reporting under IFRS Including Comparisons with US GAAP, China GAAP, and India Accounting Standards Abbas Ali Mirza

Nandakumar Ankarath

JOHN WILEY & SONS, INC.

Copyright © 2013 by John Wiley & Sons, Inc.. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our website at www.wiley.com. Library of Congress Cataloging-in-Publication Data Mirza, Abbas Ali. Wiley international financial reporting trends / Abbas Ali Mirza and A. Nandakumar. p. cm. Includes index. ISBN 978-0-470-17844-7 (pbk.); ISBN 978-1-118-22009-2 (ebk); ISBN 978-1-118-23382-5 (ebk); ISBN 978-1-118-25846-0 (ebk) Printed in the United States 1. Financial statements. 2. Corporation reports—Periodicals. 3. Accounting—Standards. 4. International business enterprises— Accounting. I. Nandakumar, Ankarath. II. Title. HF5681.B2M52 2012 657'.32—dc23 2012005818 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1

Contents

Preface

ix

Acknowledgments

xi

About the Authors

xiii

About the Contributors

xv

SECTION I: INTRODUCTION TO IFRS AND IASB FRAMEWORK

Chapter 1: Introduction to International Financial Reporting Standards Chapter 2: IASB Framework for the Preparation and Presentation of Financial Statements SECTION II: PRESENTATION OF FINANCIAL STATEMENTS

1

3 13 17

Chapter 3: Presentation of Financial Statements (IAS 1)

19

Chapter 4: Statement of Cash Flows (IAS 7)

55

Chapter 5: Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8)

65

Chapter 6: Events after the Reporting Date (IAS 10)

73

SECTION III: REVENUE

81

Chapter 7: Revenue (IAS 18)

83

Chapter 8: Construction Contracts (IAS 11)

95

Chapter 9: Accounting for Government Grants and Disclosure of Government Assistance (IAS 20)

99

Chapter 10: Agriculture (IAS 41)

105

SECTION IV: NONCURRENT ASSETS, PROVISIONS, CURRENT LIABILITIES AND ASSETS

109

Chapter 11: Property, Plant and Equipment (IAS 16)

111

Chapter 12: Borrowing Costs (IAS 23)

131

Chapter 13: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

143

Chapter 14: Intangible Assets (IAS 38)

159

Chapter 15: Investment Property (IAS 40)

179

v

SECTION V: INVESTMENTS IN ASSOCIATES, JOINT VENTURES, SUBSIDIARIES, IMPAIRMENT OF ASSETS AND BUSINESS COMBINATIONS

191

Chapter 16: Consolidated Financial Statements and Separate Financial Statements (IAS 27)

193

Chapter 17: Investments in Associates (IAS 28)

215

Chapter 18: Interests in Joint Ventures (IAS 31)

219

Chapter 19: Impairment of Assets (IAS 36)

249

Chapter 20: Business Combinations (IFRS 3)

263

Chapter 21: Non-Current Assets Held for Sale and Discontinued Operations (IFRS 5)

281

SECTION VI: FINANCIAL INSTRUMENTS

289

Chapter 22: Financial Instruments: Presentation (IAS 32)

291

Chapter 23: Financial Instrument: Recognition and Measurement (IAS 39)

293

Chapter 24: Financial Instrument Disclosures (IFRS 7)

297

SECTION VII: EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS

329

Chapter 25: Employee Benefits (IAS 19)

331

Chapter 26: Share-Based Payments (IFRS 2)

363

SECTION VIII: STANDARDS APPLICABLE TO PUBLIC LISTED COMPANIES

373

Chapter 27: Earnings per Share (IAS 33)

375

Chapter 28: Interim Financial Reporting (IAS 34)

383

Chapter 29: Operating Segments (IFRS 8)

397

SECTION IX: INDUSTRY-SPECIFIC STANDARDS AND STANDARDS APPLICABLE IN SPECIFIC SITUATIONS

427

Chapter 30: Accounting and Reporting by Retirement Benefit Plans (IAS 26)

429

Chapter 31: Financial Reporting in Hyperinflationary Economies (IAS 29)

433

Chapter 32: First-Time Adoption of International Financial Reporting Standards (IFRS 1)

437

Chapter 33: Insurance Contracts (IFRS 4)

445

Chapter 34: Exploration for and Evaluation of Mineral Resources (IFRS 6)

465

vi

SECTION X: OTHER GENERAL STANDARDS

489

Chapter 35: Inventories (IAS 2)

491

Chapter 36: Income Taxes (IAS 12)

505

Chapter 37: Leases (IAS 17)

541

Chapter 38: The Effects of Changes in Foreign Exchange Rates (IAS 21)

553

Chapter 39: Related Party Disclosures (IAS 24)

563

APPENDICES: STANDARDS ISSUED BUT NOT EFFECTIVE IMMEDIATELY WITH EARLIER APPLICATION PERMISSIBLE

577

Appendix A: Financial Instruments (IFRS 9)

579

Appendix B: New IFRS Issued and Amendments to Existing Standards Effective in 2011 and Later Years

587

APPENDICES: COMPARISON OF IFRS TO OTHER ACCOUNTING STANDARDS

599

Appendix C: Comparison of IFRS with US GAAP

601

Appendix D: Comparison of IFRS with India Accounting Standards

633

Appendix E: Comparison of IFRS with China GAAP

707

Index

783

vii

Preface

NEED FOR THIS PUBLICATION International Financial Reporting Standards (IFRS) are gaining importance by the day. More than 100 countries have adopted these Standards in one way or another. Even world leaders are debating how the accounting world should be promulgating and using a single set of high-quality accounting standards. In the wake of the recent global financial crisis, the finance ministers of G20 nations (the most powerful economies of the world) called for global convergence of accounting standards. There is therefore a real need to learn and understand how these Standards are applied in practice. Recognizing the urgent need to understand how international accounting and financial reporting standards are applied in practice by conglomerates that have a global footprint, we embarked on this ambitious book project, which attempts to illustrate the practical application and disclosures in the financial statements of the Global 500 companies. The main objective of this publication is to highlight and illustrate financial statement disclosures made by listed companies operating internationally under IFRS in their published financial statements.

REFERENCES TO STANDARDS References to IFRS in this volume are to the official pronouncements of the International Accounting Standards Board (IASB) issued on January 1, 2011; however, this volume relates to Standards that were issued during 2011 and that are not mandatory until 2013, although early adoption is permissible. In sections on comparisons between IFRS and Indian generally accepted accounting principles (GAAP), U.S. GAAP, and Chinese GAAP, caveats related to those Standards also are included.

HOW COMPANIES WERE SELECTED To ensure that we included extracts from financial statements of a broad cross-section of listed companies from different countries and industries/business segments, we relied on the Global 500 2011 ranking of companies (ranked on the basis of revenue) published in the July 25, 2011, issue of CNN Money. We approached companies from the listing for permission to use extracts from their published financial statements based on criteria that they are in countries that have either adopted or adapted IFRS and also considered their global rankings, country rankings, and industrial sector representation. Companies that did not provide permission by a cut-off date were not included in this publication. In other words, we have included extracts from the published financial statements of only those companies that granted us permission to do so.

FINANCIAL STATEMENT EXTRACTS The 214 illustrative extracts of published financial statements in this book are drawn from companies that represent these industries/business segments: Airlines Aerospace and Defense Energy Engineering, Construction Mining, Crude Oil Production Petroleum refining Metals Building Materials, Glass Banks, Commercial and Savings Motor Vehicles and Parts

Electronics Insurance: Life, Health (stock) Network and Other Communication Equipment Telecommunications Tobacco Food and Drugstore Food Services Beverages

ix

COMPANIES WHOSE FINANCIAL STATEMENTS EXTRACTS WERE USED The book uses extracts from annual reports (i.e., audited financial statements posted on websites) to explain the practical application of the disclosure requirements of IFRS. As mentioned, we have received permission from these companies to use/reproduce extracts from their annual reports. We thank the management of these companies for allowing us permission to use/reproduce extracts from their published financial statements. Company BHP Billiton Telstra Wesfarmers Westpac Banking Anheuser-Busch InBev Anglo American Aviva BAE Systems BP Compass Group Imperial Tobacco Group J. Sainsbury Danske Bank Group AXA Bouygues CNP Assurances Crédit Agricole

Country Australia Australia Australia Australia Belgium Britain Britain Britain Britain Britain Britain Britain Denmark France France France France

Company Daimler Lufthansa Group ArcelorMittal Rabobank Samsung Electronics Repsol YPF L.M. Ericsson Adecco Alliance Boots Holcim Koç Holding

Country Germany Germany Luxembourg Netherlands South Korea Spain Sweden Switzerland Switzerland Switzerland Turkey

DISCLAIMERS This publication provides a synopsis—a brief overview of the salient features of the Standards and Interpretations of the IASB. Therefore, it should not be used in lieu of referring to the Standards and Interpretations themselves. The authoritative guidance on accounting treatments and disclosures in accordance with the IFRS can be found in the IFRS as promulgated by the IASB, which are copyrighted by the IFRS Foundation. Also, when an entity prepares financial statements in accordance with the IFRS, it needs to consider the relevant legal and regulatory requirements applicable in its jurisdiction. This publication does not consider the requirements of any particular jurisdiction. This publication includes extracts taken from published financial statements of certain companies as illustrative of what is seen in practice. No assertion is made herein as to whether these illustrative disclosures are strictly according to the disclosure requirements of IFRS. Furthermore, these illustrative extracts have been taken from audited financial statements. No attempt has been made to assess the validity of the auditors’ or directors’ assertions. All the views expressed in this publication are those of the authors and contributors and do not represent those of the firms or organizations of which they are a part. The firms or organizations that the authors are part of therefore have no responsibility whatsoever for content of this publication.

AUTHORS’ REQUEST We sincerely hope that this book will provide helpful insights into the practical application of international standards of financial reporting. We have put a great deal of effort into putting this book together, and we hope to improve it in the future. If users of this book have any suggestions or recommendations for future editions, please write to our publishers, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030 USA. We thank you for selecting this publication and hope that you find it educational and thought provoking. Abbas Ali Mirza Nandakumar Ankarath

x

Acknowledgments

This book is the result of hard work of several months, and we are very happy that it is being made available to readers in record time. We wish to place on record our sincere appreciation for the efforts of those people who have helped us in this initiative. We wish to thank all the wonderful people who have contributed to this publication, which includes our families to whom we are ever grateful for their patience and support offered to us during these trying times when this book was being conceptualized, written, edited, and published. As mentioned earlier, we also thank the management of the companies that allowed us to use extracts from their financial statements. Kevin Stevenson, chairman of the Asian Oceanic Standards Setters Group and chairman and chief executive of the Australian Accounting Board (formerly director of technical affairs at the IASB and a chairman of the International Financial Reporting Interpretations Committee) has been a great source of inspiration for this project. He provided invaluable technical advice and excellent suggestions on several issues relating to this publication. We wish to place on record our sincere appreciation for his timely advice on technical issues and for all his support. Our gratitude goes to Ms. Shen Jie, a partner at PwC, China for having reviewed the Appendix on comparison of IFRS to Chinese GAAP. We are extremely thankful to Professor Arif Ahmed, Veena Hingarh, Gang Leng, and Joanne Flood, who ably contributed to the appendices on comparisons to other Standards. We wish to thank our publishers, John Wiley & Sons, Inc. USA, for their unstinting support in helping us to publish this volume. In particular, we wish to thank David Pugh, John DeRemigis, Judy Howarth, Natasha Andrews-Noel, Pam Reh, and Brandon Dust. Thank you all! Abbas Ali Mirza Nandakumar Ankarath

xi

About the Authors

Abbas Ali Mirza is an audit partner with Deloitte & Touche ME and is a member of the firm’s regional International Financial Reporting Standards leadership team. He is featured on Deloitte’s global accounting website, www.iasplus.com, as a Deloitte IFRS leader. Abbas has published a number of well-known IFRS books, including Practical Implementation Guide and Workbook for IFRS, currently in its third edition (John Wiley & Sons, 2011), wherein he has been the lead coauthor since its inception, and IFRS Interpretations and Application, as coauthor since its inception in 1997 (John Wiley & Sons). He has published articles on IFRS in leading international journals and newspapers and coauthors a popular column titled “Bottomline” for a leading business newspaper. Abbas is a frequent keynote/principal speaker at major IFRS conferences globally and has chaired the World Accounting Summit for seven years since its inception in 2005. He also addressed the World Accounting Congress of Accountants sponsored by the International Federation of Accountants in 2006. Abbas was elected chairman of the Inter-Governmental Working Group of Experts on International Accounting and Reporting at the twenty-first session of the United Nations Conference on Trade and Development in Geneva, Switzerland. He has held several other key positions of repute, including • • • • • • • •

Chairman of the Auditors’ Group, Dubai Chamber of Commerce and Industry Former member of the Accounting Standards Committee, Securities and Exchange Board of India Member of the Special Advisory Board for Accountants and Lawyers to the Dubai Economic Development, Government of Dubai Former chairman of the Standards’ Committee, Accountants’ and Auditors’ Association of the United Arab Emirates Three-term chairman of the Dubai chapter of the Institute of Chartered Accountants of India Past president, Indian Business & Professional Council, Dubai, and a governor of the Indian Business Council, Dubai Member of the Advisory Board at the Business School of American University of Dubai Former member of the Developing Nations Permanent Task Force of the International Federations of Accountants, later renamed IFAC’s Developing Nations Committee

Nandakumar Ankarath is a fellow member of the Institute of Chartered Accountants of India and a senior partner with Moore Stephens, Chartered Accountants, United Arab Emirates. He has over 25 years of postqualification experience in auditing, accounting, and financial and management consultancy in various business environments in India, Bahrain, and the United Arab Emirates. Nandakumar has served as a member of the Committee on Accounting Standards for Local Bodies formed by the governing body of the Institute of Chartered Accountants of India to formulate accounting standards for local bodies, autonomous bodies, and nonprofit organizations in India. Nandakumar is the coauthor of Understanding IFRS Fundamentals: International Financial Reporting Standards published in 2010 by John Wiley & Sons.

xiii

About the Contributors

Arif Ahmed is a Chartered Accountant, MBA, and an Information Security Management System lead auditor. He is a professor and director of the South Asian Management Technologies Foundation in India. His areas of focus are finance and risk management, and he has been speaking in international seminars and workshops for over two decades. Recognized for his simple and pragmatic explanation of complex issues, Arif has been involved in many strategic consulting assignments, including with the World Bank and across various industry verticals, including banking, oil and gas, electronic media, print media, telecommunication, engineering, and energy. Arif has been a guest faculty member in many professional and academic programs of leading international professional bodies and universities. The books on International Financial Reporting Standards and information systems audit that he has coauthored have been widely acclaimed by the professional community. Joanne Flood, MBA, CPA, has experience in international and local firms and worked as a senior manager in the AICPA’s Professional Development group. She received her MBA in accounting from Adelphi University and her BA in English from Molloy College. While in public accounting, she worked with major clients in retail, manufacturing, and finance and with small business clients in construction, manufacturing, and professional services. At the AICPA, she developed and wrote e-learning, text, and instructor-led training courses on U.S. and International Standards, including IFRS: The Starting Point (IFRS 1). She also produced training materials in a variety of media, including print, video, and audio, and pioneered the AICPA’s e-learning product line. Veena Hingarh is a Chartered Accountant, company secretary, and Certified Information Systems Auditor. She is a professor and joint director of the South Asian Management Technologies Foundation in India. Winner of numerous merit-based awards throughout her career, her major areas of focus are on IFRS and Information Systems Audit. She has been involved with major consulting assignments, including for the World Bank, and for various sectors including banking, oil and gas, media, energy, metals, and minerals. She speaks frequently at national and international conferences and workshops. Veena is a guest faculty member in programs hosted by various international professional bodies and universities. The books on International Financial Reporting Standards and information systems audit that she has coauthored have received accolades from readers. Gang Leng, PhD in accounting, Australian CPA, Chinese CPA, is a lecturer at the Accounting School of the Central University of Finance and Economics in Beijing, China. Previously he worked as a senior manager in the accounting and auditing technical team at BDO Beijing, Moore Stephens Beijing, and Grant Thornton China. He is currently working as a visiting academic fellow at the Australian Accounting Standards Board.

xv

Section I INTRODUCTION TO IFRS AND IASB FRAMEWORK

Chapter 1: Introduction to International Financial Reporting Standards Chapter 2: IASB Framework for the Preparation and Presentation of Financial Statements

1

Chapter 1 INTRODUCTION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

1. ONE GLOBALIZED WORLD, ONE SET OF ACCOUNTING STANDARDS: READY OR NOT A compelling need for a common set of accounting and financial reporting standards 1.1 There is now a real need for a common set of high-quality global accounting and financial reporting standards that are understood, used, and interpreted by different people around the world in the same manner. Historically, countries worldwide have had their own national accounting standards, which some countries may have treasured due to the pride of national sovereignty. However, the desire to become global players and be part of the globalization movement has led businesses across national boundaries to realize that it is an astute business strategy to embrace the world as their workplace and marketplace. In this global market, using different rules (standards) of accounting for the purposes of recognition, measurement, and reporting of financial results would not help countries to achieve their goal of internationalization; rather, it would serve as a severe impediment to smooth flows of information across borders. Therefore, some believe and swear by the concept of “one globalized world, one set of accounting and financial reporting standards.” 1.2 Today that slogan is not just wishful thinking but a necessity. This is evidenced by calls made by important political and economic groups, such as the G20 (the group of 20 major economies of the world’s finance ministers and governors of central banks), which released a communiqué and supporting documents after the G20 Leaders’ Summit in Cannes, France, in November 2011. Many of the agreed outcomes of this summit focused on global economic and other issues, but they also incorporated actions to implement and deepen financial sector reforms. These included references to global accounting standards and convergence of standards. The Cannes Summit Final Declaration includes these observations in relation to accounting standards: We reaffirm our objective to achieve a single set of high quality global accounting standards and meet the objectives set at the London summit in April 2009, notably as regards the improvement of standards for the valuation of financial instruments. We call on the IASB [International Accounting Standards Board] and the FASB [Financial Accounting Standards Board] to complete their convergence project and look forward to a progress report at the Finance Ministers and Central Bank governors meeting in April 2012. We look forward to the completion of proposals to reform the IASB governance framework. 3

4

Wiley International Trends in Financial Reporting under IFRS

1.3 Investors, creditors, financial analysts, and other users of financial statements would welcome the adoption of a truly global set of accounting standards that present high-quality, transparent, and comparable information. Without a common set of standards, it is difficult to compare financial information prepared by entities located in different parts of the world (unless the financial information also includes reconciliations under different standards, which is a very expensive proposition for international conglomerates that operate in several countries and jurisdictions). 1.4 Therefore, in an increasingly global economy, it is imperative to use a single set of highquality accounting standards, which facilitates investment and other economic decisions across borders, increases market efficiency, and reduces the cost of raising capital. International Financial Reporting Standards (IFRS) are becoming the globally accepted accounting standards that meet the needs of the world’s increasingly integrated global capital markets. 2.

WHAT ARE INTERNATIONAL FINANCIAL REPORTING STANDARDS?

2.1 The IFRS make up a set of standards promulgated by the International Accounting Standards Board (IASB), an international standard-setting body based in London, the United Kingdom. IASB places emphasis on developing standards based on sound, clearly stated principles, from which interpretations are necessary (sometimes referred to as principles-based standards). This contrasts with sets of standards, such as U.S. generally accepted accounting principles (GAAP), the national accounting standards of the United States, which contain significantly more application guidance. These standards are sometimes referred to as rules-based standards, but that is really a misnomer as U.S. standards also are based on principles—they just contain more application guidance (or rules). IFRS also generally do not provide bright lines distinguishing between circumstances in which different accounting requirements are needed. This reduces the chances of structuring transactions to achieve particular accounting effects. 2.2 According to one school of thought, since IFRS are primarily principles-based standards, the IFRS approach to standard setting focuses more on the business or the economic purpose of a transaction and the underlying rights and obligations. Therefore, instead of providing prescriptive rules (or guidance), IFRS promulgates standards that lay down guidance in the form of principles. 3. FIRST STEPS TOWARD INTERNATIONAL ACCOUNTING AND GLOBAL STANDARD SETTING 3.1 The International Accounting Standards Committee (IASC), the predecessor of IASB, was established in 1973 and came into being through an agreement among professional accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the United States of America. The objective behind setting up the IASC was to develop, in the public interest, accounting standards that would be acceptable around the world in order to improve financial reporting internationally. 3.2 Over the years, the IASC saw several changes to its structure and functioning. For example, by the year 2000, IASC’s sponsorship grew from the original nine sponsors to 152 accounting bodies from 112 countries (i.e., all professional accountancy bodies that were members of the International Federation of Accountants [IFAC]). Such fundamental changes to the IASC may have helped it achieve its original objective by changing the perception of global standard setters about the international nature of participation in the standard-setting process of the IASC by 152 accountancy bodies and other organizations, such as IASFEI and analysts from 112 countries. 3.3 As part of their membership in IASC, professional accountancy bodies worldwide committed themselves to use their best efforts to persuade governments, standard-setting bodies, securities regulators, and the business community that published financial statements to comply with IAS. This initiative also drew the world’s attention to the fact that there exists a truly representative international accounting body that could ultimately qualify as a global standard setter and develop a single set of accounting standards that would be acceptable to most, if not all, countries worldwide.

Introduction to International Financial Reporting Standards

5

3.4 Over the years, the IASC worked hard to achieve the objective of developing accounting standards for the world. However, due to several factors (the most important one, according to one school of thought, was availability of well-developed national accounting standards in certain jurisdictions that were also recognized by other leading jurisdictions) the standards promulgated by the IASC were not accepted by some leading jurisdictions. Some believe that the IASC lacked the resources and the independence needed to be accepted as the global standard setter. These were the critical issues that were to be overcome by forming the IASB separately from the accounting bodies that were the members of IASC and IFAC. 4. STANDARDS PROMULGATED BY THE IASC INTERPRETATIONS COMMITTEE THAT ARE STILL IN FORCE 4.1 During its existence, the IASC issued 41 numbered Standards, known as International Accounting Standards (IAS), as well as a Framework for the Preparation and Presentation of Financial Statements. Some of the Standards issued by the IASC have since been withdrawn and replaced or superseded by IASB Standards. (For example, IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, was withdrawn and replaced by IFRS 7, Financial Instruments: Disclosures, and IAS 22, Business Combinations, was superseded by IFRS 3, Business Combinations). Many Standards issued by the IASC are still in force, although some have been amended by the IASC and IASB and now carry new titles. (For example, IAS 8, which was initially captioned Unusual and Prior Period Items and Change in Accounting Policies, was amended and retitled Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies; it was amended and titled Accounting Policies, Changes in Accounting Estimates and Errors). In addition, some of the Interpretations issued by the IASC’s interpretive body, the so-called Standing Interpretations Committee (SIC), are still in force. IAS Still in Force for 2011 Financial Statements IAS 1, Presentation of Financial Statements IAS 2, Inventories IAS 7, Statement of Cash Flows IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors IAS 10, Events After the Reporting Period IAS 11, Construction Contracts IAS 12, Income Taxes IAS 16, Property, Plant, and Equipment IAS 17, Leases IAS 18, Revenue IAS 19, Employee Benefits IAS 20, Accounting for Government Grants and Disclosure of Government Assistance IAS 21, The Effects of Changes in Foreign Exchange Rates IAS 23, Borrowing Costs IAS 24, Related-Party Disclosures IAS 26, Accounting and Reporting by Retirement Benefit Plans IAS 27, Consolidated and Separate Financial Statements (see note A) IAS 28, Investments in Associates IAS 29, Financial Reporting in Hyperinflationary Economies IAS 31, Interests in Joint Ventures (see note A) IAS 32, Financial Instruments: Presentation IAS 33, Earnings Per Share IAS 34, Interim Financial Reporting IAS 36, Impairment of Assets IAS 37, Provisions, Contingent Liabilities and Contingent Assets IAS 38, Intangible Assets IAS 39, Financial Instruments: Recognition and Measurement (see note B) IAS 40, Investment Property IAS 41, Agriculture

Wiley International Trends in Financial Reporting under IFRS

6

Notes A. In May 2011, the IASB issued a package of five Standards with an effective date of January1, 2013. IFRS 10 will replace SIC 12 and revise the current IAS 27, Consolidated and Separate Financial Statements (which will be revised and captioned IAS 27, Separate Financial Statements). IFRS 11 will replace IAS 31. B. The IASB has issued IFRS 9, which will replace IAS 39.

SIC Interpretations Still in Force for 2011 Financial Statements SIC 7, Introduction of the Euro SIC 10, Government Assistance—No Specific Relation to Operating Activities SIC 12, Consolidation—Special-Purpose Entities (see note) SIC 13, Jointly Controlled Entities—Nonmonetary Contributions by Venturers SIC 15, Operating Leases—Incentives SIC 21, Income Taxes—Recovery of Revalued Non-depreciable Assets SIC 25, Income Taxes—Changes in the Tax Status of an Entity or Its Shareholders SIC 27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease SIC 29, Disclosure—Service Concession Arrangements SIC 31, Revenue—Barter Transactions Involving Advertising Services SIC 32, Intangible Assets—Web Site Costs Note In May 2011, the IASB issued a package of five Standards with an effective date of January 1, 2013. One of the new Standards, IFRS 10, will subsume SIC 12 and revise the existing IAS 27.

5.

EMERGENCE OF THE INTERNATIONAL ACCOUNTING STANDARDS BOARD

5.1 With tremendous pressure on the IASC to transform itself into a truly global standardsetting body by addressing some of the serious concerns of established standard setters around the world (whose grievances were frequently quoted in the international media as serious shortcomings of the IASC), in 2001, fundamental changes were made to strengthen the independence, legitimacy, and quality of the international accounting standard-setting process. In particular, the IASC Board was replaced by the International Accounting Standards Board (IASB) as the body in control of setting international accounting and financial reporting standards. This significant structural change to the manner in which the IASC functioned was brought about as a result of the recommendations of the Strategy Working Party, which was formed to take a fresh look at the IASC’s structure and strategy. One dramatic change in the structure and functioning of the Board was the replacement of part-time volunteer Board members (nominated by member accounting bodies) with, for the most part, full-time IASB Board members appointed by independent trustees (see below). 5.2 Based on the recommendations of the Strategy Working Party, a new constitution was adopted effective July 1, 2000. Under these new rules of governance, the International Accounting Standards Committee Foundation (IASC Foundation) was born. 5.3 At its first meeting in 2001, the IASB adopted all outstanding IAS and SIC issued by the IASC as its own Standards. Those IAS and SIC continue to be in force unless they were amended or withdrawn by the IASB. New Standards issued by the IASB are known as IFRS. New interpretations issued by the IFRS Interpretations Committee are known as IFRIC Interpretations. When referring collectively to IFRS, that term includes statements that are headed or captioned IAS, SIC, IFRS, and IFRIC Interpretations. 6. GOVERNANCE AND STRUCTURE OF THE IASC FOUNDATION, MONITORING BOARD, IFRS ADVISORY COUNCIL, IASB, AND THE IFRS INTERPRETATIONS COMMITTEE 6.1

IASC Foundation and the Trustees

6.1.1 The governance of IASC Foundation rests on the shoulders of the Trustees of the foundation (IASC Foundation Trustees or, simply, Trustees). The Trustees comprise 22 individuals cho-

Introduction to International Financial Reporting Standards

7

sen from around the world. In order to ensure a broad international representation, six Trustees are appointed from North America, six from Europe, six from the Asia/Oceanic region, and four from any part of the world, subject to establishing overall geographical balance. 6.1.2 The Trustees are independent of the standard-setting activities (which is the primary responsibility of IASB Board members). The Trustees are responsible for broad strategic issues. 6.2

Monitoring Board

6.2.1 The Monitoring Board, a new body, was created in 2009 to enhance public accountability of the IASC Foundation while maintaining the operational independence of the Foundation and the IASB. 6.2.2 The Monitoring Board is comprised of capital market authorities (representatives of institutions such as the International Organization of Securities Commissions [IOSCO], the US Securities and Exchange Commission [SEC], and the European Commission). Monitoring Board responsibilities include participating in the appointment of the Trustees of the IASC Foundation, advising the Trustees in the fulfillment of their responsibilities, and holding meetings with the Trustees to discuss matters referred by the Monitoring Board to the IASC Foundation or the IASB. 6.3

IFRS Advisory Council

6.3.1 The Trustees appoint the members of the IFRS Advisory Council (which until March 2010 was called the Standards Advisory Council [SAC]). The primary responsibility of the IFRS Advisory Council is advising the IASB on agenda decisions and priorities in the IASB’s work. The IFRS Advisory Council provides a forum for organizations and individuals with diverse geographical and professional backgrounds who are interested in international financial reporting. 6.3.2 The IFRS Advisory Council comprises 40 members approximately. Members are appointed for a three-year renewable term. Currently the membership of the IFRS Advisory Council includes chief financial and accounting officers from some of the world’s largest corporations and international organizations, leading financial analysts and academics, regulators, accounting standard setters, and partners from leading accounting firms. 6.4

International Accounting Standards Board (IASB)

6.4.1 The IASB is responsible for standard-setting activities, including the development and adoption of IFRS. The Board usually meets once a month and its meetings are open to the public— in person and via the Internet. 6.4.2 The IASB comprises 14 members appointed by the Trustees: 12 full-time members and 2 part-time members. (The IASC Foundation Trustees were considering whether to expand the number of Board members from 14 to 16. With recent amendments to the constitution of the IASC Foundation, the size of the IASB is to be increased from 14 to 16 members by 2012.) 6.4.3 The Board members, who are appointed for a term up to five years, renewable once, are chosen from a variety of backgrounds, including auditors, preparers of financial statements, users of financial statements, and academics. IASB members are usually individuals who possess professional competence, high levels of technical skills, and diverse international business and market experience; possessing such personal attributes would normally ensure that the Board members are able to contribute to the development of high-quality, global accounting standards. 6.4.4 The IASB has the complete responsibility for all IASB technical matters including preparation and issuing of IFRS and Exposure Drafts that precede issuance of the final standards (i.e., the IFRS). IFRS Issued by the IASB up to December 31, 2011 IFRS 1, First-time Adoption of International Financial Reporting Standards IFRS 2, Share-Based Payment IFRS 3, Business Combinations

Wiley International Trends in Financial Reporting under IFRS

8

IFRS 4, Insurance Contracts IFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations IFRS 6, Exploration for and Evaluation of Mineral Resources IFRS 7, Financial Instruments: Disclosures IFRS 8, Operating Segments IFRS 9, Financial Instruments (effective January 1, 2013, with early adoption permitted) (see note A) IFRS 10, Consolidated Financial Statements (effective January 1, 2013, with early adoption permitted) (see note B). IFRS 11, Joint Arrangements (effective January 1, 2013, with early adoption permitted) (see note B) IFRS 12, Disclosures (effective January 1, 2013, with early adoption permitted) IFRS 13, Fair Value Measurement (effective January 1, 2013, with early adoption permitted) Notes A. IFRS 9 is the phased replacement of the existing Standard on Financial Instruments (IAS 39). The first installment was issued in November 2009. Although the original effective date of this Standard was January 1, 2013, the IASB has issued an Exposure Draft to extend the effective date further. Also, the IASB has issued Exposure Drafts for the other installments of IFRS 9. B. IFRS 10 has been issued as a replacement of SIC 12 and will revise IAS 27. IFRS 11 has been issued as a replacement of IAS 31. IFRS for SMEs In July 2009, the IASB promulgated the IFRS for Small and Medium Enterprises (SMEs). It provides Standards applicable to private entities (which are not publicly accountable as defined in this Standard). (IFRS for SMEs are not part of the IFRS but are available for use by jurisdictions seeking to set standards for SMEs.)

6.5

IFRS Interpretations Committee

6.5.1 The Trustees appoint the members of the IFRS Interpretations Committee (IFRIC; until March 2010, it was called the International Financial Reporting Interpretation Committee). The IFRIC is the IASB’s interpretive body and is in charge of developing interpretive guidance on accounting issues that are not specifically dealt with in IFRS or that are likely to receive divergent or unacceptable interpretations in the absence of authoritative guidance. The Trustees select members of the IFRIC based on personal attributes, such as technical expertise, international business and market experience in the practical application of IFRS, and analysis of financial statements prepared in accordance with IFRS. 6.5.2 The IFRS Interpretations Committee is comprised of 14 voting members. The Trustees, if they deem fit, may also appoint nonvoting observers representing regulatory bodies, who shall have the right to attend and speak at the meetings of this body. 6.5.3 The IFRS Interpretations Committee shall meet as and when required. Ten voting members present in person or by telecommunication shall constitute a quorum. 6.5.4 Meetings of the IFRS Interpretations Committee (and the IASB) are open to the public, but certain discussions may be held in private at the discretion of the Committee. IFRIC Interpretations issued up to December 31, 2011 IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 2, Members’ Shares in Cooperative Entities and Similar Instruments IFRIC 3, Emission Rights (withdrawn) IFRIC 4, Determining Whether an Arrangement Contains a Lease IFRIC 5, Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6, Liabilities Arising from Participating in a Specific Market—Waste Electrical and Electronic Equipment

Introduction to International Financial Reporting Standards

9

IFRIC 7, Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies IFRIC 8, Scope of IFRS 2 (withdrawn) IFRIC 9, Reassessment of Embedded Derivatives IFRIC 10, Interim Financial Reporting and Impairment IFRIC 11, IFRS 2—Group and Treasury Share Transactions (withdrawn) IFRIC 12, Service Concession Arrangements IFRIC 13, Customer Loyalty Programs IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction IFRIC 15, Agreements for the Construction of Real Estate IFRIC 16, Hedges of a Net Investment in a Foreign Operation IFRIC 17, Distribution of Noncash Assets to Owners IFRIC 18, Transfer of Assets from Customers IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine (issued on October 19, 2011, and effective for annual periods beginning on or after January 1, 2013, with early application permitted) 7.

GLOBAL OUTREACH AND ACCEPTANCE OF IFRS ACROSS BORDERS

7.1 In the last few years, the popularity of IFRS has grown tremendously. The international accounting standard-setting process has claimed a number of successes in achieving greater recognition and use of IFRS. 7.2 A major breakthrough came in 2002 when the European Union (EU) adopted legislation that required listed companies in Europe to apply IFRS in their consolidated financial statements. The legislation came into effect in 2005 and applies to more than 8,000 companies in 30 countries, including France, Germany, Italy, Spain, and the United Kingdom. The adoption of IFRS in Europe means that IFRS has replaced national accounting standards and requirements as the basis for preparing and presenting group financial statements for listed companies there. This adoption is considered by many as a major milestone in the history of international accounting. 7.3 Outside Europe, many other countries also have been moving to IFRS. By 2005, IFRS had become mandatory in many countries in Africa, Asia, and Latin America. In addition, Hong Kong, New Zealand, the Philippines, and Singapore have adopted national accounting standards that mirror IFRS. Australia adopted IFRS and also based its public sector reporting on IFRS. 7.4 Today, IFRS is used in over 100 countries. A significant number of global Fortune 500 companies already use IFRS. This number is expected to increase by 2013 with further conversions to IFRS by major global players (most notably Brazil, Canada, and India) and substantial convergence of local GAAPs in China and Japan to IFRS. 8.

FAVORABLE AND HISTORIC BREAKTHROUGHS IN THE UNITED STATES

8.1 In the United States, efforts have been under way since 2002 to converge IFRS and US GAAP; the earliest initiative was a well-known agreement entered into between the IASB and the US standard setter (the FASB), referred to as the Norwalk Agreement. Under the convergence project undertaken by FASB and IASB (through a memorandum of understanding), the two standard-setting boards agreed to merge their separate sets of Standards into a single, high-quality set. Under this agreement, the boards are taking the best approach from either US GAAP or IFRS or jointly developing entirely new Standards where the current Standards of neither body are deemed to be of sufficient quality. Several newly issued or revised Standards (most notably IFRS 3 and IFRS 8) are a result of such joint efforts of the boards of both standard setters. 8.2 In November 2007, the US Securities and Exchange Commission made a historic gesture by opening its doors for foreign registrants to use IFRS. In fact, this is the first time in the history of US standard setting that a non-US set of accounting standards was allowed to be used for listings

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on US stock exchanges without requiring mandatory reconciliation to US GAAP. Until the US SEC made its groundbreaking announcement, all foreign private issuers (FPIs) were required to reconcile to US GAAP financial statements filed with the US SEC if those statements were prepared using any standards other than US GAAP. Although this exception to file financial statements without reconciliation to US GAAP was limited to FPIs, it marked a major breakthrough for the IFRS in the United States. 8.3 In August 2008, the SEC went a step forward and announced a possible relaxation of its rules to permit the use of IFRS by US issuers (i.e., US domestic companies) provided certain “milestones” were achieved. Accordingly, the SEC announced a road map (the US SEC IFRS Roadmap), under which the SEC would decide whether to mandate the use of IFRS for US issuers. 8.4 The SEC later amended its initially announced plans and replaced the US SEC IFRS Roadmap with the SEC Work Plan. In February 2010, the SEC announced a new timeline that envisages 2015 as the earliest possible date for the required use of IFRS by US public companies. The SEC action calls for more study of IFRS and a vote on whether to move ahead with a mandate to use IFRS. Although it affirms the SEC’s desire to keep moving toward IFRS adoption, the new timeline offers issuers some breathing room from the 2014 deadline originally spelled out in the 2008 roadmap. The original roadmap also would have allowed certain US companies to use IFRS before 2014, but, under its new strategy, the SEC is not allowing the early adoption option and has withdrawn the proposed rules that would have permitted early adoption. 8.5 In announcing the work plan, the SEC explained that requiring US public companies to report in IFRS was a highly significant decision that it would not make unless it was certain that doing so was the best move for investors and the companies involved. At the same time, the SEC did recognize that IFRS is best positioned to serve as the single set of high-quality global accounting standards. In announcing the plan, the SEC stressed that “the [SEC] work plan does not raise any new obstacles or establish a checklist prior to the use of IFRS. . . . It sets forth key steps and processes [the SEC] staff will take to provide necessary information to the commission [the SEC] and 1 to evaluate key transitional issues in transitioning to IFRS in order to drive the process.” Therefore, the work plan mandated the SEC staff to conduct research, seek comments from, and hold discussions with investors, preparers, auditors, attorneys, and academics, among others. Recommendations from the SEC staff have been formalized, but the final decision on adoption of IFRS by the United States is expected by the end of 2012. 9.

THE WAY FORWARD

9.1 IFRS are clearly emerging as a global financial reporting benchmark. Most countries have already started using them as their benchmark standards for listed companies. However, if these international standards are not applied uniformly across the world due to interpretational differences, their effectiveness as a common medium of international financial reporting will be in question. If different entities within the region apply Standards differently based on their own interpretations, global comparison of published financial statements of entities using IFRS would be difficult. Debate still rages among accountants and auditors globally on many contentious accounting issues that need a common stand on the interpretation of the issues based on the proper understanding of the applicable Standards. 9.2 Undoubtedly, for years, US GAAP led this international race to qualify as the most acceptable set of accounting standards worldwide. However, for several reasons, including the highly publicized corporate debacles at Enron, the global choice of most countries apparently has tilted in favor of IFRS. Indeed, many countries have stopped replacing their existing requirements with US GAAP. 9.3 With the current acceptance of IFRS in over 100 countries, IFRS has made tremendous strides toward global acceptance. However, some believe that the race for global acceptance of accounting standards is not over yet. Although a significant number of countries have adopted IFRS, 1

Journal of Accounting (February 2012).

Introduction to International Financial Reporting Standards

11

some very important jurisdictions have not yet completely accepted or converged with IFRS as their national GAAP or allowed their use by their domestic companies either fully or as an alternative to their national GAAP; these countries include the United States, China, Japan, and India. Unless such major economic powers converge with IFRS or accept them as their national GAAP, it may be difficult to call IFRS a worldwide set of accounting and financial reporting standards. 9.4 The United States may accept IFRS for use by domestic users under a newly announced “condorsement” approach (a combination of “convergence” and “endorsement”). The term “condorsement” was introduced by Paul A. Beswick, the deputy chief accountant of the SEC, while addressing the American Institute of Certified Public Accountants (AICPA) National Conference in Washington, DC, 2010. The condorsement approach (regarded by some as a hybrid model to adopt IFRS in the United States) has been reported extensively in accounting literature in the United States and has received support from the SEC and several other stakeholders, including the AICPA. 9.5

Extract from the SEC Staff Paper

Section 9.5.1 is an extract from the SEC Staff Paper dated May 26, 2011 (www.sec.gov/ spotlight/globalaccountingstandards/ifrs-work-plan-paper-052611.pdf) 9.5.1 Overview At the end of [the transitional] period, the objective would be that a U.S. issuer compliant with U.S. GAAP should also be able to represent that it is compliant with IFRS as issued by the IASB. Incorporation of IFRS through the framework would have the objective of achieving the goal of having a single set of high-quality, globally accepted accounting standards, while doing so in a practical manner that could minimize both the cost and effort needed to incorporate IFRS into the financial reporting system for U.S. issuers. It also would align the United States with other jurisdictions by retaining the national standard setter’s authority to establish accounting standards in the United States.

9.5.2 Future Role of the FASB in the United States According to the SEC Staff Paper In addition to incorporating new IFRS amendments into U.S. GAAP, the FASB also would exercise its authority as the national standard setter when it found, based on its experience in the ongoing interpretation or application of IFRSs incorporated into U.S. GAAP, that supplemental or interpretive guidance was needed for the benefit of U.S. constituents. Under the framework, the FASB should initially address this situation by informing the IASB of the potential gaps in authoritative guidance and providing the IASB a recommended solution to address the practice issues, but ultimately, the FASB could conclude an acceptable solution is not reached or the issue is not being addressed in a time frame consistent with the needs of the U.S. capital markets. Accordingly, the FASB could exercise its authority in one or more of the following ways: • • •

Adding disclosure requirements to those specified by IFRS, to address U.S. circumstances in a manner consistent with IFRS; Prescribing which of two or more alternative accounting treatments permitted by IFRS on a particular issue should be adopted by U.S. issuers, to achieve greater consistency in U.S. practice; or Setting requirements compatible with IFRS on issues not addressed specifically by IFRS. In particular, the FASB could decide to carry forward certain such requirements that already exist in U.S. GAAP, with any necessary conforming amendments.

If the FASB were to exercise this authority, a U.S. “flavor” of IFRS could result. However, U.S.specific circumstances for which the FASB would consider modifying IFRS should be similar to the circumstances in which the Commission exercises its authority to amend or add to the standards issued by the FASB and, therefore, modifications should be rare and generally avoidable.

The SEC is yet to make a decision as to whether and, if so, how to incorporate IFRS into the financial reporting system for US issuers. The SEC Staff Paper notes that it is not intended to suggest that the SEC has decided to incorporate IFRS or that the condorsement approach is the preferred or only possible approach. The paper also notes the SEC staff is continuing to consider the

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possible mechanics and implications of an early-adoption option for US issuers to use IFRS and how it would work in the context of the approach explored in the paper or otherwise. 9.6 Most predict that the IFRS will become the globally accepted standard, but no one knows when: in five years, ten years, or whenever. However, some accounting gurus believe that until economic super-powerhouses such as China, India, and Japan announce their full commitment to domestic adoption of IFRS, there will be a yawning gap in the achievement of true global convergence. To a large extent, the decision of the United States would bridge this gap and be felt far beyond the borders of the country. If US domestic companies are required to use IFRS, the future of the Standards would change dramatically.

Chapter 2 IASB FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

1.

OBJECTIVE

1.1 The International Accounting Standards Board (IASB) Framework for the Preparation and Presentation of Financial Statements (the Framework), also referred to as the “conceptual framework” in some jurisdictions, sets out the concepts that underlie the preparation and presentation of financial statements (i.e., the objectives, assumptions, characteristics, definitions, and criteria that govern financial reporting). 1.2 The Framework is not a Standard nor does it have the force of a Standard. It serves as a guide in developing new and revised Standards. In case of a conflict between the IASB Framework and a specific IASB Standard, the Standard prevails over the Framework. 2.

SYNOPSIS OF THE IASB FRAMEWORK

This summary of the Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users. 2.1

The Framework addresses • The objective of financial statements • Underlying assumptions • Qualitative characteristics that determine the usefulness of information in financial statements • The definition, recognition, and measurement of the elements from which financial statements are constructed • Concepts of capital and capital maintenance

2.2 The objective of financial statements is to provide information about the financial position, performance, and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. Such users include investors deciding whether to sell or hold an investment in the entity or employees assessing an entity’s ability to provide benefits to them. 13

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2.3 Two assumptions underlying the preparation and presentation of financial statements are the accrual basis and going concern. 2.3.1 When financial statements are prepared on the accrual basis of accounting, the effects of transactions and other events are recognized when they occur (as opposed to when cash or its equivalent is received or paid). They are recorded in the accounting records and reported in the financial statements of the periods to which they relate. 2.3.2 When financial statements are prepared on a going concern basis, it is presumed that the entity will continue in operation for the foreseeable future. In other words, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations in the foreseeable future, which, according to IAS 1, is at least a period of 12 months from the end of the reporting period. 2.4 According to the Framework, the four principal qualitative characteristics (i.e., attributes that make the information provided in a set of financial statements useful to users) are understandability, relevance, reliability, and comparability. 2.4.1 Financial statements should provide information that is understood by users of financial statements. In other words, the requirement of the Framework is that the information contained in a set of financial statements should be • “Understandable” by a “user” of the financial statements; • Who has “reasonable knowledge of business and economic activities and accounting; and • Who has the “willingness to study the information with reasonable diligence.” 2.4.2 Information provided by a set of financial statements is considered relevant if it has the ability to influence the economic decisions of users and is provided to users in a timely manner to influence their decisions. The concept of relevance is closely related to the concept of “materiality.” The Framework describes “materiality” as a threshold or cut-off point for information whose omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. 2.4.3 Information provided by financial statements may be relevant, but if it is not reliable, it is of little use. According to the Framework, to be reliable, information must • Be free from material error; • Be neutral, that is, free from bias; • Represent faithfully the transactions and other events it either purports to represent or could reasonably be expected to represent (representational faithfulness). If information is to represent faithfully the transactions and other events that it purports to represent, the Framework specifies that transactions and other events need to be accounted for and presented in accordance with their substance and economic reality even if their legal form is different (substance over form); and • Be complete within the bounds of materiality and cost. Related to the concept of reliability is prudence, whereby preparers of financial statements should include a degree of caution in exercising judgment needed in making estimates, such that assets or income are not overstated and liabilities and/or expenses are not understated. 2.4.4 Comparability refers to information being comparable through time and across entities. To achieve comparability, like transactions and events should be accounted for similarly by an entity throughout an entity, over time for that entity, and by different entities. 2.4.5 In practice, there are often trade-offs between different qualitative characteristics of information. In these situations, an appropriate balance among the characteristics must be achieved in order to meet the objective of financial statements.

IASB Framework for the Preparation and Presentation of Financial Statements

2.5

15

Elements of Financial Statements

2.5.1 The Framework describes the elements of financial statements as broad classes of financial effects of transactions and other events. The elements of financial statements are • Assets. An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. • Liabilities. A liability is a current obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. • Equity. Equity is the residual interest in the assets of the entity after deducting all its liabilities. • Income. Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. • Expenses. Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. 2.5.2 According to the Framework, an item that meets the definition of an element should be recognized if • It is probable that any future economic benefit associated with the item will flow to or from the entity and • The item has a cost or value that can be measured with reliability. 2.5.3 The Framework notes that the most common measurement basis in financial statements is historical cost. Other measurement bases, such as current cost, realizable or settlement value, and present value, are also used. 2.6

Concepts of Capital and Capital Maintenance

2.6.1 The Framework distinguishes between a financial concept of capital and a physical concept of capital. Most entities use a financial concept of capital, under which capital is defined in monetary terms as the net assets or equity of the entity. Under a physical concept of capital, capital is instead defined in terms of physical productive capacity of the entity. 2.6.2 Under the financial capital maintenance concept, a profit is earned if the financial amount of the net assets at the end of the period exceeds the financial amount of net assets at the beginning of the period, after excluding any distributions to and contributions from owners during the period. 2.6.3 Under the physical capital maintenance concept, a profit is earned if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to and contributions from owners during the period. 3.

FUTURE DEVELOPMENTS

IASB in October 2004 added a project to its agenda to develop a conceptual new framework (a project being pursued jointly by IASB and FASB [Financial Accounting Standards Board]). IASB’s project is being developed in eight stages (Phases A to H). Only the first stage has been finalized to date; the other stages are still in the process of development. On September 28, 2010, IASB and FASB completed the first phase of their joint project to develop a converged and improved conceptual framework. It not only changed the title of the framework, it also updated the definitions of the objective of financial reporting and the qualitative characteristics of useful information. The objective of financial reporting is the foundation of IASB’s Framework 2010. It defines who the primary audience is and what the Framework should be providing to them. The qualitative characteristics are the qualities that IASB believes financial information must have to meet the objective.

Section II PRESENTATION OF FINANCIAL STATEMENTS

Chapter 3: Presentation of Financial Statements (IAS 1) SIC 29, Service Concession Arrangements:

Disclosure IFRIC 2, Members’ Shares in Co-operative

Entities and Similar Instruments IFRIC 17, Distribution of Non-Cash Assets to

Owners Chapter 4: Statement of Cash Flows (IAS 7) Chapter 5: Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8) Chapter 6: Events after the Reporting Date (IAS 10)

17

Chapter 3 PRESENTATION OF FINANCIAL STATEMENTS (IAS 1)

1.

OBJECTIVE

1.1 International Accounting Standard (IAS) 1, Presentation of Financial Statements, prescribes the basis for the presentation of “general-purpose financial statements” (defined later) in order to ensure comparability of the entity’s financial statements with previous periods and with financial statements of other entities. 1.2 It provides guidance on the general principles of preparation of financial statements, minimum disclosures and content of financial statements prepared under International Financial Reporting Standards (IFRS) (other than the “statement of cash flows,” guidance on which is prescribed in IAS 7, Statement of Cash Flows). 2.

SYNOPSIS OF THE STANDARD

This summary of the Standard sets the overall requirements for the preparation and presentation of financial statements. 2.1 This Standard provides guidance on the fundamental principles of preparing financial statements such as going concern, accrual basis, materiality, offsetting, frequency of reporting, comparative information, consistency of presentation, fair presentation, and an explicit statement of compliance with IFRS. This Standard applies to “general-purpose financial statements,” which are defined by the Standards as “those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.” 2.2

A complete set of financial statements comprises • • • • •

A statement of financial position A statement of comprehensive income A statement of changes in equity A statement of cash flows Notes

An entity is permitted to present financial statements under IFRS using titles other than those just listed for the various components of the financial statements. In other words, IAS 1 does not 19

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restrict entities from using titles of the financial statements such as “balance sheet” and “cash flow statement” that were used under IAS 1 prior to the 2007 amendment of this Standard. 2.3 Financial statements should present current-year and comparative figures (for the prior period). When an accounting policy is applied retrospectively or items in the financial statements have been restated or reclassified, a “statement of financial position” as at the beginning of the earliest comparative period is to be presented. (Stated differently, in such cases, three-year figures for the statement of financial position are to be presented.) 2.4 This Standard prescribes minimum line items to be presented in the statement of financial position, statement of comprehensive income, and statement of changes in equity. (IAS 7 prescribes guidance on line items to be presented in the statement of cash flows.) The Standard also provides guidance for identifying additional line items under certain circumstances (i.e., when items of income or expense are material, an entity should disclose their nature and amount separately). (Examples of circumstances that may give rise to separate disclosure of income and expense are material write-downs of inventories to net realizable value and reversals of such writedowns.) 2.5 In a statement of financial position, an entity shall present current and noncurrent assets and current and noncurrent liabilities as separate classifications except when such a presentation based on liquidity provides more reliable and relevant information. 2.6 The statement of comprehensive income includes all items of income and expense that are nonowner changes in equity. These include both components of profit or loss and of “other comprehensive income” (i.e., items of income and expense that are not recognized in profit or loss as required or permitted by other IFRS). 2.6.1 The statement of comprehensive income may be presented either as • A single statement of comprehensive income (in which there is a subtotal for profit or loss) or • Two statements—that is, a separate income statement, displaying components of profit or loss, and a statement of comprehensive income, beginning with profit or loss and displaying components of other comprehensive income. 2.6.2 In a statement of comprehensive income or in the separate income statement (if presented), an entity should present an analysis of expenses recognized in profit or loss using a classification based on their “nature” or their “function.” If an entity decides to present by function, it is required to present additional disclosures on the nature of certain specific expenses, including depreciation and amortization expense and employee benefits expense, in the notes to the financial statements. 2.7

In a statement of changes of equity, an entity is required to present the • Total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to the noncontrolling interests. • For each component of equity, the effects of retrospective application or retrospective restatement recognized in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. • For each component of equity, reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from profit or loss, each item of “other comprehensive income,” and transactions with owners in their capacity as owners (i.e., contributions by and distributions to owners).

2.8

In the notes to the financial statements, an entity should disclose • A summary of significant accounting policies used in preparing the financial statement. • The judgments that management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognized in the financial statement.

Presentation of Financial Statements (IAS 1)

21

• The assumptions the entity makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of occurring. • Information about management of capital and compliance with capital requirements. 3.

OTHER DISCLOSURES (PER IAS 1)

3.1

In addition to the preceding disclosures, an entity shall also disclose in the notes • Amount of dividends proposed or declared before the financial statements were authorized for issue but not recognized as a distribution to owners during the period, and the related amount per share. • Amount of any cumulative preference dividends not recognized.

3.2 If not disclosed elsewhere in information published with the financial statements, an entity shall disclose • The domicile and legal form of the entity, its country of incorporation, and the address of its registered office (or principal place of business, if different from the registered office). • A description of the nature of the entity’s operations and its principal activities. • The name of the parent and the ultimate parent of the group. • If it is a limited-life entity, information regarding the length of its life. 4.

SIC 29, SERVICE CONCESSION ARRANGEMENTS: DISCLOSURES

4.1.

A service concession arrangement usually involves • The grantor conveying to the operator, for the period of the concession, the right to provide the services that give the public access to major economic and social facilities and, in some cases, the right to use specified assets (i.e., tangible, intangible, or financial assets) • In exchange for the operator committing to provide the services according to the terms and conditions of the concession during the period of the concession; and, when applicable, committing to return at the end of the concession period the rights received or acquired.

4.2 While certain aspects and disclosures relating to some service concession arrangements are already covered by existing IFRS (such as IAS 16, Property, Plant, and Equipment, IAS 17, Leases, and IAS 38, Intangible Assets), executor contracts that are present in service concession arrangements are not addressed in IFRS unless they are onerous contracts, as outlined in IAS 37, Provisions, Contingent Liabilities, and Contingent Assets. Therefore, Standing Interpretations Committee (SIC) 29 addresses additional disclosures of service concession arrangements. 4.3

Disclosures (under SIC 29)

4.3.1 All aspects of a service concession arrangement (disclosed individually for each arrangement or in the aggregate for each class of arrangements) shall be considered in making disclosures in the notes. 4.3.2 The next disclosures shall be made by an operator and a grantor: • A description of the service concession arrangement • Significant terms of the service concession arrangement that affect the amount, timing, and certainty of the future cash flows • The nature and extent (quantity, time and amount) of • The rights to use specified assets • Obligations to provide the rights • Obligations to acquire or build assets

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• Obligations to deliver or rights to receive specified assets at the end of the concession period • Options to renew or terminate • Other rights and obligations under the service concession arrangement 4.3.3 The operator shall disclose the amount of revenue and profits or losses recognized in the period on exchanging construction services for a financial asset or an intangible asset. 5. IFRIC 2, MEMBERS’ SHARES IN CO-OPERATIVE ENTITIES AND SIMILAR INSTRUMENTS 5.1 International Financial Reporting Interpretations Committee (IFRIC) 2 gives guidance on how the redemption terms in the case of members’ shares in cooperative entities should be evaluated in determining whether the shares should be classified as financial liabilities or as equity. Under this interpretation, shares for which the member has the right to request redemption are normally liabilities. However, they are equity if the entity has an unconditional right to refuse redemption or if local law, regulation, or the entity’s governing charter imposes prohibitions on redemption. 6.

IFRIC 17, DISTRIBUTION OF NON-CASH ASSETS TO OWNERS

6.1 Under this Interpretation, the entity should measure the liability to distribute noncash assets as dividends to the owners at fair value of the assets that are to be distributed. If at the time of settlement there is a difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable, this difference should be recognized in the profit and loss. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Anheuser-Busch InBev NV Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Statement of Compliance (E) Summary of changes in accounting policies The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010. Revised IFRS 3 Business Combinations (2008) Revised IFRS 3 Business Combinations (2008) incorporates the following changes that are likely to be relevant to AB InBev’s operations: The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations; Contingent consideration will be measured at fair value, with subsequent changes therein recognized in profit or loss; Transaction costs, other than share and debt issue costs, will be expensed as incurred; Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognized in profit or loss; Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. The company adopted the revised standard as of 1 January 2010 with no material effect on its financial result or financial position. Please refer to Note 6 Acquisition and disposal of subsidiaries for more details. Amended IAS 27 Consolidated and Separate Financial Statements (2008) Amended IAS 27 Consolidated and Separate Financial Statements (2008) requires accounting for changes in ownership interests by AB InBev in a subsidiary, while maintaining control, to be recognized as an equity transaction. When

Presentation of Financial Statements (IAS 1)

23

AB InBev loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The company adopted the amendment as of 1 January 2010. The effect for changes in ownership interests, while maintaining control, is disclosed in Note 23 Changes in equity and earnings per share. The effect from loss of control of a subsidiary and the measurement at fair value of the retained interest is disclosed in Note 6 Acquisition and disposal of subsidiaries. IAS 28 Investments in Associates (2008) The principle adopted under IAS 27 (2008) (see above) that a loss of control is recognized as a disposal and reacquisition of any retained interest is measured at fair value is extended by consequential amendments to IAS 28. Therefore, when significant influence over an associate is lost, the investment measures any investments retained in the former associate at fair value, with any consequential gain or loss recognized in profit or loss. The company adopted the revised standard as of 1 January 2010 with no material effect on its financial result or financial position. IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 17 Distributions of Non-cash Assets to Owners addresses the treatment of distributions in kind to shareholders. A liability has to be recognized when the dividend has been appropriately authorized and is no longer at the discretion of the entity, to be measured at the fair value of the non-cash assets to be distributed. Outside the scope of IFRIC 17 are distributions in which the assets being distributed are ultimately controlled by the same party or parties before and after the distribution (common control transactions). The company adopted the interpretation as of 1 January 2010 with no material effect on its financial result or financial position. IFRIC 18 Transfers of Assets from Customers IFRIC 18 Transfers of Assets from Customers addresses the accounting by access providers for property, plant and equipment contributed to them by customers. Recognition of the assets depends on who controls them. When the asset is recognized by the access provider, it is measured at fair value upon initial recognition. The timing of the recognition of the corresponding revenue depends on the facts and circumstances. The company adopted the interpretation as of 1 January 2010 with no material effect on its financial result or financial position. Amendment to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items Amendment to IAS39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items provides additional guidance concerning specific positions that qualify for hedging (“eligible hedged items”). The company adopted the amendment as of 1 January 2010 with no material effect on its financial result or financial position. Improvements to IFRSs (2009) Improvements to IFRSs (2009) are a collection of minor improvements to existing standards. The company adopted the improvement as of 1 January 2010 with no material effect on its financial result or financial position. Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues allows rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency to be classified as equity instruments provided the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. The company adopted the amendment as of 1 January 2010 with no material effect on its financial result or financial position. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments provides guidance on the accounting for debt for equity swaps. The company adopted the interpretation as of 1 January 2010 with no material effect on its financial result or financial position.

Wiley International Trends in Financial Reporting under IFRS

24

Revised IAS 24 Related Party Disclosures (2009) Revised IAS 24 Related Party Disclosures amends the definition of a related party and modifies certain related party disclosure requirements for government-related entities. The company adopted the revised standard as of 1 January 2010 with no material effect on its financial result or financial position. Amendments to IFRIC 14 IAS 19 The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Amendments to IFRIC14 IAS 19 The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction removes unintended consequences arising from the treatment of prepayments where there is a minimum funding requirement. These amendments result in prepayments of contributions in certain circumstances being recognized as an asset rather than an expense. The company adopted the amendment as of 1 January 2010 with no material effect on its financial result or financial position.

BAE SYSTEMS Annual Report 2010 Consolidated income statement For the year ended 31 December Total £m

Restated1 2009 Total £m £m

3

22,392

21,990

3 3 4 5

(1,295) 21,097 (19,761) 169

(1,616) 20,374 (20,060) 465

2010 Notes Continuing operations Combined sales of Group and equity accounted investments Less: share of sales of equity accounted investments Revenue Operating costs Other income Group operating profit excluding amortisation and impairment of intangible assets Amortisation Impairment Group operating profit Share of results of equity accounted investments excluding finance costs and taxation expense Financial (expense)/income of equity accounted investments Taxation expense of equity accounted investments Share of results of equity accounted investments EBITA2 excluding non-recurring items Profit on disposal of businesses3 Pension curtailment gains3 Regulatory penalties4 EBITA2 Amortisation Impairment Financial (expense)/income of equity accounted investments Taxation expense of equity accounted investments Operating profit Finance costs Financial income Financial expense

11 11

£m

2,022 (392) (125)

2,038 (286) (973) 1,505

6

779

177

210

(2)

2

(144) 14

(25) 131

187

11 11

2,214 1 2 (18) 2,199 (392) (125)

2,197 68 261 (278) 2,248 (286) (973)

6

(2)

(2

9

(44) 3 6

(25) 1,636

1,358 (1,550)

966 1,573 (2,273)

(192)

(700)

Presentation of Financial Statements (IAS 1)

25

2010 Notes Profit before taxation Taxation expense UK taxation Overseas taxation Profit/(loss) for the year – continuing operations Profit for the year – discontinued operations Profit/(loss) for the year Attributable to: BAE Systems shareholders Non-controlling interests

£m

Total £m 1,444

Restated1 2009 Total £m £m 266

8 (152) (265) 9

(105) (222) (417) 1,027 54 1,081

(327) (61) 16 (45)

1,052 29 1,081

(67) 22 (45)

Earnings/(loss) per share Basic earnings/(loss) per share Diluted earnings/(loss) per share

30.5p 30.3p

(1.9)p (1.9)p

Earnings/(loss) per share – continuing operations Basic earnings/(loss) per share Diluted earnings/(loss) per share

28.9p 28.7p

(2.3)p (2.3)p

1

2 3 4

Restated following the sale of half of the Group’s 20.5% shareholding in Saab AB and subsequent classification as a discontinued operation (see note 9). Earnings before amortisation and impairment of intangible assets, finance costs and taxation expense. Included in other income. Included in operating costs

Consolidated statement of comprehensive income For the year ended 31 December

Notes Profit/(loss) for the year Other comprehensive income Currency translation on foreign currency net investments: Subsidiaries Equity accounted investments Amounts charged to hedging reserve Gain on revaluation of step acquisition Net actuarial gains/(losses) on defined benefit pension schemes3: Subsidiaries Equity accounted investments Fair value movements on available-for-sale investments Recycling of cumulative currency translation reserve on disposal Recycling of cumulative net hedging reserve on disposal Current tax on items taken directly to equity

2010 Other Retained reserves earnings £m £m — 1,081

Restated1 2009 Total £m 1,081

Total £m (45)

160 (6) (84) –

– – – –

160 (6) (84) –

(246) (56) (393) 14

– – –

874 40 14

874 40 14

(2,008) (54) 2

(17)

–

(17)

–

(4)

–

(4)

–

(2) 24

70 (309)

68 (285)

78 573

Wiley International Trends in Financial Reporting under IFRS

26

2010 Other Retained reserves earnings £m £m

Notes Deferred tax on items taken directly to equity: Subsidiaries Tax rate adjustment4 8 Equity accounted investments Total other comprehensive income for the year (net of tax) Total comprehensive income for the year Attributable to: Equity shareholders Non-controlling interests

Restated1 2009 Total £m

Total £m

– – 71 71

(23) (12) 654 1,735

(23) (12) 725 1,806

– 16 (2,074) (2,119)

71 – 71

1,706 29 1,735

1,777 29 1,806

(2,141) 22 (2,119)

71 — 71

1,706 29 1,735

1,777 29 1,806

(2,074) 22 (2,119)

Consolidated statement of changes in equity For the year ended 31 December

At 1 January 2010 Profit for the year Total other comprehensive income for the year Share-based payments Share options: Proceeds from shares issued Purchase of own shares Purchase of treasury shares5 Other Ordinary share dividends At 31 December 2010 At 1 January 2009 (Loss)/profit for the year Total other comprehensive income for the year Share-based payments Share options: Proceeds from shares issued Purchase of own shares Ordinary share dividends At 31 December 2009 (restated1) 1

2 3

4

5

Attributable to equity holders of the parent Issued share Share Other Retained capital capital reserves2 earnings Total £m £m £m £m £m 90 1,243 5,399 (2,141) 4,591 – – – 1,052 1,052

Noncontrolling interests £m 72 29

Total equity £m 4,663 1,081

– –

– –

71 –

654 58

725 58

– –

725 58

– –

6 –

– –

– (23)

6 (23)

– –

6 (23)

– – – 90 90 –

– – – 1,249 1,238 –

– – – 5,470 5,974 –

(503) – (574) (1,477) (68) (67)

(503) – (574) 5,332 7,234 (67)

– 2 (32) 71 55 22

(503) 2 (606) 5,403 7,289 (45)

– –

– –

(575) –

(1,499) 52

(2,074) 52

– –

(2,074) 52

– – –

5 – –

– – –

– (25) (534)

5 (25) (534)

90

1,243

5,399

(2,141)

4,591

– – (5) 72

5 (25) (539) 4,663

Other reserves reduced by £64m following finalisation of the fair values recognised on acquisition of the 45% shareholding in BVT Surface Fleet Limited (see note 29). An analysis of other reserves is provided in note 24. Includes a £348m benefit arising from the change from the Retail Prices Index to the Consumer Prices Index as the measure for determining minimum statutory pension increases (see note 21). The UK current tax rate will be reduced from 28% to 27% with effect from 1 April 2011, which creates a tax rate adjustment (see note 8). Includes transaction costs of £3m.

Presentation of Financial Statements (IAS 1)

27

Consolidated balance sheet as at 31 December 2010 £m

Restated1 2009 £m

11 12 13 14 15 16 17 8

11,216 2,714 134 787 11 282 110 1,160 16,414

11,306 2,552 111 846 6 201 133 1,531 16,686

18

644

887

16

3,559 51 260 289 2,813 7,616 24,030

3,764 32 211 216 3,693 8,803 25,489

19 20 21 17 8 22

(2,133) (694) (3,456) (255) (6) (425) (6,969)

(2,840) (522) (4,679) (261) (8) (377) (8,687)

19 20 17

(920) (9,352) (109) (625) (652) (11,658) (18,627) 5,403

(453) (10,381) (94) (659) (552) (12,139) (20,826) 4,663

90 1,249 5,470 (1,477) 5,332 71 5,403

90 1,243 5,399 (2,141) 4,591 72 4,663

Notes Non-current assets Intangible assets Property, plant and equipment Investment property Equity accounted investments Other investments Other receivables Other financial assets Deferred tax assets Current assets Inventories Trade and other receivables including amounts due from customers for contract work Current tax Other investments Other financial assets Cash and cash equivalents Total assets Non-current liabilities Loans Trade and other payables Retirement benefit obligations Other financial liabilities Deferred tax liabilities Provisions Current liabilities Loans and overdrafts Trade and other payables Other financial liabilities Current tax Provisions

15 17 3

22

Total liabilities Net assets Capital and reserves Issued share capital Share premium Other reserves Accumulated losses Total equity attributable to equity holders of the parent Non-controlling interests Total equity 1

24 24

Restated following finalisation of the fair values recognised on acquisition of the 45% shareholding in BVT Surface Fleet Limited (see note 29).

28

Wiley International Trends in Financial Reporting under IFRS

Consolidated cash flow statement for the year ended 31 December

Notes Profit/(loss) for the year – continuing operations Profit for the year – discontinued operations Profit/(loss) for the year Taxation expense Share of results of equity accounted investments – continuing operations Share of results of equity accounted investments – discontinued operations Net finance costs Depreciation, amortisation and impairment Gain on disposal of property, plant and equipment Gain on disposal of businesses – continuing operations Gain on disposal of businesses – discontinued operations Cost of equity-settled employee share schemes Movements in provisions Decrease in liabilities for retirement benefit obligations Decrease/(increase) in working capital: Inventories Trade and other receivables Trade and other payables Cash inflow from operating activities Interest paid Interest element of finance lease rental payments Taxation paid Net cash inflow from operating activities Dividends received from equity accounted investments – continuing operations Dividends received from equity accounted investments – discontinued operations Interest received Purchases of property, plant and equipment Purchases of investment property Purchases of intangible assets Proceeds from sale of property, plant and equipment Proceeds from sale of investment property Purchase of subsidiary undertakings Cash and cash equivalents acquired with subsidiary undertakings Purchase of equity accounted investments Equity accounted investment funding Proceeds from sale of subsidiary undertakings – continuing operations Proceeds from sale of equity accounted investments – continuing operations Proceeds from sale of equity accounted investments – discontinued operations Purchase of other deposits/securities Net cash outflow from investing activities

2010 £m 1,027 54 1,081 417

Restated1 2009 £m (61) 16 (45) 327

14

(131)

(187)

9

(2) 192 899 (13) (1) (52) 58 101 (452)

(16) 700 1,600 (17) (68) – 52 52 (657)

318 183 (1,063) 1,535 (220) (1) (352) 962

6 52 433 2,232 (250) (2) (350) 1,630

4, 5 6 9

14

67

74

14

27

4 48 (394) (14) (19) 68 2 (198)

3 66 (483) – (42) 36 – (357)

27 27 14

19 (2) (7)

33 (1) –

9

–

2

9

1

70

9 16

92 (40) (373)

– (209) (808)

Presentation of Financial Statements (IAS 1)

29

Notes Capital element of finance lease rental payments Proceeds from issue of share capital Purchase of treasury shares Purchase of own shares Equity dividends paid Dividends paid to non-controlling interests Cash (outflow)/inflow from matured derivative financial instruments Cash inflow/(outflow) from movement in cash collateral Cash inflow from loans Cash outflow from repayment of loans Net cash (outflow)/inflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rate changes on cash and cash equivalents Cash and cash equivalents at 31 December Comprising: Cash and cash equivalents Overdrafts Cash and cash equivalents at 31 December 1

28

2010 £m (7) 6 (503) (23) (574) (32)

Restated1 2009 £m (13) 5 – (25) (534) (5)

(123) 11 1,317 (1,576) (1,504) (915) 3,678

36 (11) 920 (133) 240 1,062 2,605

39 2,802

11 3,678

2,813 (11) 2,802

3,693 (15) 3,678

Restated following the sale of half of the Group’s 20.5% shareholding in Saab AB and subsequent classification as a discontinued operation (see note 9).

Crédit Agricole S.A. Annual Report 2010 Consolidated financial statements for the year ended 31 December 2010 INCOME STATEMENT In millions of euros Notes Interest receivable and similar income 4.1 Interest payable and similar expense 4.1 Commission and fee income 4.2 Commission and fee expense 4.2 Net gains (losses) on financial instruments at fair value through profit or loss 4.3 Net gains (losses) on available-for-sale financial assets 4.4–6.4 Income related to other activities 4.5 Expenses related to other activities 4.5 Net banking income Operating expenses 4.6–7.1–7. 4–7.6 Depreciation, amortisation and impairment of property, plant & equipment and intangible assets 4.7 Gross operating income Cost of risk 4.8 Operating income Share of profit in equity-accounted entities 2.3 Net gains (losses) on disposal of other assets 4.9 Change in value of goodwill 2.6 Pre-tax income Income tax expense 4.10 After-tax income from discontinued or held-for-sale operations Net income Minority interests NET INCOME, GROUP SHARE Earnings per share (5) (in euros) 6.17 Diluted earnings per share (5) (in euros) 6.17 (1)

31/12/2010 32,374 (17,480) 10,775 (5,879)

31/12/2009 35,346 (21,056) 9,798 (5,022)

2,300 3,147 30,684 (35,792) 20,129 (12,448)

4,883 172 26,450 (32,629) 17,942 (11,516)

(739) 6,942 (3,777) 3,165 65(6) (177)(3) (445)(4) 2,608 (877) 21 1,752 489 1,263 0.540 0.540

(666) 5,760 (4,689) 1,071 847 67(1) (486)(4) 1,499 (211) 158(2) 1,446 321 1,125 0.499 0.499

Mainly comprises gains on the disposal of Emporiki branches (€40 million), on the sale of CPR Online to a subsidiary of the Regional Banks (€15.8 million) and on the disposal of PFI (€5 million).

Wiley International Trends in Financial Reporting under IFRS

30

(2)

(3) (4) (5) (6)

Includes €145 million in net gains on the disposal of Crédit du Sénégal, Union Gabonaise de Banque, Société Ivoirienne de Banque and Crédit du Congo and €13 million in after-tax net income for the retail banking network in West Africa. Mainly comprises income from the disposal of Intesa Sanpaolo securities. Mainly comprises goodwill impairment on Emporiki. Income, including net income from discontinued operations. Includes the net impact of deconsolidation of Intesa Sanpaolo for -€1,243 million.

STATEMENT OF COMPREHENSIVE INCOME In millions of euros Gains or losses on translation adjustments Gains or losses on available-for-sale securities Gains and losses on hedging derivative instruments Actuarial gains or losses on post-employment benefits Other comprehensive income, excluding equity-accounted entities, Group share Share of other comprehensive income from equity-accounted entities (1) Total other comprehensive income, Group share Net income, Group share Net income and other comprehensive income, Group share Net income and other comprehensive income, minority interests Net income and other comprehensive income (1)

Notes

4, 11

31/12/2010 129 (890) (101) (32)

31/12/2009 (43) 2,657 (85)

(894)

2,529

(102) (996) 1,263 267

72 2,601 1,125 3,726

534 801

361 4,087

The “Share of other comprehensive income from equity-accounted entities” is included in Crédit Agricole S.A.’s consolidated reserves. Amounts are disclosed after tax.

BALANCE SHEET—ASSETS In millions of euros Cash due from central banks Financial assets at fair value through profit or loss Hedging derivative instruments Available-for-sale financial assets Loans and receivables to credit institutions Loans and receivables to customers Revaluation adjustment on interest rate hedged portfolios Held-to-maturity financial assets Current and deferred tax assets Accruals, prepayments and sundry assets Non-current assets held for sale Deferred profit sharing Investment in equity-accounted entities Investment properties Property, plant and equipment Intangible assets Goodwill TOTAL ASSETS

Notes 6.1 3.1–6.2 3.1–3.2–3.4 6.4–6.6 3.1–3.3–6.5–6.6 3.1–3.3–6.5–6.6 6.6–6.8 6.10 6.11 6.12 6.15 2.3 6.13 6.14 6.14 2.6

31/12/2010 29,325 413,656 23,525 225,757 363,843 383,246 4,867 21,301 7,731 70,534 1,581 1,496 18,111 2,651 5,202 1,743 18,960 1,593,529

31/12/2009 34,732 427,027 23,117 213,558 338,420 362,348 4,835 21,286 6,084 76,485 598 20,026 2,658 5,043 1,693 19,432 1,557,342

Presentation of Financial Statements (IAS 1)

31

BALANCE SHEET—EQUITY AND LIABILITIES In millions of euros Due to central banks Financial liabilities at fair value through profit or loss Hedging derivative instruments Due to banks Due to customers Debt securities Revaluation adjustment on interest rate hedged portfolios Current and deferred tax liabilities Accruals, prepayments and sundry liabilities Liabilities associated with non-current assets held for sale Insurance company technical reserves Provisions Subordinated debt Total debts Equity Equity, Group share Share capital and reserves Consolidated reserves Other comprehensive income Income for the financial year Minority interests TOTAL EQUITY AND LIABILITIES

Notes 6.1 6.2 3.2–3.4 3.3–6.7 3.1–3.3–6.7 3.2–3.3–6.9 6.10 6.11 6.12 6.15 6.16 3.2–3.3–6.9

31/12/2010 770 343,586 25,619 154,568 501,360 170,337 1,838 2,453 65,518 1,472 230,881 4,492 38,486 1,541,380 52,149 45,667 29,102 15,078 224 1,263 6,482 1,593,529

31/12/2009 1,875 366,319 24,543 133,797 464,080 179,370 1,889 1,430 73,658 582 214,455 4,898 38,482 1,505,378 51,964 45,457 28,332 14,868 1,132 1,125 6,507 1,557,342

STATEMENT OF CHANGES IN EQUITY

In millions of euros Equity at 1 January 2009 Capital increase Change in treasury shares held Dividends paid in 2009 Dividends received from Regional Banks and subsidiaries Impact of acquisitions/ disposals on minority interests Changes due to share-based payments Changes due to transactions with shareholders Change in other comprehensive income Share of changes in equity of equity(3) accounted entities

Share capital and reserves Share premium and Eliminaconsolition of Share dated treasure (1) capital reserves shares 6,679 280

280

37,613 569

(564)

Capital & consolidated Other revenues, compreGroup hensive (2) share income 43,128 849

(1,397)

Net income, Group share

Total equity, Group share 41,731 849

2

2

(998)

(998)

(998)

140

140

140

(96)

(96)

(96)

27

27

27

(356)

(76)

(76)

46

Total equity

5,605

47,336 849

2

2,529 46

Monthly interests

2,529 46

2 (394)

(1,392)

140

644

548 27

250

174

40

2,569 46

Wiley International Trends in Financial Reporting under IFRS

32

Share capital and reserves Share premium and Eliminaconsolition of Share dated treasure (1) capital reserves shares

In millions of euros Net income 2009 Other changes Equity at 31 December 2009 6,959 Allocation of 2009 results Equity at 1 January 2010 6,959 (2) Capital increase 246 Change in treasury shares held Dividends paid in 2010 Dividends received from Regional Banks and subsidiaries Impact of acquisitions/disposals on minority interests Changes due to sharebased payments Changes due to transactions with shareholders 246 Change in other comprehensive income Share of changes in equity of equity(3) accounted entities Net income 2010 Other changes EQUITY AT 31 DECEMBER 2010 7,205 (1) (2)

(3)

102 36,805

(38)

Net income, Group share 1,125

Total equity, Group share 1,125 102

Monthly interests 321 291

Total equity 1,446 393

1,125

45,457

6,507

51,964

45,457 724

6,507

51,964 724

102 (564)

1,125 37,930 478

Capital & consolidated Other revenues, compreGroup hensive (2) share income

44,325

1,132

1,125 (564) 47

44,325 724

(1,125) 1,132

9

9

9

(1,044)

(91,044)

151

151

151

(39)

(39)

(39)

47

47

47

(152)

(152)

(509)

(641)

(894)

45

(849)

(95) 1,263 88

489 (50)

(95) 1,752 38

(445)

47

(1,044)

(894) (95)

(95) 1,263

102 37,492

(517)

102

(14)

44,180

224

1,263

45,667

(368)

(1,412) 151

(142) 1

6,482

(181) 48

52,149

Consolidated reserves before elimination of treasury shares. Crédit Agricole S.A. has undertaken two capital increases for a total amount of €724 million, including the share premium of €478 million, net of the corresponding issue fees (see Note 6.17). The line “Share of changes in equity of equity-accounted entities” includes share of changes to other comprehensive income of equity-accounted entities presented in Note 4.11 for an amount of -€102 million at 31 December 2010 and €72 million at 31 December 2009.

Consolidated reserves mainly include undistributed retained earnings, amounts arising from the firsttime application of IFRS, and consolidation adjustments. Amounts deducted from equity and transferred to the income statement and that relate to cash flow hedges are included under net banking income. Notes to the consolidated financial statements for the year ended 31 December 2010 Note 1 Accounting principles and methods, assessments and estimates 1.1 Applicable standards and comparability Pursuant to Regulation EC 1606/2002, the annual financial statements have been prepared in accordance with IAS/IFRS and IFRIC interpretations applicable at 31 December 2010 and as adopted by the European Union (carve out version), thus using certain exceptions in the application of IAS 39 on macrohedge accounting. These standards and interpretations are available on the European Commission website at http://ec.europa.eu/internal_market/accounting/ias/index_en.htm. The standards and interpretations are the same as those applied in the Group’s financial statements for the year ended 31 December 2009 with the exception of the method for recognizing actuarial differences of post-employment defined benefit plans. According to IAS 19, actuarial differences relating to defined-benefit plans may be recognised:

Presentation of Financial Statements (IAS 1)

• • •

33

In the income statement for their full amount; Or in the income statement for a portion calculated using the corridor approach; Or in other comprehensive income for their full amount.

Up until 31 December 2009, the Crédit Agricole S.A. Group imputed the actuarial adjustments in the result for the period during which they were noticed. In order to provide information that is more comparable with the principles applied by other companies, Crédit Agricole S.A. Group has decided to register them in their entirety as “unrealized gains and losses recognised directly in equity”. This method has been applied on a permanent and consistent basis to all pension schemes from 1 January 2010. This change in accounting option is processed in accordance with the provisions of IAS 8 applied retrospectively. The standards and interpretations used in the annual financial statements at 31 December 2009 have been supplemented by the IFRS standards as adopted by the European Union at 31 December 2010 and that must be applied for the first time in the financial year 2010. These cover the following: Standards, Amendments or Interpretations Annual amendment to improve IFRS 5, relating to subsidiaries facing a sale plan entailing a loss of control, and related amendment to IFRS 1 Revised IAS 27 relating to consolidated and separate financial statements Revised IFRS 3 relating to business combinations The amendment to IAS 39 on items qualifying for hedging which clarify the application of hedge accounting to the inflation component of financial instruments Revised IRFS 1, relating to the first application of international standards Annual amendment to improve and clarify nine standards and two interpretations resulting from the regulation of 23 March 2010 (EU 243/2010) Amendment to IFRS 2, relating to share-based payment by substituting the interpretations IFRIC 8 and IFRIC 11 Interpretation of IFRIC 12, relating to concessions of services, and which does not concern the Group’s businesses Interpretation of IFRIC 16 relating to hedges of a net investment in a foreign operation Interpretation of IFRIC 15, relating to agreements for real estate constructions, dealt with in IAS 11 Construction contracts and IAS 18 Revenue Interpretation of IFRIC 17, relating to the distribution of noncash assets to owners Interpretation of IFRIC 18, relating to the transfer of assets from customers, and which does not concern the Group’s businesses

Date published by the European Union 23 January 2009 (EC 70/2009)

Date when first applied: financial year from 1 January 2010

3 June 2009 (EC 494/2009) 3 June 2009 (EC 495/2009) 15 September 2009 (EC 839/2009)

1 January 2010

25 November 2009 (EC 1136/2009) and 23 June 2010 (EC 550/2010) 23 March 2009

1 January 2010 1 January 2010 1 January 2010

1 January 2010

23 March 2009 (EU 244/2010) 25 March 2009 (EU 254/2009) 4 June 2009 (EU 460/2009) 22 July 2009 (EC 636/2009)

1 January 2010

26 November 2009 (EC 1142/2009) 27 November 2009 (EC 1164/2009)

1 January 2010

1 January 2010 1 January 2010 1 January 2010

1 January 2010

The application of these new provisions has not had any significant impact on income and net assets for the period, except for the effects of the loss of significant influence on Intesa Sanpaolo. The forward-looking application of revised IAS 27 and IFRS 3 to acquisition operations effective as of 1 January 2010 induces one change in the Group’s accounting methods. The main points are: • • •

Initial evaluation of minority interests: calculated, according to the acquirer’s choice, in one of two ways: Fair value at the date of acquisition, The share of the identifiable assets and liabilities of the acquired company revalued at fair value;

This option is exercisable acquisition by acquisition; the Group has opted to apply in advance the amendment to IFRS 3 revised for the 2010 annual improvements which states that this option does not apply to all equity instruments held by shareholders but to those which are current contributions and are entitled to a share of net assets in the event of liquidation;

Wiley International Trends in Financial Reporting under IFRS

34

•

• • •

Acquisition expenses: they cannot be activated in the goodwill and are required to be accounted for as expenses in full. When the operation has very high probability of being realised, they are recorded under “net gains or losses on other assets,” otherwise they are recorded under “operating expenses;” Certain operations must now be accounted for separately from the business combination; The accounting methods for takeovers in stages or partial disposals leading to loss of control; The allocation of price adjustment clauses, when they are financial instruments, to the provisions of IAS 39.

Moreover, it is recalled that when the early application of standards and interpretations is optional for a period, this option is not selected by the Group, unless otherwise stated. This applies to: Standards, Amendments or Interpretations Amendment of IAS 32, relating to classification of rights issues Amendment to IFRS 1, relating to exemptions from supplying comparative information on financial instruments for firsttime adopters Amendment to IAS 24, relating to disclosures of related parties in a State-owned entity Amendment to IFRIC 14, relating to recognition of definedbenefit plan assets Interpretation of IFRIC 19, relating to the extinction of financial liabilities with equity instruments.

Date published by the European Union 23 December 2009 (EU 1293/2009) 30 June 2010 (EU 574/2010)

Date of first mandatory application: financial year from 1 January 2011

19 July 2010 (EU 632/2010) 19 July 2010 (EU 633/2010) 23 July 2010 (EU 662/2010)

1 January 2011

1 January 2011

1 January 2011 1 January 2011

The Group does not expect the application of these standards and interpretations to produce a significant impact on the net income or net assets. Lastly, standards and interpretations that have been published by the IASB, but not yet been adopted by the European Union, will become mandatory only as from the date of such adoption. The Group has not applied them as of 31 December 2010. 1.2 Presentation of financial statements In the absence of a prescribed presentation format under IFRS, the Crédit Agricole S.A. Group’s complete set of financial statements (balance sheet, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows) has been presented in the format set out in CNC Recommendation 2009-R-04.

DANSKE BANK GROUP Annual Report 2010 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010 1 Critical Accounting Policies The Danske Bank Group presents its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the EU. Note 45 presents the Group’s significant accounting policies. Management’s estimates and assumptions of future events that will significantly affect the carrying amounts of assets and liabilities underlie the preparation of the Group’s consolidated financial statements. The estimates and assumptions that are deemed critical to the consolidated financial statements are • • • • • •

The fair value measurement of financial instruments The measurement of loans and advances The measurement of goodwill The measurement of liabilities under insurance contracts The measurement of the net obligation for defined benefit pension plans The recognition of deferred tax assets

Presentation of Financial Statements (IAS 1)

35

The estimates and assumptions are based on premises that management finds reasonable but which are inherently uncertain and unpredictable. The premises may be incomplete, unexpected future events or situations may occur, and other parties may arrive at other estimated values. Fair Value Measurement of Financial Instruments Measurements of financial instruments based on prices quoted in an active market or based on generally accepted models employing observable market data are not subject to critical estimates. Measurements of financial instruments that are only to a limited extent based on observable market data, such as unlisted shares and certain bonds for which there is no active market, are subject to estimates. The sections on determination of fair value in note 45 and note 43 provide more details and contain a sensitivity analysis. At end-2010, such financial instruments accounted for around 0.5% of total assets. Measurement of Loans and Advances The Group makes impairment charges to account for any impairment of loans and advances that occurs after initial recognition. Impairment charges consist of individual and collective charges and rely on a number of estimates, including identification of loans or portfolios of loans with objective evidence of impairment, expected future cash flows and the expected value of collateral. The notes on risk management provide more details on impairment charges for loans and advances and on the sensitivity of such charges to a general rating migration and a reduction of the value of collateral held. At end-2010, loans and advances accounted for around 58% of total assets. Measurement of Goodwill Goodwill on acquisition is tested for impairment at least once a year. Impairment testing requires that management estimate future cash flows from acquired units. A number of factors affect the value of such cash flows, including discount rates, changes in the real economy, customer behaviour, competition and other variables. Note 23 provides more information about impairment testing. At end-2010, goodwill accounted for less than 1% of total assets. Measurement of Liabilities Under Insurance Contracts The calculation of liabilities under insurance contracts is based on a number of actuarial computations that rely on assumptions about a number of variables, including mortality and disability rates. These assumptions are based on the portfolio of insurance policies. The liabilities are also affected by the discount rate: The discount rate is a zero-coupon yield curve estimated on the basis of euro swap market rates to which is added the spread between Danish and German government bonds. Until the end of 2012, a mortgage yield curve spread is also added. The notes on risk management contain a sensitivity analysis. At end-2010, liabilities under insurance contracts accounted for less than 8% of total liabilities. Measurement of Defined Benefit Pension Plans The calculation of the net obligation for defined benefit pension plans is based on computations made by external actuaries. These computations rely on assumptions about a number of variables, including discount and mortality rates and salary increases. The application of the corridor method to defined benefit pension plans limits fluctuations in the figures reported, unless changes are caused by plan adjustments. Note 34 provides details on the assumptions, and the section on pension risk in the notes on risk management contains a sensitivity analysis. At end-2010, the net pension obligation accounted for less than 0.01% of total liabilities. Deferred Tax Assets Deferred tax assets arising from unused tax losses are recognized to the extent that such losses can be offset against tax on future profit. Recognition of deferred tax assets requires that management assess the probability and amount of future taxable profit at units with unused tax losses. At end-2010, deferred tax assets stood at DKK 1.2 billion, or 0.04% of total assets. The tax base of unrecognised tax loss carry forwards, primarily relating to the Group’s banking units in Ireland, amounted to DKK 1.1 billion. Note 29 provides more information about deferred tax.

Wiley International Trends in Financial Reporting under IFRS

36

Financial instruments and obligations under insurance contracts, classification and measurement

DKK Billions ASSETS Cash in hand and demand deposits with central banks Due from credit institutions and central banks Derivatives Bonds Shares Loans and advances at amortised cost Loans at fair value Assets under pooled schemes and unitlinked investment contracts Assets under insurance contracts Total financial assets LIABILITIES Due to credit institutions and central banks Trading portfolio liabilities Deposits Bonds issued by Realkredit Danmark Deposits under pooled schemes and unitlinked investment contracts Liabilities under insurance contracts* Other issued bonds Subordinated debt Irrevocable loan commitments and guarantees Total financial liabilities * **

Fair value Directly through profit or loss Interest rate Held-forhedge ** trading Designated

Amortised cost

Available for sale

Held-tomaturity

Loans and adv.

Liabilities

Total

-

-

-

-

-

35

-

35

321 307 2

15 3

13 -

89 -

11 -

228 -

-

228 334 422 5

-

702

2 -

-

-

1,145 -

-

1,147 702

-

60

-

-

-

-

-

60

630

193 973

15

89

11

1,408

-

193 3,126

-

-

-

-

-

-

318

318

475 -

-

3 -

-

-

-

861

478 861

-

555

-

-

-

-

-

555

-

67

-

-

-

-

-

67

-

238 -

5 4

-

-

-

445 73

238 450 77

-

-

-

-

-

-

4

4

475

860

12

-

-

-

1,701

3,048

Liabilities under insurance contracts are recognised at the present value of expected insurance benefits. The interest rate risk on fixed-rate financial assets and liabilities is hedged by derivatives (fair value hedging). The interest rate risk on bonds available for sale is also hedged by derivatives.

Financial Instruments—General Financial instruments account for more than 95% of total assets and liabilities. Purchases and sales of financial instruments are measured at fair value at the settlement date. Classification At initial recognition, a financial asset is assigned to one of the following five categories: • • • • •

Trading portfolio measured at fair value Loans and advances measured at amortised cost Held-to-maturity investments measured at amortised cost Financial assets designated at fair value through profit or loss Available-for-sale financial assets measured at fair value with unrealized value adjustments recognized in other comprehensive income

Presentation of Financial Statements (IAS 1)

37

At initial recognition, a financial liability is assigned to one of the following three categories: • • •

Trading portfolio measured at fair value Financial liabilities designated at fair value through profit or loss Other financial liabilities measured at amortised cost

The trading portfolio includes financial assets and liabilities acquired or undertaken by the Group for sale or repurchase in the near term. The trading portfolio also contains collectively managed financial assets and liabilities for which a pattern of short-term profit taking exists. Derivatives, including bifurcated embedded derivatives, form part of the trading portfolio. Fair value option—financial assets and liabilities designated at fair value through profit or loss Loans granted under Danish mortgage finance law are funded by issuing listed mortgage bonds with matching terms. Borrowers may repay such loans by delivering the underlying bonds. The Group buys and sells own bonds issued by Realkredit Danmark on an ongoing basis because such securities play an important role in the Danish money market. If these loans and bonds were measured at amortised cost, the purchase and sale of own bonds would result in timing differences in the recognition of gains and losses. Consequently, the Group measures loans and issued bonds at fair value in accordance with the fair value option offered by IAS 39 to ensure that neither gain nor loss will occur on the purchase of own bonds. Other financial assets designated at fair value Other financial assets designated at fair value include securities that are not classified as trading portfolio assets. These securities do not form part of the trading portfolio because no pattern of short-term profit taking exists, but they are still managed on a fair value basis. This category includes financial assets under insurance contracts, bonds quoted in an active market and shares that are not part of the trading portfolio. Realised and unrealised capital gains and losses and dividends are carried in the income statement under Net trading income. The financial assets are recognised on the balance sheet under Investment securities and Assets under insurance contracts. Available-for-sale financial assets Available-for-sale financial assets consist of bonds which, although traded in an active market at the time of acquisition, the Group intends neither to sell in the near term nor to hold to maturity. Hedge accounting The Group uses derivatives to hedge the interest rate risk on fixed-rate assets and fixed-rate liabilities measured at amortised cost, except for held-to-maturity investments and available-for-sale financial assets. Hedged risks that meet specific criteria qualify for fair value hedge accounting and are treated accordingly. The interest rate risk on the hedged assets and liabilities is measured at fair value as a value adjustment of the hedged items in the income statement. At end-2010, hedging derivatives measured at fair value accounted for around 0.4% of total assets and around 0.1% of total liabilities. If the hedge criteria cease to be met, the accumulated value adjustments of the hedged items are amortised over the term to maturity. Future adjustments to the measurement of financial instruments In October 2010, the IASB reissued IFRS 9, Financial Instruments. This version of the standard is the first phase to replace the requirements of IAS 39 in 2011. After implementation of phase 1, IFRS 9 deals with classification and measurement of financial instruments and derecognition, while the next phases will address impairment, hedge accounting and offsetting of financial assets and liabilities. The transitional rules adopted in IFRS 9 (phase 1) imply implementation of the standard by 1 January 2013. A postponement of the implementation deadline is currently under consideration, however. The EU has decided to postpone adoption of the standard until the details of the next phases are known. The Group does not expect IFRS 9 (phase 1) to materially affect the measurement of its financial instruments. Note 45, Significant accounting policies, describes IFRS 9 in more detail. Insurance Activities—General The Group’s insurance activities comprise conventional life insurance, unit-linked insurance and personal injury insurance. The computation of the Group’s net income from conventional life insurance

38

Wiley International Trends in Financial Reporting under IFRS

business complies with the Danish FSA’s executive order on the contribution principle. The financial result of Danica Pension, the parent company of the life insurance group, is calculated, in accordance with the profit policy, on the basis of the return on a separate pool of assets equal to shareholders’ equity and a risk allowance determined by the technical provisions. If the realised result of Danica Pension for a given period is insufficient to allow booking of the risk allowance, the amount may be booked in later periods when a sufficient result is realised. The separate pool of assets equal to shareholders’ equity is consolidated with the other assets of the Group. Life insurance policies are divided into insurance and investment contracts. Insurance contracts are contracts that entail significant insurance risks or entitle policyholders to bonuses. Investment contracts are contracts that entail no significant insurance risk and comprise unit-linked contracts under which the investment risk lies with the policyholder. Insurance contracts Insurance contracts comprise both an investment element and an insurance element, which are recognised jointly. Life insurance provisions are recognised at their present value under Liabilities under insurance contracts. Assets earmarked for insurance contracts are recognized under Assets under insurance contracts if most of the return on the assets accrues to the policyholders. Most of these assets are measured at fair value. Insurance contract contributions are recognised under Net premiums. Net insurance benefits consists of benefits disbursed under insurance contracts and the annual change in insurance obligations not deriving from additional provisions for benefit guarantees. The return on earmarked assets is allocated to the relevant items in the income statement. The return to policyholders is recognised under Net trading income as are changes to additional provisions for benefit guarantees. Investment contracts Investment contracts are recognised as financial liabilities, and, consequently, contributions and benefits under such contracts are recognised directly on the balance sheet as adjustments of liabilities. Deposits are measured at the value of the savings under Deposits under pooled schemes and unit-linked investment contracts. Savings under unit-linked investment contracts are measured at fair value under Assets under pooled schemes and unit-linked investment contracts. The return on the assets and the crediting of the amounts to policyholders’ accounts are recognized under Net trading income. Financial Highlights As shown in note 2 on business segments, the financial highlights deviate from the corresponding figures in the consolidated financial statements. Income from the Danske Markets segment is recognised in the consolidated income statement under Net trading income and Net interest income, respectively, but is recognised in the financial highlights as a total under Net trading income. Net income from insurance business is presented on a single line in the financial highlights.

Presentation of Financial Statements (IAS 1)

39

Holcim Annual Report 2010 Consolidated financial statements for the year ended 31 December 2010 Consolidated statement of income of Group Holcim Million CHF Net sales Production cost of goods sold Gross profit Distribution and selling expenses Administration expenses Operating profit Other income Share of profit of associates Financial income Financial expenses Net income before taxes Income taxes Net income

Note 5, 6 7 8 11 23 12 13 14

Attributable to: Shareholders of Holcim Ltd Non-controlling interest Earnings per share in CHF Earnings per share1 Fully diluted earnings per share1 Million CHF Operating EBITDA EBITDA 1

2010 21,653 (12,379) 9,274 (5,278) (1,377) 2,619 7 245 262 (897) 2,236 (615) 1,621

2009 21,132 (12,072) 9,060 (4,828) (1,451) 2,781 206 302 173 (881) 2,581 (623) 1,958

±% +2.5 +2.4 -5.8

-13.4 -17.2

1,182 439

1,471 487

-19.6 -9.9

16 16

3.69 3.69

4.93 4.93

-19.6 -25.2

3, 10 3

4,513 4,988

4,630 5,229

-2.5 -4.6

EPS calculation based on net income attributable to shareholders of Holcim Ltd weighted by the average number of shares.

Consolidated statement of comprehensive earnings of Group Holcim Million CHF Net income Other comprehensive earnings Currency translation effects Tax expense Available-for-sale financial assets Change in fair value Realized through statement of income Tax expense Cash flow hedges Change in fair value Realized through statement of income Tax expense Net investment hedges Change in fair value Tax expense Total other comprehensive earnings Total comprehensive earnings Attributable to: Shareholders of Holcim Ltd Non-controlling interest

Notes

21 21

2010 1,621

2009 1,958

(2,042) (7)

345 (34)

421 (171)

(7) 9

9

(18)

(3)

(4)

(1,973) (172)

291 2,249

(395) 232

1,734 515

Wiley International Trends in Financial Reporting under IFRS

40

Consolidated statement of financial position of Group Holcim Million CHF Cash and cash equivalents Marketable securities Accounts receivable Inventories Prepaid expenses and other current assets Assets classified as held for sale Total current assets Long-term financial assets Investments in associates Property, plant and equipment Intangible assets Deferred tax assets Other long-term assets Total long-term assets

Notes 17 18 19 20 21 22 23 24 25 32 26

Total assets Trade accounts payable Current financial liabilities Current income tax liabilities Other current liabilities Short-term provisions

28 29

Long-term financial liabilities Defined benefit obligations Deferred tax liabilities Long-term provisions Total long-term liabilities

29 34 32 33

33

Total liabilities Share capital Capital surplus Treasury shares Reserves Total equity attributable to shareholders of Holcim Ltd Non-controlling interest Total shareholders’ equity Total liabilities and shareholders’ equity

37 37

31.12.2010 3,386 30 2,590 2,072 416 18 8,512

31.12.2009 4,474 33 3,401 2,162 493 234 10,797

921 1,432 23,343 9,061 385 605 35,747

677 1,529 25,493 9,983 412 315 38,409

44,259

49,206

2,303 2,468 555 1,632 256 7,214

2,223 4,453 531 1,821 252 9,280

12,281 317 2,203 1,123 15,924

13,854 376 2,389 1,263 17,882

23,138

27,162

654 9,371 (476) 8,552 18,101 3,020 21,121

654 9,368 (455) 9,466 19,033 3,011 22,044

44,259

49,206

Presentation of Financial Statements (IAS 1)

41

Statement of changes in consolidated equity of Group Holcim Million CHF Equity as at January 1, 2010 Share capital increase Payout Change in treasury shares Share-based remuneration Capital paid-in by non-controlling interest Acquisition of participation in Group companies Change in participation in existing Group companies Net income Other comprehensive earnings Equity as at December 31, 2010 Equity as at January 1, 2009 Share capital increase Payout Change in treasury shares Share-based remuneration Capital paid-in by non-controlling interest Acquisition of participation in Group companies Change in participation in existing Group companies Net income Other comprehensive earnings Equity as at December 31, 2009

Share Capital 654

Capital surplus 9,368

3

Treasure shares (455) (32) 11

Retained earnings 15,019 (480) 3

(36) 1,182 654 527 100 27

9,371 6,870 1,940 552 6

(476) (401) (63) 9

15,688 14,178 (594) (9)

(27) 1,471 654

9,368

(455)

15,019

Notes to the consolidated financial statements for the year ended 31 December 2010 Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Adoption of revised and new International Financial Reporting Standards and new interpretations In 2010, Group Holcim adopted the following revised standards relevant to the Group, which became effective from January 1, 2010: IAS 27 (amended) IFRS 3 (revised) IFRS 2 (amended) Improvements to IFRSs

Consolidated and Separate Financial Statements Business Combinations Share-based Payment Clarifications of existing IFRSs

According to IAS 27 (amended), changes in the ownership interest of a subsidiary that do not result in a loss of control are accounted for as an equity transaction. The amendment to IFRS 3 (revised) introduced several changes such as the choice to measure a non-controlling interest in the acquiree either at fair value or at its proportionate interest in the acquiree’s identifiable net assets, the accounting for step acquisitions requiring the remeasurement of a previously held interest to fair value through profit or loss as well as the expensing of acquisition costs directly to the statement of income. The effect of applying IFRS 2 (amended) clarifying the accounting of group cash settled shared-based payment transactions had no impact on the Group. The improvements to IFRSs relate largely to clarification issues only. Therefore, the effect of applying these amendments had no material impact on the Group’s financial statements. In 2011, Group Holcim will adopt the following revised standards relevant to the Group: IAS 24 (amended) IFRIC 14 (amended) Improvements to IFRSs

Related Party Disclosures IAS 19 – Prepayment of a minimum funding requirement Clarifications of existing IFRSs

The amendments to IAS 24 are disclosure related only and will have no impact on the Group’s financial statements. The amendment to IFRIC 14 clarifies that companies recognize the benefit of a prepayment

Wiley International Trends in Financial Reporting under IFRS

42

as a pension asset. The effect of applying this amendment will have no material effect on the Group’s financial statements. The improvements to IFRSs relate largely to clarification issues only. Therefore, the effect of applying these amendments will have no material impact on the Group’s financial statements. In 2013, Group Holcim will adopt the following new standard relevant to the Group: IFRS 9, Financial Instruments IFRS 9 will ultimately replace IAS 39. Classification and measurement of financial assets and financial liabilities represents the first part of the new standard. This standard will require financial assets to be classified on initial recognition at either amortized cost or fair value. For financial liabilities, the new standard retains most of the current IAS 39 requirements. Therefore, the effect of applying the first part of this new standard will have no material impact on the Group’s financial statements.

J Sainsbury plc Annual Report and Financial Statements 2010 GROUP INCOME STATEMENT for the 52 weeks to 20 March 2010

Revenue Cost of sales Gross profit Administrative expenses Other income Operating profit Finance income Finance costs Share of post-tax profit/(loss) from joint ventures Profit before taxation Analysed as: 1 Underlying profit before tax Profit on sale of properties Investment property fair value movements Financing fair value movements IAS 19 pension financing (charge)/credit One-off item: Office of Fair Trading dairy inquiry

Note 4

5 6 6 14

3 3 3 3 3

Income tax expense Profit for the financial year

8

Earnings per share Basic Diluted 1 Underlying basic 1 Underlying diluted

9

1

2010 £m 19,964 (18,882) 1,082 (399) 27 710 33 (148) 138 733

2009 £m 18,911 (17,875) 1,036 (420) 57 673 52 (148) (111) 466

610 27 123 (15) (24) 12 733 (148) 585

519 57 (124) (10) 24 – 466 (177) 289

pence 32.1 31.6 23.9 23.6

pence 16.6 16.4 21.2 20.9

The previous period is restated for the change in the definition of underlying profit before tax as described in note 3.

Presentation of Financial Statements (IAS 1)

43

STATEMENTS OF COMPREHENSIVE INCOME for the 52 weeks to 20 March 2010

Note Profit for the period Other comprehensive income/(expense): Actuarial losses on defined benefit pension schemes Available-for-sale financial assets: fair value movements Group 1 Joint ventures Cash flow hedges: effective portion of fair value movements Group 1 Joint ventures Current tax on items recognised directly in other comprehensive income Deferred tax on items recognised directly in other comprehensive income Total other comprehensive income/(expense) for the period (net of tax) Total comprehensive income/(expense) for the period 1

Company 2010 £m 250

Company 2009 £m 165

Group 2010 £m 585

Group 2009 £m 289

(173)

(903)

43 24

(16) (21)

7 -

(1) -

(3) -

9 (11)

-

-

(1)

-

30

8 16

-

21

257

-

-

(72)

(685)

6

(1)

513

(396)

256

164

8

For details of the reclassification of certain offsetting foreign exchange gains and losses in the prior period, see note 2.

BALANCE SHEETS At 20 March 2010 and 21 March 2009

Note

Group 2010 £m

Group 2009 £m

Company 2010 £m

Company 2009 £m

Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Investments in joint ventures Available-for-sale financial assets Other receivables Derivative financial instruments Deferred income tax asset

11 12 13 14 15 17 29 21

8,203 144 449 150 36 20 9,002

7,821 160 288 97 45 31 8,442

42 7,276 91 24 1,115 19 1 8,568

42 7,262 91 7 1,050 31 1 8,484

Current assets Inventories Trade and other receivables Derivative financial instruments Cash and cash equivalents

16 17 29 26b

Non-current assets held for sale

18

Total assets Current liabilities Trade and other payables Borrowings Derivative financial instruments Taxes payable Provisions

702 215 43 837 1,797 56 1,853 10,855

689 195 59 627 1,570 21 1,591 10,033

566 32 670 1,268 1,268 9,836

380 37 460 877 877 9,361

19 20 29

(2,466) (73) (41) (200) (13) (2,793) (940)

(2,488) (154) (56) (202) (19) (2,919) (1,328)

(4,460) (3) (40) (7) (1) (4,511) (3,243)

(3,489) (43) (49) 111 (1) (3,471) (2,594)

Net current liabilities

22

Wiley International Trends in Financial Reporting under IFRS

44

Note

Company 2009 £m

Company 2010 £m

Group 2009 £m

Group 2010 £m

Non-current liabilities Other payables Borrowings Derivative financial instruments Deferred income tax liability Provisions Retirement benefit obligations

19 20 29 21 22 30

Net assets Equity Called up share capital Share premium account Capital redemption reserve Other reserves Retained earnings Total equity

(106) (2,357) (2) (144) (66) (421) (3,096) 4,966

(92) (2,177) (8) (95) (57) (309) (2,738) 4,376

(821) (323) (24) (1,168) 4,157

(2,037) (27) (2,064) 3,826

23 23 24 24 25

532 1,033 680 (242) 2,963 4,966

501 909 680 (191) 2,477 4,376

532 1,033 680 26 1,886 4,157

501 909 680 (1) 1,737 3,826

GROUP STATEMENT OF CHANGES IN EQUITY for the 52 weeks to 20 March 2010

Note At 22 March 2009 Profit for the period Other comprehensive income/ (expense): Actuarial losses on defined benefit pension schemes (net of tax) Available-for-sale financial assets: fair value movements (net of tax) Group Joint ventures Cash flow hedges: effective portion of changes in fair value (net of tax) Group Total comprehensive income/ (expense) for the 52 weeks to 20 March 2010 Transactions with owners: Dividends paid Convertible bond— equity component Amortisation of convertible bond equity component Share-based payment (net of tax) Shares issued Transfer to retained earnings Shares vested Allotted in respect of share option schemes

Called up Share Capital £m 501 -

Share premium account £m 909 -

Capital redemption and other reserves £m 489 -

Retained earnings £m 2,477 585

Total Equity £m 4,376 585

24

-

-

(125)

-

(125)

24 24

-

-

32 24

-

32 24

24

-

-

(3)

-

(3)

-

-

(72)

585

513

-

-

-

(241)

(241)

-

-

24

31 23,24 24

22 -

113 -

23,25

9

11

10

(3) 102 (102) -

-

24

3 44 102 12

44 237 12

(19)

1

Presentation of Financial Statements (IAS 1)

Note At 20 March 2010 Profit for the period Other comprehensive income/ (expense): Actuarial losses on defined benefit pension schemes (net of tax) Available-for-sale financial assets: fair value movements (net of tax) Group (1)*** Joint ventures Cash flow hedges: effective portion of changes in fair value (net of tax) Group (1)*** Joint ventures Total comprehensive income/ (expense) for the 52 weeks to 21 March 2009 Dividends paid Share-based payment (net of tax) Shares vested Allotted in respect of share option schemes At 21 March 2009 (1)***

45

Called up Share Capital £m 532 -

Share premium account £m 1,033 -

Capital redemption and other reserves £m 438 -

Retained earnings £m 2,963 289

Total Equity £m 4,966 289

24

-

-

(650)

-

(650)

24 24

-

-

(12) (21)

-

(12) (21)

24 24

-

-

9 (11)

-

9 (11)

10 31

-

-

(685) -

289 (218) 40 45

(396) (218) 40 45

2 501

13 909

489

(45) 2,477

(30) 4,376

23,25

For details of the reclassification of certain offsetting foreign exchange gains and losses in the prior period, see note

NOTES TO THE FINANCIAL STATEMENTS 2. Accounting Policies (in Part) (a) Statement of Compliance The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and International Financial Reporting Interpretations Committee (“IFRICs”) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs. The Company’s financial statements have been prepared on the same basis and, as permitted by Section 408(3) of the Companies Act 2006, no income statement is presented for the Company. (b) Basis of Preparation (in Part) New standards, interpretations and amendments to published standards Effective for the Group in these financial statements: •

Amendment to IFRS 2 ‘Share-based payment’ Previously IFRS 2 described the treatment of a failure to meet a vesting condition, but was not explicit about the accounting consequences of a failure to meet a condition other than a vesting condition. Under the Amendment, where the entity or counterparty can choose to meet a nonvesting condition, a failure by the entity or the counterparty to meet the non-vesting condition will be treated as a cancellation. If neither the entity nor the counterparty has the choice as to whether to meet a non-vesting condition, a failure to meet this non-vesting condition does not have any accounting impact.

New Standards, Interpretations and Amendments to Published Standards Effective for the Group in these financial statements: •

Amendment to IFRS 2 ‘Share-based payment’ Previously IFRS 2 described the treatment of a failure to meet a vesting condition, but was not explicit about the accounting consequences of a failure to meet a condition other than a vesting condition. Under the Amendment, where the entity or counterparty can choose to meet a non-vesting condition, a failure by the entity or the counterparty to meet the non-vesting condition will be treated as a cancellation. If neither the entity nor

Wiley International Trends in Financial Reporting under IFRS

46

•

the counterparty has the choice as to whether to meet a non-vesting condition, a failure to meet this non-vesting condition does not have any accounting impact. If a cancellation by either party occurs, the entity recognizes the amount of expense that would have been recognised over the remaining vesting period. The grant date fair value should incorporate an estimate of the number of employees who will cease to contribute to the scheme otherwise than through termination of employment before the options vest. The amendment to IFRS 2 affects the Group’s Save As You Earn (“SAYE”) scheme. The implementation of the amendment has had no material impact on prior year financial statements. IAS 1 (revised) ‘Presentation of financial statements’ The revised standard requires ‘non-owner changes in equity’ to be presented separately from owner changes in equity. All ‘non-owner changes in equity’ are required to be shown in a performance statement. The Group has elected to present two statements: an income statement and a statement of comprehensive income. The financial statements have been prepared under the revised disclosure requirements. IFRS 8 ‘Operating Segments’

•

IFRS 8 replaces IAS 14 ‘Segment reporting’. It requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes. The adoption of IFRS 8 has resulted in no change in the reportable segments presented. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”). The CODM has been identified as the Group’s Operating Board. Details of the Group’s Operating Board are available on page 26 of the Annual Report and Financial Statements 2010. IFRIC 13 ‘Customer Loyalty Programmes’

•

IFRIC 13 requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the loyalty credits and deferred over the period that the loyalty credits are redeemed. The implementation of IFRIC 13 has had no material impact on the financial statements. The following new standards, interpretations and amendments to published standards are effective for the Group for the financial year beginning 22 March 2009, but are not currently relevant for the Group or do not have a significant impact on the Group’s financial statements, apart from additional disclosures: • • • • • • • • • •

Revised IAS 1 ‘Presentation of financial statements’, amendments to IAS 1 relating to the disclosure of puttable instruments and obligations arising on liquidation Revised IAS 27 ‘Consolidated and separate financial statements’ relating to the cost of an investment on first time adoption Amendments to IAS 32 ‘Financial instruments: Presentation’ relating to puttable instruments and obligations arising on liquidation Amendment to IFRS 7 ‘Financial Instruments: Disclosures’ IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ IFRIC 15 ‘Agreements for the Construction of Real Estate’ IFRIC 16 ‘Hedges of a Net Investment in a Foreign Operation’ Amendments to various IFRSs and IASs arising from May 2008 Annual Improvements to IFRSs IFRIC 18 ‘Transfer of Assets from Customers’ Amendment to IAS 23 ‘Borrowing Costs’

Effective for the Group for the Financial Year Beginning 21 March 2010 • • • • • • •

Amendments to IFRS 2 ‘Share-based Payment’ arising from April 2009 Annual Improvements to IFRSs and Amendments relating to group cash-settled share-based payment transactions Revised IFRS 3 ‘Business Combinations’, Comprehensive and consequential amendments to IAS 27 ‘Consolidated and Separate Financial Statements’, IAS 28 ‘Investments in Associates’ and IAS 31 ‘Interests in Joint Ventures’ Amendments to IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ arising from May 2008 Annual Improvements to IFRSs Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ IFRIC 17 ‘Distributions of Non-cash Assets to Owners’ IFRIC 18 ‘Transfers of Assets from Customers’ Amendments to various IFRSs and IASs arising from April 2009 Annual Improvements to IFRSs

Presentation of Financial Statements (IAS 1)

47

The Group has considered the above new standards, interpretations and amendments to published standards that are not yet effective and concluded that except for the amendment to IAS 1 ‘Presentation of Financial Statements’, they are either not relevant to the Group or that they would not have a significant impact on the Group’s financial statements, apart from additional disclosures. The IAS 1 ‘Presentation of Financial Statements’ amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. The convertible bond issued by the Group in 2009 will fall within the scope of this amendment when it is adopted in the financial year beginning 21 March 2010. This amendment is not expected to have a material impact on the Group’s financial statements. Effective for the Group for Future Financial Years • • • •

IFRS 9 ‘Financial Instruments – Classification and Measurement’ Revised IAS 24 ‘Related Party Disclosures’ definition of related parties Amendments to IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’ The accounting policies set out below and in note 3 have been applied consistently to all periods presented in the financial statements and have been applied consistently by the Group and the Company.

Lufthansa Annual Report 2010 Consolidated Financial Statements – 31 December 2010 Consolidated Income Statement for the financial year 2010 in €m Traffic revenue 3 Other revenue 4 Total revenue Changes in inventories and work performed by entity and capitalized 5 Other operating income 6 Cost of materials and services 7 Staff costs 8 Depreciation, amortization and impairment Other operating expenses 10 Profit / loss from operating activities Result of equity investments accounted for using the equity method 11 Result of other equity investments 11 Interest income 12 Interest expenses 12 Other financial items 13 Financial result Profit / loss before income taxes Income taxes 14 Profit / loss after income taxes Profit / loss attributable to minority interests Net Profit / loss attributable to shareholders of Deutsche Lufthansa AG Basic earnings per share in € 15 Diluted earnings per share in € 15

Notes 3 4

2010 22,268 5,056 27,324

2009 17,604 4,679 22,283

5 6 7 8 9 10

165 2,655 – 15,370 – 6,659 – 1,682 – 5,193 1,240

225 2,531 – 12,700 – 5,996 – 1,475 – 4,597 271

11 11 12 12 13

46 58 198 – 555 –9 – 262 978 165 1,143 – 12

5 53 181 – 506 – 138 – 405 – 134 112 – 22 – 12

1,131 2.47 2.47

– 34 – 0.07 – 0.07

14

15 16

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48

Statement of comprehensive income for the financial year 2010 in €m Profit / loss after income taxes Other comprehensive income Differences from currency translation Subsequent measurement of available-for-sale financial assets Subsequent measurement of cash flow hedges Other comprehensive income from investments accounted for using the equity method Revaluation due to business combinations Other expenses and income recognized directly in equity Income taxes on items in other comprehensive income Other comprehensive income after income taxes

2010 1,143

2009 – 22

311 485 288 –4 – 14 – 79 1,015

– 18 193 – 188 –7 – 44 – 13 34 – 43

Total comprehensive income Comprehensive income attributable to minority interests Comprehensive income attributable to shareholders of Deutsche Lufthansa AG

2,158 – 16 2,142

– 65 – 52 – 117

Consolidated balance sheet as of 31 December 2010 (page 1 of 2) Assets in €m Intangible assets with an indefinite useful life* 16 Other intangible assets 17 Aircraft and reserve engines 18 21 Repairable spare parts for aircraft Property, plant and other equipment 19 21 Investment property 20 Investments accounted for using the equity method Other equity investments 23 24 Non-current securities 23 24 Loans and receivables 23 25 Derivative financial instruments 23 26 Deferred charges and prepaid expenses 29 Effective income tax receivables 14 Deferred claims for income tax rebates 14 Non-current assets

31.12.2010 1,582 329 11,153 877 2,120 – 385 1,128 250 620 350 26 61 82 18,963

31.12.2009 1,511 328 10,444 810 2,157 3 320 878 349 506 255 31 69 35 17,696

1.1.2009 821 261 8,764 669 1,931 3 298 790 509 475 339 15 72 28 14,975

662 3,401 484 146 98 4,283 1,097 186

646 3,033 252 128 105 3,303 1,136 93

581 3,015 213 119 130 1,834 1,444 97

Current assets

10,357

8,696

7,433

Total assets

29,320

26,392

22,408

Inventories 27 Trade receivables and other receivables 23 28 Derivative financial instruments 23 26 Deferred charges and prepaid expenses 29 Effective income tax receivables Securities 23 30 Cash and cash equivalents 23 31 Assets held for sale 32

*

Including goodwill

Notes 16 17 18 21 19 21 20 22 23 24 23 24 23 25 23 26 29 14 14 27 23 28 23 26 29 23 30 23 31 32

Presentation of Financial Statements (IAS 1)

49

Consolidated balance sheet as of 31 December 2010 (Page 2 of 2) Shareholders’ equity and liabilities in €m Issued capital 33 34 Capital reserve 35 Retained earnings 35 Other neutral reserves 35 Net profit / loss Equity attributable to shareholders of Deutsche Lufthansa AG Minority interests Shareholders’ equity Pension provisions 36 Other provisions 37 Issued capital 33 34 Borrowings 38 39 Other financial liabilities 40 Advance payments received, deferred income and other non-financial liabilities Derivative financial instruments 26 38 Deferred income tax liabilities 14 Non-current provisions and liabilities Other provisions Borrowings 38 39 Trade payables and other financial liabilities 38 42 Liabilities from unused flight documents Advance payments received, deferred income and other non-financial liabilities 43 Derivative financial instruments 26 38 Effective income tax obligations Provisions and liabilities relating to disposal groups Current provisions and liabilities Total shareholders’ equity and liabilities

Notes 33 34

31.12.2010 1,172 1,366 2,944 1,629 1,131

31.12.2009 1,172 1,366 2,972 618 – 34

1.1.2009 1,172 1,366 2,750 701 542

8,242 98 8,340 2,571 643 1,172 6,227 110

6,094 108 6,202 2,710 620 1,172 6,109 87

6,531 63 6,594 2,400 291 1,172 3,161 51

1,087 111 405 11,154 37 881 957 4,193 2,389

1,000 225 663 11,414 1,122 693 3,796 1,906

1,024 118 710 7,755 847 420 3,626 1,693

1,066 103 237 – 9,826

1,008 106 145 – 8,776

882 492 99 – 8,059

29,320

26,392

22,408

Consolidated statement of changes in shareholders’ equity as of 31 December 2010

in €m As of 31.12.2008 Changes in accounting policies Adjusted as of 31.12.2008 Capital increases / reductions Reclassifications * Dividends to Lufthansa shareholders / minority interests Consolidated net profit / loss attributed to minority interests Other expenses and income recognized directly in equity * Adjusted as of 31.12.2009 As of 31.12.2009 Changes in accounting policies Adjusted as of 31.12.2009 Capital increases / reductions Reclassifications Dividends to Lufthansa shareholders / minority interests Transactions with minority interests Consolidated net profit / loss attributed to minority interests Other expenses and income recognized directly in equity * As of 31.12.2010

Issued capital 1,172 – 1,172 – –

Capital reserve 1,366 – 1,366 – –

Fair value measurement of financial instruments 1 122 123 – –

Currency differences –52 – –52 – –

Revaluation reserve (due to business combinations) 237 – 237 – –

Other neutral reserves 393 – 393 – 1

Total other neutral reserves 579 122 701 – 1

Retained earnings 2,872 –122 2,750 – 222

Net Profit / loss 542 542 – –222

Equity attributable to shareholders of Deutsche Lufthansa AG 6,531 – 6,531 – 1

Minority interests 63 – 63 6 –1

Total shareholders’ equity 6,594 – 6,594 6 –

–

–

–

–

–

–

–

–

–320

–320

–13

–333

–

–

–

–

–

–

–

–

-34

-34

12

-22

– 1,172 1,172 – 1,172 – –

– 1,366 1,366 – 1,366 – –

39 162 118 44 162 – –

–18 –70 –70 – –70 – –

–44 193 193 – 193 – –

–61 333 333 – 333 – –

–84 618 574 44 618 – –

– 2,972 3,094 –122 2,972 – –34

– –34 –112 78 –34 – 34

–84 6,094 6,094 – 6,094 – –

41 108 108 – 108 – –

–43 6,202 6,202 – 6,2`02 – –

–

–

–

–

–

–

–

–

–

–

-18

-18

–

–

–

–

–

–

–

6

–

6

–8

–2

–

–

–

–

–

–

–

–

1,131

1,131

12

1,143

– 1,172

– 1,366

694 856

311 241

– 193

6 339

1,011 1,629

– 2,944

– 1,131

1,011 8,242

4 98

1,015 8,340

* Please refer to Note 35 for more information on other comprehensive income.

Presentation of Financial Statements (IAS 1)

51

Consolidated cash flow statement for the financial year 2010 in €m Cash and cash equivalents 1.1. Net profit / loss before income taxes Depreciation, amortization and impairment losses on non-current assets (net of reversals) 9 13 Depreciation, amortization and impairment losses on current assets Net proceeds on disposal of non-current assets 6 Result of equity investments 11 Net interest 12 Income tax payments / reimbursements 1) Change in working capital Cash flow from operating activities Capital expenditure for property, plant and equipment and intangible assets 16 Capital expenditure for financial investments 24 25 Additions to repairable spare parts for aircraft Proceeds from disposal of non-consolidated equity investments Proceeds from disposal of consolidated equity investments Cash outflows for acquisitions of non-consolidated equity investments 2) Cash outflows for acquisitions of consolidated equity investments Proceeds from disposal of intangible assets, property, plant and equipment and other financial investments Interest income Dividends received Net cash from / used in investing activities 3) Purchase of securities / fund investments Disposal of securities / fund investments Net cash from / used in investing and cash management activities 4) Capital increase Non-current borrowing Repayment of non-current borrowing Other financial debt Dividends paid Interest paid Net cash from / used in financing activities Net increase / decrease in cash and cash equivalents Changes due to currency translation differences Cash and cash equivalents 31.12. 31 Securities Total liquidity 30 Net increase / decrease in total liquidity 1) 2) 3) 4)

Notes

2010 1,136 978

2009 1,444 – 134

9 13

1,665 23 – 209 – 104 357 – 110 475 3,075

1,634 74 – 27 – 58 325 48 129 1,991

16–20

20 – 2,222 – 38 – 76 113 –

– 2,174 – 29 – 165 94 –

22–24

– 11 –2

– 98 – 104

398 314 74 – 1,450 – 2,251 823 – 2,878 – 925 – 720 – 36 – 18 – 451 – 300 – 103 64 1,097 4,283 5,380 941

448 214 74 – 1,740 – 3,107 1,284 – 3,563 –6 2,633 – 755 1 – 333 – 281 1,271 – 301 –7 1,136 3,303 4,439 1,161

6 11 12

33 33–35

30

Working capital consists of inventories, receivables, liabilities and provisions. In previous year less cash balances acquired of EUR 431m. Including transfer to LH Pension Trust of EUR 293m (previous year: EUR 283m). In previous year capital increase from minority shareholders.

The cash flow statement shows how cash and cash equivalents have changed over the reporting period at the Lufthansa Group. In accordance with IAS 7 cash flows are divided into cash flows from operating activities, from investing activities and from financing activities. The cash and cash equivalents shown in the cash flow statement correspond to the balance sheet item cash and cash equivalents. The amount of liquidity in the broader sense is reached by adding short-term securities.

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Repsol YPF, S.A. Consolidated Financial Statements – 31 December 2010 Notes to the Consolidated Financial Statements 3. Basis of Presentation and Accounting Policies (in Part) 3.1 Basis of Presentation The accompanying consolidated Financial Statements are presented in millions of Euros and were prepared from the accounting records of Repsol YPF, S.A. and of its investees. The consolidated Financial Statements are presented in accordance with the International Financial Reporting Standards (IFRSs) as endorsed by the European Union at December 31, 2010. Accordingly, they present fairly the Group’s consolidated equity and financial position at December 31, 2010, the consolidated results of operations, the changes in consolidated equity and the consolidated cash flows in the year then ended. The preparation of the consolidated Financial Statements in accordance with IFRS, which is the responsibility of the Board of Directors of the Group’s parent company, makes it necessary to make certain accounting estimates and for the directors to use their judgment when applying the Standards. The most complex areas, the areas in which the directors’ judgment is most required and the areas in which significant assumptions or estimates have to be made are detailed in Note 4 (Accounting Estimates and Judgments). 3.2. New Standards Issued A. Below is a list of the standards, interpretations and amendments thereof under the International Financial Reporting Standards endorsed by the European Union that are mandatorily applicable to the Group’s consolidated Financial Statements for the first time in 2010: • • • • • • • • • •

Revised IFRS 3 Business Combinations. Amendment to IAS 27 Consolidated and Separate Financial Statements. Amendment to IAS 39 Eligible Hedged Items. Amendments to IFRS 2 Group Cash-settled Share based Payment Transactions. Improvements to IFRSs—2007–2009. Revised IFRS 1 First-time Adoption of IFRS. Amendments to IFRS 1 Additional Exemptions for First-time Adopters. Amendment to IFRS 5 to incorporate the changes introduced following the Improvements to IFRSs 2006–2008. IFRIC 12 Service Concession Arrangements. IFRIC 17 Distributions of Non-Cash Assets to Owners.

IFRS 3 Business Combinations introduces significant changes, most notably with respect to the accounting treatment of acquisition-related costs, the measurement of non-controlling interests and the accounting treatment of business combinations achieved in stages (step acquisitions). IFRS 3, as amended, applies prospectively to business combinations completed on or after January 1, 2010. IAS 27 Consolidated and Separate Financial Statements introduces significant novelties with respect to changes in a parent´s ownership interests in a subsidiary, differentiating between transactions giving rise to a loss of control and those in which control is retained. These amendments apply prospectively to transactions carried out on or after January 1, 2010. IFRIC 12 Service Concession Arrangements establishes infrastructure used in a service concession arrangement complying with the following conditions: a) the grantor controls or regulates what services the operator must provide; and b) the grantor controls any significant residual interest in the infrastructure at the end of the term of the arrangement; shall not be recognized as property, plant and equipment of the operator, and it establishes that the operator shall recognize an intangible asset or a financial asset, depending on the nature of the arrangement. The application of the standards, interpretations and amendments listed above, has not had a material impact on the Group’s 2010 consolidated Financial Statements. Nevertheless, the firsttime application of IFRIC 12 has resulted in certain reclassifications among balance sheet headings (Note 6). B. At the date of preparation of the accompanying consolidated Financial Statements, interpretations and amendments thereof published by the IASB and endorsed by the European Union that have not been applied because the date of mandatory application is subsequent to the date of these con-

Presentation of Financial Statements (IAS 1)

53

solidated Financial Statements date, and the Group has opted not applying early adoption, are the following: Mandatory application in 2011: • • • • • •

Revised IAS 24 Related Party Disclosures. Amendments to IAS 32 Classification of Rights Issues. Amendments to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for Firsttime Adopters. Annual improvements to IFRS 2008–2010. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirements.

At the date of preparation of the accompanying consolidated Financial Statements, the Group is assessing the impact of the application of these standards, amendments, and interpretations. C. At the date of preparation of the accompanying consolidated Financial Statements the standards, interpretations and amendments thereof that have been issued by the IASB but not yet endorsed by the European Union are the following: • • • •

IFRS 9 Financial Instruments. (1) Amendments to IFRS 7 Disclosures of transfers of financial assets. Amendments to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters. Amendments to IAS 12 Deferred tax: Recovery of Underlying Assets.

None of these standards is applicable at the date of preparation of the accompanying consolidated Financial Statements.

Telstra Annual Report—Year Ended 30 June 2010 Notes to the Financial Statements 17. Capital management and financial instruments (in part) (a) Capital management Our objectives when managing capital are to safeguard our ability to continue as a going concern, continue to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, we may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares. During 2010, we paid dividends of $3,474 million (2009: $3,474 million). Refer to note 4 for further details. Agreement with lenders During the current and prior years there were no defaults or breaches on any of our agreements with our lenders. Gearing and net debt We monitor capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total interest bearing financial assets (excluding finance lease receivables) and financial liabilities, including derivative financial instruments, less cash and cash equivalents. Total capital is calculated as equity, as shown in the statement of financial position, plus net debt. Our strategy is to target the net debt gearing ratio within 55 to 75 percent (2009: 55 to 75 percent). In fiscal 2010, our gearing ratio fell below 55% due to strong cash flows which contributed to lower net debt. The gearing ratios and carrying value of our net debt are shown in Table A below:

Wiley International Trends in Financial Reporting under IFRS

54

Table A Telstra Group Note Current Short term debt Promissory notes Long term debt-current portion Telstra bonds Offshore loans (i) Finance leases Non current Long term debt Telstra bonds and domestic loans (ii) Offshore loans (i) Finance leases

Short term debt Long term debt (including current portion) Total debt Net derivative financial instruments (asset)/liability Bank deposits with maturity greater than 90 days Gross debt Cash and cash equivalents Net debt Total equity Total capital

As at 30 June 2010 2009 $m $m

274 274

299 299

22

2,223 43 2,266

500 1,149 31 1,680

22

2,540 3,587 8,697 86 12,370 14,910

1,979 4,280 11,000 64 15,344 17,323

274 14,636 14,910 1,137 (16) 16,031 (2,105) 13,926 13,008 26,934

299 17,024 17,323 (271) (16) 17,036 (1,381) 15,655 12,681 28,336

17(d) 10 20

% 51.7

Gearing ratio

% 55.2

We are not subject to any externally imposed capital requirements. (i)

Offshore loans

Offshore loans comprise debt raised overseas. The carrying amounts of offshore loans are denominated in the following currencies. Table B Telstra Group As at 30 June Australian dollar Euro United States dollar British pound sterling Japanese yen New Zealand dollar Swiss francs Hong Kong dollar

2010 $m 249 7,064 1,697 352 610 286 613 49 10,920

2009 $m 517 8,022 1,777 408 585 202 638 12,149

Chapter 4 STATEMENT OF CASH FLOWS (IAS 7)

1.

OBJECTIVE

1.1 This Standard requires presentation of a statement of cash flows that provides information about the changes during the period in cash and cash equivalents and presents cash flows during the period classified as operating, investing, and financing activities. 2.

SYNOPSIS OF THE STANDARD

This Standard provides users with a basis to assess the entity’s ability to generate and utilize its cash and is summarized next. 2.1 The statement of cash flows presents reconciliation between the opening balance and the closing balance of cash and cash equivalents. 2.2

Cash and cash equivalents are • Investments that are short term (i.e., with original maturities of three months or less); • Readily convertible into a known amount of cash; • Subject to an insignificant risk of change in value.

2.3 Cash flows during the period arising from operating, investing, and financing activities are presented separately in the statement of cash flows. 2.4 Cash flows from operating activities represent the principal revenue-producing activities of the entity. The examples of cash flows from operating activities are cash receipts from the sale of goods and the rendering of services, cash payments to suppliers for goods or services, and cash payments to and on behalf of employees. 2.4.1 Cash flows from operating activities are reported using either • The “direct method” (which is the method recommended by this Standard); or • The “indirect method.” 2. 4.2 Taxes on income are usually classified as cash flows from operating activities unless they can be specifically identified with financing or investing activities.

55

Wiley International Trends in Financial Reporting under IFRS

56

2.4.3 Cash flows arising from dividends and interest receipts and payments may be classified under the activity that is appropriate to their nature but should be classified from year to year under the same activity on a consistent basis. 2.5 Cash flows from investing activities represent expenditure made for resources intended to generate future income and cash flows and mostly result from acquisitions and disposals of longterm assets (including business combinations) and investments by the entity other than in cash and cash equivalents. 2.5.1 Only expenditures that result in recognized assets in the statement of financial position are eligible to be classified as investing activities. Examples of cash flows from investing activities are • • • • • •

Cash payments to acquire property, plant, and equipment Intangible assets and other long-term assets Cash receipts from disposal of property, plant, and equipment Intangible assets and other long-term assets Cash payments toward acquisition of debt instruments of other entities Interests in joint ventures

2.6 Cash flows from financing activities result from changes in equity and proceeds and repayments of borrowings/debt. They are useful in predicting claims on future cash flows by providers of capital to an entity. Examples of cash flows from financing activities are • Cash proceeds from issuing shares or other equity instruments • Cash payments to owners of the business or shareholders to acquire or redeem the entity’s shares • Cash proceeds from issuance of bonds, loans, mortgages, and debentures • Other short- or long-term borrowings 2.7 In the case of significant noncash transactions, separate disclosure is required. An example of noncash transactions is the acquisition of an asset by the issuance of equity or the conversion of convertible debt or a bond into equity. 2.8 Cash flows arising from operating, investing, or financing activities may be reported on a net basis if they reflect activities of the entity’s customers as opposed to activities of the entity. An example is the acceptance and repayment of demand deposits of a bank or rents collected on behalf of and paid over to the owners of properties. 2.8.1 Cash flows arising from operating, investing, or financing activities may also be reported on a net basis when such cash receipts and cash payments are for items in which the turnover is quick, the amounts are large and the maturity periods are short. An example is principal amounts relating to credit card customers or short-term borrowings that have a maturity of three months or less. 3.

DISCLOSURE REQUIREMENTS The disclosures that are required to be made under this Standard are listed next.

3.1 Amounts of significant cash and cash equivalents held by an entity that are not available for use by the group (An example is when cash and cash equivalents are held by a subsidiary that operates in a country that has exchange controls or legal restrictions that restrict general use of such balances by the parent or other subsidiaries of the parent.) 3.2

Additional disclosures that are encouraged but not made mandatory by this Standard are • The amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of such facilities • The aggregate amounts of cash flows from operating, investing, and financing activities relating to interests in joint ventures that are reported using “proportionate consolidation”

Statement of Cash Flows (IAS 7)

57

• The aggregate amount of cash flows that represent increases in operating activity separately from those cash flows that are required to maintain operating capacity (Such disclosures enable statement users to determine whether the entity is investing adequately in the maintenance of its operating activity.) • Segmental cash flows (i.e., for each reportable segment under International Financial Reporting Standard [IFRS] 8, Operating Segments, arising from operating, investing, and financing activities EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS OF PUBLIC COMPANIES

Alliance Boots Annual Report 2010/11 Group Statement of Cash Flows For the Year Ended 31 March 2011

Note Operating activities Profit from operations: Continuing operations Discontinued operations Adjustments to reconcile profit from operations to cash generated from operations: Share of post tax earnings of associates and joint ventures Depreciation and amortisation Negative goodwill Net gain on disposal of property, plant and equipment Net gain on disposal of assets classified as held for sale Impairment of investments in associates and goodwill Net gain on acquisitions of controlling interests in associates Increase in inventories Increase in receivables Increase in payables and provisions Movement in retirement benefit assets and obligations Cash generated from operations Tax paid Net cash from operating activities Investing activities Acquisition of businesses Cash and cash equivalents of businesses acquired net of overdrafts Disposal of businesses Overdrafts of businesses disposed net of cash and cash equivalents Purchase of property, plant and equipment, and intangible assets Purchase of available-for-sale investments Purchase of profit participating notes Loans advanced net of repayments Disposal of property, plant and equipment, and intangible assets Disposal of available-for-sale investments Disposal of assets classified as held for sale Dividends received from associates and joint ventures Dividends received from available-for-sale investments Interest received Net cash from/(used in) investing activities

2010 2011 Represented £million £million 1,032 7

765 20

1,039 (73) 364 (16) (24) — 4 (19) (48) (6) 261 (173) 1,309 (59) 1,250

785 (99) 359 — — (2) 121 — (73) (40) 143 (64) 1,130 (14) 1,116

(222) 363 62 114 (253) (1) (119) (40) 86 — 7 17 2 77 93

(11) — — — (255) (12) (36) (3) 14 2 25 39 1 49 (187)

Wiley International Trends in Financial Reporting under IFRS

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Note

2010 2011 Represented £million £million

Financing activities Interest paid Interest element of finance lease obligations Proceeds from borrowings Repayment of borrowings, repurchase of acquisition borrowings and settlement of derivatives Fees associated with financing activities Net cash and cash equivalents transferred from/(to) restricted cash Repayment of capital element of finance lease obligations Dividends paid to non-controlling interests Purchase of non-controlling interests Contribution from non-controlling interests Net cash used in financing activities

(377) (91) 23

(393) (2) 39

(439) (15) 63 (10) (18) (66) 26 (814)

(666) (22) (5) (17) — (10) 3 (1,073)

Net increase/(decrease) in cash and cash equivalents in the year Cash and cash equivalents at 1 April Currency translation differences Cash and cash equivalents at 31 March

529 72 (7) 594

(144) 210 6 72

21

CNP Assurances Annual Financial Report 2010 Consolidated statement of cash flows for the year ended 31 December 2010 The Statement of Cash Flows Includes • • •

Cash flows of fully-consolidated companies; The Group’s proportionate share of the cash flows of jointly-controlled entities consolidated by the proportionate method; Cash flows arising from Group investments, dividends and other transactions with associates or jointly-controlled entities accounted for by the equity method.

Definition of Cash and Cash Equivalents Cash and cash equivalents are short-term, highly liquid investments (sight deposits and other instruments) that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value. They include units in “ordinary” money market funds but do not include units in dynamic funds that are highly sensitive to changes in market prices, in accordance with the guidelines of the French financial markets authority (Autorité des marches financiers – AMF). Cash and cash equivalents reported in the statement of cash flows are stated net of bank overdrafts used for cash management purposes. Definition of Cash Flows from Operating Activities Cash flows from operating activities correspond essentially to the cash flows of the Group’s revenuegenerating activities. Definition of Cash Flows from Investing Activities Cash flows from investing activities correspond to cash flows from purchases and sales of investment property and securities, operating property and equipment and intangible assets. Definition of Cash Flows from Financing Activities Cash flows from financing activities correspond to all cash flows leading to a change in the amount and components of equity and financing liabilities, as follows: • • • •

Share issues and cancellations; Debt issues and repayments; Purchases and sales of treasury stock; Dividends paid to owners of the parent and minority shareholders of subsidiaries.

Statement of Cash Flows (IAS 7)

59

RECONCILIATION OF CASH AND CASH EQUIVALENTS REPORTED IN THE BALANCE SHEET AND IN THE STATEMENT OF CASH FLOWS In € millions Cash and cash equivalents (reported in the balance sheet) Cash and cash equivalents relating to assets held for sale Operating liabilities due to banks Securities held for trading TOTAL (REPORTED IN CONSOLIDATED STATEMENT OF CASH FLOWS)

31.12.2010 787.5 0.0 (273.2) 4,597.1 5,111.3

31.12.2009 1,138.8 12.3 (5.4) 9,159.0 10,304.7

31.12.2008 1,257.7 0.0 (6.7) 7,518.9 8,769.9

Cash and cash equivalents reported in the statement of cash flows correspond to • • •

Cash and cash equivalents reported in the balance sheet under assets; Operating liabilities due to banks: correspond to short-term bank loans and overdrafts other than financing liabilities, reported in the balance sheet under liabilities; Securities held for trading: consist of money market mutual funds reported in the balance sheet under “Insurance investments.”

CONSOLIDATED STATEMENT OF CASH FLOWS In € millions

Operating profit before tax Gains on sales of investments, net Depreciation and amortisation expense, net Change in deferred acquisition costs Impairment losses, net Charges to technical reserves for insurance and financial liabilities Charges to provisions, net Change in fair value of financial instruments at fair value through profit (other than cash and cash equivalents) Other adjustments Total adjustments Change in operating receivables and payables Change in securities sold and purchased under repurchase and resale agreements Change in other assets and liabilities Income taxes paid, net of reimbursements Net cash provided by operating activities Acquisitions of subsidiaries and joint ventures, net of cash acquired Divestments of subsidiaries and joint ventures, net of cash (1) sold Acquisitions of associates Divestments of associates Net cash (used) provided by divestments and acquisitions Proceeds from the sale of financial assets Proceeds from the sale of investment properties Proceeds from the sale of other investments Net cash provided by sales and redemptions of investments Acquisitions of financial assets Acquisitions of investment properties Acquisitions and/or issuance of other investments Net cash used by acquisitions of investments Proceeds from the sale of property and equipment and intangible assets Purchases of property and equipment and intangible assets Net cash used by sales and purchases of property and equipment and intangible assets Net cash used by investing activities

31.12.2010

31.12.2009

31.12.2008

1,425.3 (588.8) 101.5 (37.7) 224.9

1,724.3 (1,414.1) 222.8 (51.4) 210.6

1,081.7 (1,513.4) 85.4 (1.1) 3,005.6

16,995.9 36.4

21,003.7 (197.4)

1,087.9 225.4

(1,160.0) (420.0) 15,152.1 (861.3)

3,986.8) 618.4 16,405.8 1,260.0

10,770.8 (768.7) 12,891.9 (1,830.4)

415.0 (40.5) (594.5) 15,496.1

(1,542.0) 33.3 (555.7) 17,325.7

714.6 (22.1) (424.2) 12,411.5

0.0

(7.9)

(77.6)

102.3 0.0 0.0

692.0 0.0 0.0

0.0 0.0 0.0

102.3 402,664.4 64.8 7.4

684.1 403,523.7 571.8 12.1

(77.6) 194,627.7 190.7 16.4

402,736.5 (423,000.4) (17.0) (0.9) (423,018.3)

404,107.5 (419,413.4) (68.2) 0.0 (419,481.6)

194,834.7 (202,713.6) (265.9) 0.0 (202,979.4)

0.6 (105.4)

1.3 (47.3)

5.4 (40.9)

(104.8) (20,284.2)

(45.9) (14,735.9)

(35.5) (8,257.8)

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In € millions (2)

Issuance of equity instruments Redemption of equity instruments Purchases and sales of treasury shares Dividends paid Net cash used by transactions with shareholders (3) New borrowings Repayments of borrowings Interest paid on borrowings Net cash (used) provided by other financing activities Net cash (used) provided by financing activities Cash and cash equivalents at beginning of period Net cash provided by operating activities Net cash used by investing activities Net cash (used) provided by financing activities Effect of changes in exchange rates (4) Effect of changes in accounting policies and other CASH AND CASH EQUIVALENTS AT THE REPORTING DATE (1)

(2) (3) (4)

31.12.2010

31.12.2009

31.12.2008

48.9 0.0 (6.3) (576.9) (534.3) 750.1 (7.5) (189.6) 553.0 18.7 10,304.7 15,496.1 (20,284.2) 18.7 (19.9) (404.0)

57.0 0.0 8.6 (520.0) (454.4) 49.1 (426.9) (184.7) (562.5) (1,016.9) 8,769.9 17,325.7 (14,735.9) (1,016.9) 4.9 (43.1)

0.0 0.0 (12.9) (460.3) (473.2) 0.0 (53.4) (217.5) (270.9) (744.0) 5,057.3 12,411.5 (8,257.8) (744.0) (0.6) 303.6

10,304.7

8,769.9

5,111.3

Sale of Portuguese subsidiaries for an amount of €102.3 million (sale price of €114.6 million, net of €12.3 million in cash sold). 42.5% stake in the CNP UniCredit Vita share issue of €115 million. Subordinated notes issued by CNP Assurances for an amount of €750 million. Correction of CNP Vida’s opening cash balance for €420.5 million (reclassified from “Cash and cash equivalents” to “Loans and receivables”) and another insignificant impact of €16.5 million on opening cash balance.

Crédit Agricole S.A. Annual Report 2010 Consolidated financial statements for the year ended 31 December 2010 STATEMENT OF CASH FLOWS In millions of euros

Pre-tax income Depreciation, amortisation and impairment of property, plant & equipment and intangible assets Impairment of goodwill and other fixed assets Net charge to depreciation, amortisation and impairment Share of profit in equity-accounted entities Net income from investing activities Net income from financing activities Other movements Total non-cash items included in pre-tax income and other adjustments Change in interbank items Change in customer items Change in financial assets and liabilities Change in non-financial assets and liabilities (1) Dividends received from equity-accounted entities Tax paid Net decrease/(increase) in assets and liabilities used in operating activities TOTAL NET CASH GENERATED BY OPERATING ACTIVITIES (A) (2) Change in equity investments Change in property, plant & equipment and intangible assets TOTAL NET CASH ASSOCIATED WITH INVESTMENT ACTIVITIES (B) (3) Cash received from/(paid) to shareholders (4) Other cash provided/(used) by financing activities TOTAL NET CASH ASSOCIATED WITH FINANCING ACTIVITIES (C) Effect of exchange rate changes on cash and cash equivalents (D) NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS (A+B+C+D)

31/12/2010

31/12/2009

2,608 1,025

1,499 959

445 2,253 (65) 197 4,487 213 8,555 (7,231) 11,514 (43,129) 17,513 394 (1,391) (22,330) (11,167) 112 (921) (809) (1,021) (173) (1,194) 1,511 (11,659)

486 3,463 (847) (124) (953) 8 2,992 (44,752) 33,044 (8,169) 17,664 345 (1,557) (3,425) 1,066 (856) (923) (1,779) (305) (7,110) (7,415) (449) (8,577)

Statement of Cash Flows (IAS 7)

61

In millions of euros

31/12/2010

Cash and cash equivalents at beginning of period Cash and due from central banks net balance* Interbank demand net balance** Cash and cash equivalents at end of period Cash and due from central banks net balance* Interbank demand net balance** CHANGE IN NET CASH AND CASH EQUIVALENTS

45,120 32,976 12,144 33,461 28,878 4,583 (11,659)

31/12/2009

53,697 48,728 4,969 45,120 32,976 12,144 (8,577)

* Consisting of the net balance of “Cash and due from central banks”, excluding accrued interest as detailed in Note 6.1 (and including cash of entities reclassified as held-for-sale operations). ** Comprises the balance of “performing current accounts in debit” and “performing overnight accounts and advances” as detailed in Note 6.5 and “current accounts in credit” and “daylight overdrafts and accounts” as detailed in Note 6.7 (excluding accrued interest and including Crédit Agricole internal transactions). (1) For 2010, this amount includes, notably, dividend payment from Regional Banks for an amount of €257 million, from Intesa Sanpaolo for €49 million and from Bank Saudi Fransi for €28 million. (2) This line item shows the net effects on cash of acquisitions and disposals of equity investments. These external operations are described in Note 2.2. During 2010, the net impact of acquisitions and disposals of consolidated equity investments (subsidiaries and equity-accounted entities) on Group cash amounted to €165 million, notably concerning the sale of additional Intesa Sanpaolo shares for €232 million and the additional acquisition of Bankinter shares for -€39 million. In the same period, the net impact of acquisitions and disposals of non-consolidated equity interests on Group cash amounted to -€55 million, mainly concerning the acquisition of shares in SCI Capre diem for -€57 million offset by the sale of Attijariwafa bank shares for €65 million. (3) Cash flows received from or paid to shareholders includes 2010 dividend payments from Crédit Agricole S.A. to its shareholders amounting to -€707, an employee share issue in Crédit Agricole S.A. for €109 million, a capital increase in Emporiki subscribed by minority shareholders amounting to €49 million and a return of capital to minority shareholders of Calixis and Edelaar for -€153 million and -€80 million respectively. (4) During 2010, net issues of bond debt amounted to €1,577 million. Net issues of subordinated debt amounted to €2,686 million.

Danske Bank Group Annual Report 2010 CASH FLOW STATEMENT for the year ended 31 December 2010 DKK millions

2010

2009

6,450

4,755

-84 984 1,385 13,817 -1,076 -3,721 17,755

-293 2,517 1,520 25,677 -1,568 7,651 40,259

Changes in operating capital Cash in hand and demand deposits with central banks Trading portfolio Other financial instruments at fair value Loans and advances at amortised cost Loans at fair value Deposits Bonds issued by Realkredit Danmark Assets/liabilities under insurance contracts Other assets/liabilities Cash flow from operations

14,204 75,878 -2,490 -33,406 -13,242 1,474 38,431 -6,315 -52,024 40,265

-232,365 -1,987 -2,950 199,294 -21,292 -15,110 37,521 -3,081 4,203 4,492

Cash flow from investing activities Acquisition of group undertakings and other business units Sale of group undertakings and other business units Acquisition of own shares Sale of own shares Acquisition of intangible assets Acquisition of tangible assets Sale of tangible assets Cash flow from investing activities

-19,195 19,316 -362 -452 80 -613

7 -17,358 17,315 -332 -2,305 82 -2,591

Cash flow from operations Profit before tax Adjustment for non-cash operating items Adjustment of income from associated undertakings Amortisation and impairment charges for intangible assets Depreciation and impairment charges for tangible assets Loan impairment charges Tax paid Other non-cash operating items Total

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DKK millions

Cash flow from financing activities Increase in subordinated debt and hybrid capital Redemption of subordinated debt and hybrid capital Dividends Change in non-controlling interests Cash flow from financing activities Cash and cash equivalents at 1 January Change in cash and cash equivalents Cash and cash equivalents at 31 December Cash and cash equivalents at 31 December Cash in hand and demand deposits with central banks Amounts due from credit institutions and central banks within three months Total

2010

2009

-4,848 15 -4,833 225,788

26,020 -4,839 -22 21,159

34,819 260,607

202,728 23,060 225,788

35,403 225,204

33,714 192,074

260,607

225,788

The list of group holdings and undertakings provides information about restrictions on the use of cash flows from group undertakings.

Holcim Annual Report 2010 Consolidated financial statements for the year ended 31 December 2010 Consolidated statement of cash flows of Group Holcim Million CHF

Net income before taxes Other income Share of profit of associates Financial expenses net Operating profit Depreciation, amortization and impairment of operating assets Other non-cash items Change in net working capital Cash generated from operations Dividends received Interest received Interest paid Income taxes paid Other expenses Cash flow from operating activities (A) Purchase of property, plant and equipment Disposal of property, plant and equipment Acquisition of participation in Group companies Disposal of participation in Group companies 1 Purchase of financial assets, intangible and other assets 1 Disposal of financial assets, intangible and other assets Cash flow used in investing activities (B) Dividends paid on ordinary shares Dividends paid to non-controlling interest Capital increase Capital paid-in by non-controlling interest Movements of treasury shares Proceeds from current financial liabilities Repayment of current financial liabilities Proceeds from long-term financial liabilities Repayment of long-term financial liabilities 1 Increase in participation in existing Group companies 1 Decrease in participation in existing Group companies Cash flow (used in) from financing activities (C)

Notes

11 23 12, 13 9

40 37

2010

2009

2,236 (7) (245) 635 2,619 1,894 238 (43) 4,708 183 122 (829) (471) (54) 3,659

2,581 (206) (302) 708 2,781 1,849 315 159 5,104 94 145 (726) (639) (90) 3,888

(1,821) 229 (60) 0 (446) 736 (1,362) (480) (239) 0 29 (29) 6,097 (7,713) 2,544 (3,325) (154) 30 (3,240)

(2,507) 202 (1,782) 139 (744) 262 (4,430) 0 (192) 2,040 2 (72) 12,170 (13,433) 11,234 (10,393) (160) 0 1,196

Statement of Cash Flows (IAS 7)

63

Million CHF

Notes

(De)Increase in cash and cash equivalents (A+B+C) Cash and cash equivalents as at January 1 (net) (De)Increase in cash and cash equivalents Currency translation effects Cash and cash equivalents as at December 31 (net) 1

17 17

2010

2009

(943)

654

4,261 (943) (249) 3,069

3,611 654 (4) 4,261

Based on an amendment in IAS 7, cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control are classified as cash flows from financing activities and not as investing activities, which is to be applied on a retrospective basis.

Notes to the consolidated financial statements for the year ended 31 December 2010 Cash flow in investing activities Million CHF1

2010

Purchase of property, plant and equipment net Replacements Proceeds from sale of property, plant and equipment Capital expenditures on property, plant and equipment to maintain productive capacity and to secure competitiveness Expansion investments Total purchase of property, plant and equipment net (A) Acquisition of participation in Group companies (net of cash and cash equivalents 1 acquired) Disposal of participation in Group companies Disposal of participation in Group companies (net of cash and cash equivalents disposed of) 2 Cash and cash equivalents of reclassified Group companies Total disposal of participation in Group companies Purchase of financial assets, intangible and other assets Increase in financial investments including associates Increase in other assets 3 Total purchase of financial assets, intangible and other assets

2009

(639) 229 (410)

(578) 202 (376)

(1,182) (1,592) (60)

(1,929) (2,305) (1,782)

0

162

0 0

(23) 139

(252) (194) (446)

(65) (679) (744)

Disposal of financial assets, intangible and other assets Decrease in financial investments including associates Decrease in other assets Total disposal of financial assets, intangible and other assets

61 675 736

98 164 262

Total purchase of financial assets, intangible, other assets and businesses net (B)

230

(2,125)

Total cash flow used in investing activities (A+B)

(1,362)

(4,430)

Cash flow from acquisition and disposals of Group companies Acquisition

Disposal

Million CHF

2010

2009

2010

2009

Current assets Property, plant and equipment Other assets Current liabilities Long-term provisions Other long-term liabilities Net assets Previously held net assets1 Non-controlling interest

(28) (23) (13) 11 7 4 (42) 0 1

(753) (2,089) (266) 586 277 433 (1,812) 221 128

0 0 0 0 0 0 0 0 0

148 0 0 (53) 0 0 95 0 0

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64

Acquisition

1 2 3

Disposal

Million CHF

2010

2009

2010

2009

Net assets (acquired) disposed Goodwill (acquired) disposed Net gain on disposals2 Total (purchase) disposal consideration Acquired cash and cash equivalents Payables and loan notes Net cash flow

(41) (28) 0 (69)

(1,463) (400) 0 (1,863)

0 0 0 0

95 3 64 162

1 8 (60)

81 0 (1,782)

0 0 0

0 0 162

Including goodwill of new Group companies. This position relates to United Cement Company of Nigeria Ltd (note 1), reclassified as associate in 2009. Refer to the consolidated statement of cash flows, footnote 1.

J Sainsbury plc Annual Report and Financial Statements 2010 CASH FLOW STATEMENTS for the 52 weeks to 20 March 2010 Note Cash flows from operating activities Cash generated from operations Interest paid Corporation tax paid Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment and other assets Purchase of intangible assets Proceeds from disposal of property, plant and equipment and other assets Acquisition of and investment in subsidiaries and businesses, net of cash acquired Investment in joint ventures Investment in financial assets Interest received Dividends received Net cash from investing activities Cash flows from financing activities Proceeds from issuance of ordinary shares Proceeds from short-term borrowings Repayment of short-term borrowings Proceeds from long-term borrowings Repayment of long-term borrowings Repayment of capital element of obligations under finance lease payments Interest elements of obligations under finance lease payments Dividends paid Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents

26

12,13

10

26

Group 2010 £m

Group 2009 £m

Company 2010 £m

Company 2009 £m

1,206 (111) (89) 1,006

1,206 (128) (160) 918

(251) (40) (291)

203 (57) (160) (14)

(1,036) (11)

(966) (10)

-

-

139

390

-

86

(2) (10) 18 2 (900)

(10) (291) (8) 13 3 (879)

(5) (10) 83 252 320

(8) 70 250 398

250 (36) 235 (74)

15 43 152 (30)

250 (35) 235 (21)

15 35 -

(2)

-

-

-

(3) (241) 129

(3) (218) (41)

(241) 188

(218) (168)

235 599 834

(2) 601 599

217 452 669

216 236 452

Chapter 5 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS (IAS 8)

1.

OBJECTIVE

1.1 This Standard prescribes the basis for the selection of accounting policies and their amendment. It also prescribes the requirements and disclosures for any changes that are made in accounting estimates and corrections of prior period errors. The other disclosure requirements for accounting policies are set out in International Accounting Standard (IAS) 1, Presentation of Financial Statements. 2.

SYNOPSIS OF THE STANDARD

This Standard aims at enhancing the relevance and reliability of an entity’s financial statements and users’ ability to compare the financial statements of an entity over time as well as with the financial statements of other entities. The summary of this Standard follows. 2.1 Accounting policies are the specific principles, bases, conventions, rules and practices that are applied by an entity in preparing and presenting financial statements. 2.1.1 In selecting and applying an accounting policy, the Standard or the Interpretation that applies to the relevant transaction, event, or condition must be applied so that the financial statements will • Represent faithfully the financial position, financial performance, and cash flows of the entity. • Reflect the economic substance of transactions, other events, and conditions. • Be neutral, prudent, and complete in all material respects. 2.1.2 In case the Standards or Interpretations do not address a specific transaction, other event, or condition, management must develop and use an accounting policy so that the information provided therein is relevant to decision-making needs of the users. For this purpose, the management must rely on the next sources in descending order: 65

66

Wiley International Trends in Financial Reporting under IFRS

• The requirements in the Standards and Interpretations that deal with similar and related issues • The definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses as detailed in the Framework of the International Accounting Standards Board (IASB) • Most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop standards, other accounting literature, and accepted industry practices, to the extent that these do not conflict with the sources just mentioned 2.1.3 Once selected, the accounting policies must be applied consistently for similar transactions, other events, and conditions unless a Standard or Interpretation specifically requires or permits categorization of items for which different policies may be appropriate. When a Standard or Interpretation requires or permits such categorization, an appropriate accounting policy must be selected and applied consistently to each category. 2.1.4 An entity should change an accounting policy only if the change is either required • By a Standard or Interpretation; or • It results in reliable and more relevant information being provided by the financial statements regarding the effects of transactions, other events, or conditions on the entity’s financial position, financial performance, or cash flows. 2.1.5 When an entity changes its accounting policy on the basis of a new or amended Standard or Interpretation, the transitional provisions that are specified therein must be followed in adopting the change. In case no transitional provisions are specified, or if the entity changes its accounting policy voluntarily, the changes must be applied retrospectively. 2.1.6 When the change is applied retrospectively, the comparative figures that are presented in financial statements must be restated as if the new policy had always been applied. The impact of the new policy on the retained earnings prior to the earliest period presented should be adjusted against the opening balance of retained earnings. In case it is not practical to determine either the period-specific effects or the cumulative effect of the change, the entity must apply the change prospectively from the start of the earliest period that is practically possible. 2.2 Many items in the financial statements are estimated because they cannot be measured with accuracy due to uncertainties inherent in business activities. These accounting estimates may change due to of the availability of new information or new developments. Such changes in accounting estimates do not require restating the financial statements of a prior period, because they do not amount to a correction of an error. 2.2.1 The effect of a change in the accounting estimate must be recognized prospectively by including it in the profit or loss in the period of change, if the change affects that period only, or in the period of the change and future periods, if the change affects both. If the change in an accounting estimate gives rise to changes in assets and liabilities or relates to an item of equity, the carrying amount of the related asset, liability, or equity item shall also be adjusted in the period of the change. 2.3 Errors in financial statements can arise due to incorrect recognition, measurement, presentation, or disclosure of items in the statements. 2.3.1 Errors in the entity’s financial statements for one or more prior periods (referred to as priorperiod errors) can arise due to omissions and/or misstatements from a failure to use, or the misuse of, reliable information that was available when financial statements for those periods were authorized for issue and when it could reasonably be expected that such reliable information could have been obtained and taken into account in the preparation and presentation of those financial statements. 2.3.2 The entity must correct retrospectively all material errors relating to prior periods in the first set of financial statements authorized for issue after the discovery of the errors by either restating

Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8)

67

the comparative amounts for the period(s) presented in which the error occurred or, if the error occurred before the earliest prior period presented, by restating the opening balances of assets, liabilities, and equity for such earliest prior period presented. 3.

DISCLOSURE REQUIREMENTS

Disclosures that are required to be made by the entity in the case of changes in the accounting policies, changes in accounting estimates, and prior-period errors are listed next. 3.1

Changes in Accounting Policies

3.1.1 In the case of initial application of a Standard or Interpretation, when changes in accounting policies have an effect on current or prior periods or would have an effect on future periods, but it is impracticable to determine the amount of adjustment required in current or prior periods or that will be required in the future period, the entity shall disclose The title of the Standard or Interpretation When applicable, that the change is made in accordance with the transitional provisions The nature of the change in the accounting policy When applicable, a description of the transitional provisions When applicable, the transitional provisions that might have an effect on future periods For current and each prior period presented to the extent practicable, the amount of the adjustment for each financial statement line item • When applicable, the basic and diluted earnings per share for the current and each prior period presented to the extent practicable • The amount of the adjustment relating to periods before those presented, to the extent practicable • When retrospective application is impracticable, the circumstances making it impracticable and the date from which the accounting policy has been applied • • • • • •

3.1.2 In the case of voluntary change in accounting policy, when the change has an effect on current or prior periods or would have an effect on future periods, but it is impracticable to determine the amount of adjustment required in current or prior periods or that will be required in the future period, the entity shall disclose • The nature of the change in the accounting policy • The reason for the new policy providing reliable and more relevant information • For the current and each prior period presented, to the extent practicable, the amount of the adjustment for each financial statement line item • If applicable, the basic and diluted earnings per share for the current and each prior period presented, to the extent practicable • The amount of the adjustment relating to periods before those presented, to the extent practicable • If retrospective application is impracticable, the circumstances making it impracticable and the date from which the accounting policy has been applied 3.1.3 When Standards or Interpretations have been issued but are not yet effective, the entity must disclose the fact that those Standards or Interpretations have been issued at the date of authorization of the financial statements but were not effective. Any known or reasonably estimable information relevant to assessing the possible impact of the new Standard or Interpretation must also be disclosed. 3.1.4 The financial statements of subsequent periods need not repeat these disclosures. 3.2

Changes in Accounting Estimates

3.2.1 An entity should disclose amounts and nature of changes in accounting estimate that has an effect in the current period. Also, the entity must disclose the expected effect of the change on future periods, unless it is not practical to do so. In such cases, the entity must disclose the fact that it is impractical to estimate the effect of the accounting estimate change on future periods.

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3.3

Prior-Period Errors

3.3.1 In regard to prior-period errors, an entity shall disclose The nature of the prior-period error For each period presented, to the extent practicable, the amount of the correction For each financial statement line item affected Basic and diluted earnings per share for entities to which IAS 33, Earnings per Share, applies • The amount of the correction at the beginning of the earliest prior period presented • If retrospective restatement is “impracticable” for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected • • • •

3.3.2 The financial statements of subsequent periods need not repeat these disclosures. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

ArcelorMittal and Subsidiaries Annual Report 2010 (in millions of U.S. dollars, except share and per share data) Notes to Consolidated Financial Statements Note 1: Nature of Business, Basis of Presentation and Consolidation Basis of presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollars with all amounts rounded to the nearest million, except for share and per share data. Note 2: Summary of Significant Accounting Policies Business Combinations From January 1, 2010, the Company has applied IFRS 3 Business Combinations (2008) in accounting for business combinations. The change in accounting policy has been applied prospectively. Business combinations are accounted for using the acquisition method as of the acquisition date, which is the date on which control is transferred to ArcelorMittal. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Company takes into consideration potential voting rights that currently are exercisable. For acquisitions on or after January 1, 2010, the Company measures goodwill at the acquisition date as the total of the fair value of consideration transferred, plus the proportionate amount of any noncontrolling interest, plus the fair value of any previously held equity interest in the acquiree, if any, less the net recognized amount (generally at fair value) of the identifiable assets acquired and liabilities assumed. When the result is negative, a bargain purchase gain is recognized in the statement of operations. Any costs directly attributable to the business combination are expensed as incurred. Any contingent consideration payable is recognized at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not re-measured and settlement is accounted as equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in the statement of operations. Previously, the cost of the acquisition of subsidiaries and businesses was measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by ArcelorMittal in exchange for control of the acquiree, plus any costs directly attributable to the business combination.

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Accounting for Acquisitions of Non-Controlling Interests From January 1, 2010, the Company has applied IAS 27 Consolidated and Separate Financial Statements (2008) in accounting for acquisitions of non-controlling interests. The change in accounting policy has been applied prospectively. Under the new accounting policy, acquisition of non-controlling interests, which do not result in a change of control are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognized as a result of such transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received shall be recognized directly in equity and attributed to the owners of the parent. Previously, goodwill was recognized on the acquisition of non-controlling interests in a subsidiary, which represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction.

BAE Systems Annual Report 2010 (in £ millions) Notes to the Group accounts 1.

Accounting Policies

Basis of Preparation The consolidated financial statements of BAE Systems plc have been prepared on a going concern basis and in accordance with EU-endorsed International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee interpretations (IFRICs) and the Companies Act 2006 applicable to companies reporting under IFRS. 2.

Changes in Accounting Policies

Standards, Amendments and Interpretations Effective in 2010 With effect from 1 January 2010, the Group early adopted Improvements to IFRSs 2010 which makes minor amendments to seven existing standards. These amendments impact disclosures and, therefore, have had no impact on the reported results or financial position of the Group. The amendment to IAS 1, Presentation of Financial Statements, allows the presentation either in the statement of changes in equity, or within the notes, of an analysis of the components of other comprehensive income by item. With effect from 1 January 2010, the Group adopted the following amendments to existing standards: •

•

IFRS 3, Business Combinations, introduces changes in the accounting treatment of acquisitions, such as the accounting for acquisition-related costs, the initial recognition and subsequent measurement of contingent consideration, and business combinations achieved in stages. The change in accounting policy has been applied prospectively and has not had a material impact on reported results. The impact on future years will depend on the specific acquisitions undertaken; and Amendment to IAS 27, Consolidated and Separate Financial Statements, requires that acquisitions of non-controlling interests that do not result in a change of control are accounted for as transactions with equity holders and, therefore, no goodwill is recognised as a result. The change in accounting policy has been applied prospectively and has not had a material impact on reported results.

In addition, the Group has reviewed the effect of the following amendments and interpretations effective from 1 January 2010, and has concluded that they have no impact on the Group’s accounts: • • • • •

Amendment to IAS 39, Financial Instruments: Recognition and Measurement: Eligible Hedged Items; Amendment to IFRS 2, Share-based Payment: Group Cash-settled Share-based Payment Transactions; Improvements to IFRSs 2009; International Financial Reporting Interpretations Committee (IFRIC) 17, Distributions of Noncash Assets to Owners; and IFRIC 18, Transfers of Assets from Customers.

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Telstra Corporation Limited and Controlled Entities Annual Report 2010 (in $ millions) Notes to the financial statements 1.

Basis of Preparation

1.1 Basis of preparation of the financial report This financial report is a general purpose financial report prepared in accordance with the requirements of the Australian Corporations Act 2001 and Accounting Standards applicable in Australia. This financial report also complies with International Financial Reporting Standards and Interpretations published by the International Accounting Standards Board. 2.10 Property, plant and equipment (b) Depreciation Items of property, plant and equipment, including buildings and leasehold property, but excluding freehold land, are depreciated on a straight line basis to the income statement over their estimated service lives. We start depreciating assets when they are installed and ready for use. The service lives of our significant items of property, plant and equipment are as follows: Telstra Group As at 30 June Property, plant and equipment Buildings Buildings Fitouts Leasehold improvements Communication assets Network land and buildings Network support infrastructure Access fixed Access mobile Content/IP products—core Core network—data Core network—switch Core network—transport Specialised premise equipment International connect Managed service Network control layer Network product Other plant and equipment IT equipment Motor vehicles/trailer/caravan/huts Other plant and equipment

2010 Service life (years)

2009 Service life (years)

53–55 10–20 7–40

55 10–20 8–40

5–55 4–52 4–30 4–16 5–10 4–8 5–23 6–30 3–8 6–15 9–10 3–11 3–9

5–55 4–52 4–25 3–16 5–10 4–8 2–22 3–30 3–8 7–15 9–10 4–11 3–12

3–5 3–15 2–20

3–5 3–14 4–20

The service lives and residual values of our assets are reviewed each year. We apply management judgment in determining the service lives of our assets. This assessment includes a comparison with international trends for telecommunication companies, and in relation to communication assets, includes a determination of when the asset may be superseded technologically or made obsolete. The net effect of the reassessment of service lives for fiscal 2010 was a decrease in our depreciation expense of $124 million (2009: $92 million decrease) for the Telstra Group.

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2.12 Intangible assets (e) Amortisation The weighted average amortisation periods of our identifiable intangible assets are as follows: Telstra Group As at 30 June 2010 Expected benefit (years) 7 9 5 13 19 10 4

Identifiable intangible assets Software assets Patents and trademarks Mastheads Licences Brand names Customer bases Deferred expenditure

2009 Expected benefit (years) 8 19 Indefinite 15 18 10 4

From 1 July 2009, mastheads have been assigned a finite life and are amortised from that date. The service lives of our identifiable intangible assets are reviewed each year. Any reassessment of service lives in a particular year will affect the amortisation expense through to the end of the reassessed useful life for both that current year and future years. The net effect of the reassessment for fiscal 2010 was a decrease in our amortisation expense of $49 million (2009: $110 million decrease) for the Telstra Group.

Anheuser-Busch InBev Annual Report 2010 (in US $ millions) Notes to the consolidated financial statements 2.

Statement of Compliance

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and in conformity with IFRS as adopted by the European Union up to 31 December 2010 (collectively “IFRS”). AB InBev did not apply any European carve-outs from IFRS. AB InBev has not applied early any new IFRS requirements that are not yet effective in 2010. 3.

Summary of Significant Accounting Policies

(J) Property, Plant and Equipment Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses. Cost includes the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management (e.g. nonrefundable tax and transport cost). The cost of a self constructed asset is determined using the same principles as for an acquired asset. The depreciation methods, residual value, as well as the useful lives are reassessed and adjusted if appropriate, annually. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of such assets. Subsequent expenditure. The company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the company and the cost of the item can be measured reliably. All other costs are expensed as incurred. Depreciation. The depreciable amount is the cost of an asset less its residual value. Residual values, if not insignificant, are reassessed annually. Depreciation is calculated from the date the asset is available for use, using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are defined in terms of the asset’s expected utility to the company and can vary from one geographical area to another. On average the estimated useful lives are as follows:

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Industrial buildings – other real estate properties Production plant and equipment: Production equipment Storage, packaging and handling equipment Returnable packaging: Kegs Crates Bottles Point of sale furniture and equipment Vehicles Information processing equipment

20 to 33 years 10 to 15 years 5 to 7 years 2 to 10 years 2 to 10 years 2 to 5 years 5 years 5 years 3 to 5 years

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Land is not depreciated as it is deemed to have an indefinite life. Gains and losses on sale. Net gains on sale of items of property, plant and equipment are presented in the income statement as other operating income. Net losses on sale are presented as other operating expenses. Net gains and losses are recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs can be estimated reliably, and there is no continuing managerial involvement with the property, plant and equipment. 4.

Use of Estimates and Judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Although each of its significant accounting policies reflects judgments, assessments or estimates, AB InBev believes that the following accounting policies reflect the most critical judgments, estimates and assumptions that are important to its business operations and the understanding of its results: business combinations, intangible assets, goodwill, impairment, provisions, share based payments, employee benefits and accounting for current and deferred tax. During 2010 AB InBev conducted an operational review of the useful lives of certain items of property, plant and equipment in the zone Latin America North, which resulted in changes in the expected usage of some of these assets. See Note13, Property, plant and equipment. Judgments made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are further discussed in the relevant notes hereafter. 13. Property, Plant and Equipment During 2010 AB InBev conducted an operational review of the useful lives of certain items of property, plant and equipment in the zone Latin America North, which resulted in changes in the expected usage of some of these assets. The effect of these changes on depreciation expense in 2010 amounted to 167m US dollar of which 139m US dollar recognized in cost of sales and 28m US dollar in sales and marketing expenses.

Chapter 6 EVENTS AFTER THE REPORTING DATE (IAS 10)

1.

OBJECTIVE

1.1 This Standard prescribes the circumstances under which an entity should adjust its financial statements for events that occur after the end of the reporting period. It also prescribes the related disclosures that an entity should furnish about the date when the financial statements were authorized for issue and about the events that have occurred after the reporting period. 2.

SYNOPSIS OF THE STANDARD

This Standard, which shall be applied in the accounting for, and disclosure of, events after the reporting date, is summarized next. 2.1 The events that occur between the reporting date and the date when the financial statements were legally authorized for issue (referred to as authorization date) can have an influence on the financial position and financial results of the entity that are determined at the reporting date. Although some events that occur can have an impact on the financial position and financial results of the reporting period, others may not have any financial impact but will need to be disclosed in the financial statements so that the users of the financial statements can make informed decisions with respect to the entity. 2.2 Events after the reporting date can be classified as adjusting events after the reporting period and nonadjusting events after the reporting period. 2.3 Adjusting events after the reporting period are those events which provide evidence of conditions that existed at the end of the reporting period. An example of an adjusting event is the discovery of a material error in the financial statements between the end of the reporting period and the authorization date that has an impact on the financial position or financial results of the entity for the reporting period. 2.3.1 In the case of adjusting events, the entity must adjust the amounts in the financial statements so that the financial impact of those events that provide evidence of the conditions that existed at the end of the reporting period are properly reflected. 73

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2.4 Nonadjusting events after the reporting period are those events which indicate that the conditions arose after the end of the reporting period. An example of a nonadjusting event is the decline of the market value of investments after the reporting date but before the date when the financial statements are authorized for issue. 2.4.1 In the case of nonadjusting events, the entity must not adjust the financial statements to reflect the effects of those events that indicate that the conditions arose after the end of the reporting period. 2.4.2 If nonadjusting events after the reporting date are significant and nondisclosure can influence evaluations and decisions taken by users of financial statements, the entity must disclose the nature of the events and provide an estimate of their financial effects or must make a statement that such an estimate cannot be made. 2.5 An entity should not prepare its financial statements on a going-concern basis when events after the reporting period indicate that the going-concern assumption is not appropriate. In such cases, adequate disclosure of the facts must be made in the notes to the financial statements. An example of this is when management decides after the reporting date to liquidate the entity or cease operations. 2.6 Dividends that are proposed or declared on equity instruments after the end of the reporting period shall not be recognized as a liability at the end of the reporting period. Adequate disclosure should be made in the notes to the financial statements. 3.

DISCLOSURE REQUIREMENTS The disclosures that an entity is required to make in regard to this Standard are listed next.

3.1

An entity discloses the date its financial statements are authorized for issue.

3.2 The disclosures made should be updated if the entity receives any information after the reporting period about conditions that existed at the end of the reporting period. 3.3 In regard to dividends that are proposed or declared on equity instruments after the end of the reporting period, the entity must disclose • The carrying amount of dividend payable at the beginning and end of the reporting period • The increase or decrease in the carrying amount due to a change in the fair value of the assets that is recognized in the period in equity as an adjustment to the amount of the distribution • The difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable at the time of settlement, to be shown as separate line item in profit and loss • In case the entity declares a dividend to distribute a noncash item after the reporting date but before the financial statements are authorized for issue • The nature of the assets to be distributed • The carrying value of the asset to be distributed at the reporting date • The estimated fair value at the reporting date of the asset to be distributed

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EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

ArcelorMittal and Subsidiaries Annual Report 2010 (in millions of U.S. dollars, except share and per share data) Notes to Consolidated Financial Statements Note 1: Nature of Business, Basis of Presentation and Consolidation Basis of presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollars with all amounts rounded to the nearest million, except for share and per share data. Note 27: Subsequent Events On January 6, 2011, the City of Luxembourg contributed its gas and electricity networks as well as its energy sales activities to two subsidiaries of Enovos International S.A., Creos Luxembourg S.A and Enovos Luxembourg S.A., respectively. Consequently, the stake held by the Company in Enovos International S.A. decreased from 25.29% to 23.48%. On January 25, 2011, the Extraordinary General Meeting of Shareholders of ArcelorMittal approved the spin-off of the stainless steel business. As a consequence, the Company transferred on that date assets and liabilities to Aperam for a total amount of 3,243 million (4,337) and recognized a reduction in shareholders’ equity for the same amount. On February 18, 2011, ArcelorMittal and Nunavut Iron Ore Acquisition Inc. announced the expiration of their offer for common shares and common share purchase warrants of Baffinland Iron Mines Corporation (“Baffinland”). As a result of the offer, Acquireco, a corporation owned 70% by ArcelorMittal and 30% by Iron Ore Holdings, LP, holds approximately 93% of the outstanding common shares and approximately 76% of the outstanding 2007 Common share purchase warrants. Further, Baffinland and Acquireco have agreed to pursue a court approved plan under which Acquireco will acquire the remaining Baffinland common stock and common stock warrants. As of February 18, 2011, the total consideration paid by the Company under the offer was 386. The Company expects to pay approximately 28 for the acquisition of the remaining common stock and common stock warrants. As the offer has just closed, the Company is unable to further disclose the allocation of purchase price to the acquired business. On March 7, 2011, the Company issued three series of USD denominated notes, consisting of 500 aggregate principal amount of its 3.75% notes due 2016, 1,500 aggregate principal amount of its 5.50% notes due 2021 and 1,000 aggregate principal amount of its 6.75% notes due 2041.

AXA Annual Report 2010 (in Euro millions) Consolidated Financial Statements 1.2 General Accounting Principles 1.2.1 Basis for Preparation The consolidated financial statements are prepared in compliance with IFRS standards and IFRIC interpretations that are definitive and effective as of December 31, 2010, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. In addition, the adoption of the new IFRS 9 standard published by the IASB in November 2009 and amended in October 2010 has not been yet formally submitted to the European Union. However, the Group would not have used the earlier adoption option as of today. As a consequence, the consolidated financial statements also comply with IFRSs as issued by the International Accounting Standards Board (IASB).

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Note 32 Subsequent events On February 3, 2011, AXA received an administrative order approved by the United States Securities and Exchange Commission settling charges against three AXA Rosenberg units and requiring payment of client compensation and penalty amounts, leading to €66 million net provision already reflected in AXA’s half year 2010 accounts. In March 2011, AXA APH announced the following: (i) On March 1st, 2011, AXA APH announced that it has been notified that the proposed merger of AXA APH’s Australian and New Zealand business with AMP and the sale of AXA APH’S Asian businesses to AXA has given the necessary approval by the Deputy Prime Minister and Federal Treasurer; (ii) On March 2, 2011, the AXA APH shareholders approved all resolutions in relation to the proposed merger of AXA APH’s Australian and New Zealand businesses with AMP and the sale of AXA APH’s Asian businesses to AXA; (iii) On March 7, 2011, the Supreme Court made orders approving the schemes of arrangement between AXA APH and its shareholders in relation to the proposed transaction; (iv) On March 8, 2011, a copy of the Court’s orders has been lodged with the Australian Securities and Investments Commission, at which time the Schemes became legally effective. On March 11, 2011, AXA announced the sale of 15.6% stake in Taikang Life. China Insurance Regulatory Commission (« CIRC ») has issued its approval in connection with the proposed transfer by AXA’s wholly-owned Swiss subsidiary, AXA Life Ltd., of its entire 15.6% interest in Taikang Life, China’s 4th largest life insurer, to a consortium of new and existing shareholders. The consideration for this transaction amounts to USD 1.2 billion (or ca. Euro 0.9 billion). This corresponds to implied 2009 multiples of 21x net earnings and 6x book value1. This transaction is expected to generate a positive impact of ca. Euro 0.8 billion in net income and reduce debt gearing by 1 point in the first half of 2011. The completion of the transaction is subject to obtaining other CIRC approvals which are pending.

Anglo American plc Annual Report 2010 (US $ million) Notes to the financial statements 1.

Accounting Policies

Basis of Preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations as adopted for use by the European Union, with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and with the requirements of the Disclosure and Transparency rules of the Financial Services Authority in the United Kingdom as applicable to periodic financial reporting. 38. Events Occurring After End of Year As set out in note 32, the Group announced the sale of its zinc portfolio to Vedanta on 10 May 2010, for a total consideration of $1,338 million. Due to the regulatory approval and competition clearance processes, separate completion dates were expected for each of the three businesses within the zinc portfolio. Following regulatory approval from the relevant authorities, the completion of the sale of Black Mountain Mining (Proprietary) Limited and the Lisheen mine took place in February 2011 for a combined net cash inflow of approximately $500 million. On 18 February 2011, the Group and Lafarge SA (Lafarge) announced an agreement to combine their cement, aggregates, ready-mixed concrete, asphalt and contracting businesses in the United Kingdom, Tarmac Limited (Tarmac UK) and Lafarge Cement UK, Lafarge Aggregates and Concrete UK (Lafarge UK). The combined sales of these two businesses in 2010 amounted to £1,830 million ($2,815 million), with combined EBITDA of £210 million ($323 million). Tarmac UK is included in the Group’s Other Mining and Industrial segment. The joint venture, in which each of Anglo American and Lafarge will have a 50% shareholding, will operate with its own Board of Directors led by an independent Chairman

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and executive management teams drawn from both businesses. Completion of the transaction is conditional upon regulatory approval. Both Lafarge UK and Tarmac UK operations will continue to operate independently until obtaining such approvals. With the exception of the above and the proposed final dividend for 2010, disclosed in note 12, there have been no material reportable events since 31 December 2010.

BAE Systems Annual Report 2010 (in £ millions) Notes to the Group accounts 1.

Accounting Policies

Basis of Preparation The consolidated financial statements of BAE Systems plc have been prepared on a going concern basis and in accordance with EU-endorsed International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee interpretations (IFRICs) and the Companies Act 2006 applicable to companies reporting under IFRS. 33. Events After the Balance Sheet Date In January 2011, the Group entered into an agreement to acquire the 91.3% outstanding equity of Fairchild Imaging, Inc. for a cash consideration of $86m (£55m). The California-based business provides solid-state electronic imaging components, cameras, and systems for aerospace, industrial, medical and scientific imaging applications. The acquisition complements the Group’s electro-optics and night vision capabilities. The acquisition is conditional, among other things, upon receiving regulatory approval. In January 2011, the Group announced a recommended €217m (£186m) cash offer for Norkom Group plc, a provider of innovative counter-fraud and anti-money laundering solutions to the global financial services industry. On 15 February 2011, the Group acquired 100% of L-1 Identity Solutions, Inc.’s Intelligence Services Group, a leading provider of security and counterthreat capabilities to the US government, for a cash consideration of approximately $297m (£190m). The acquisition accounting exercise is yet to be undertaken.

BP Group Annual Report 2010 (in $ millions) Notes on financial statements 1. Significant Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with IFRS and IFRS Interpretations Committee (IFRIC) interpretations issued and effective for the year ended 31 December 2010, or issued and early adopted. 6. Events After the Reporting Period On 22 February 2011, BP announced its intention to sell its interests in a number of operated oil and gas fields in the UK. The assets involved are the Wytch Farm onshore oilfield in Dorset and all of BP’s operated gas fields in the southern North Sea, including associated pipeline infrastructure and the Dimlington terminal. BP aims to complete the divestments around the end of 2011, subject to receipt of suitable offers and regulatory and third-party approvals. The assets do not yet meet the criteria to be reclassified as non-current assets held for sale and it is not yet possible to estimate the financial effect of these intended transactions. On 21 February 2011, BP announced a major strategic alliance with Reliance Industries Limited (Reliance) in India. As part of this alliance, BP will purchase a 30 per cent stake in 23 oil and gas productionsharing contracts that Reliance operates in India, including the producing KG D6 block, and the for-

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mation of a 50:50 joint venture between the two companies for the sourcing and marketing of gas in India. The upstream joint venture will combine BP’s deepwater exploration and development capabilities with Reliance’s project management and operations expertise. The 23 oil and gas blocks together cover approximately 270,000 square kilometres, and Reliance will continue to be the operator under the production-sharing contracts. BP will pay Reliance an aggregate consideration of $7.2 billion, and completion adjustments, for the interests to be acquired in the 23 production-sharing contracts. Future performance payments of up to $1.8 billion could be paid based on exploration success that results in development of commercial discoveries. Completion of the transactions is subject to Indian regulatory approvals and other customary conditions. On 1 February 2011, BP announced that, following a strategic review, it intends to divest the Texas City refinery and the southern part of its US West Coast fuels value chain, including the Carson refinery, by the end of 2012 subject to all necessary legal and regulatory approvals. BP will ensure current obligations at Texas City are fulfilled. The assets do not yet meet the criteria to be reclassified as non-current assets held for sale and it is not yet possible to estimate the financial effect of these intended transactions. On 14 January 2011, BP entered into a share swap agreement with Rosneft Oil Company whereby BP will receive approximately 9.5% of Rosneft’s shares in exchange for BP issuing new ordinary shares to Rosneft, resulting in Rosneft holding 5% of BP’s ordinary voting shares. The aggregate value of the shares in BP to be issued to Rosneft is approximately $7.8 billion (as at close of trading in London on 14 January 2011). BP has agreed to issue 988,694,683 ordinary shares to Rosneft; Rosneft has agreed to transfer 1,010,158,003 ordinary shares to BP. Completion of the transaction is subject to the outcome of the court application referred to in the paragraph below, and related pending arbitral proceedings. After completion, BP’s increased investment in Rosneft will continue to be recognized as an available-for-sale financial asset. During the period from entering into the agreement until completion, the agreement represents a derivative financial instrument and changes in its fair value will be recognized in BP’s income statement in 2011. An application was brought in the English High Court on 1 February 2011 by Alfa Petroleum Holdings Limited (APH) and OGIP Ventures Limited (OGIP) against BP International Limited and BP Russian Investments Limited. APH is a company owned by Alpha Group. APH and OGIP each own 25% of TNK-BP, in which BP also has a 50% shareholding. This application alleges breach of the shareholders agreement on the part of BP and seeks an interim injunction restraining BP from taking steps to conclude, implement or perform the previously announced transactions with Rosneft Oil Company relating to oil and gas exploration, production, refining and marketing in Russia. Those transactions include the issue or transfer of shares between Rosneft Oil Company and any BP group company. The court granted an interim order restraining BP from taking any further steps in relation to the Rosneft transactions pending an expedited UNCITRAL arbitration procedure in accordance with the shareholders agreement between the parties. The arbitration has commenced and the injunction has been extended until 11 March 2011 pending an expedited hearing in relation to matters in dispute between the parties on a final basis during the week commencing 7 March 2011. The expedited hearing will decide, among other matters, whether the injunction will be extended beyond 11 March 2011.

Telstra Corporation Limited and Controlled Entities Annual Report 2010 (in $ millions) Notes to the financial statements 1.

Basis of Preparation

1.1 Basis of Preparation of the Financial Report This financial report is a general purpose financial report prepared in accordance with the requirements of the Australian Corporations Act 2001 and Accounting Standards applicable in Australia. This financial report also complies with International Financial Reporting Standards and Interpretations published by the International Accounting Standards Board.

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31. Events After Balance Date We are not aware of any matter or circumstance that has occurred since 30 June 2010 that, in our opinion, has significantly affected or may significantly affect in future years: • • •

Our operations; The results of those operations; or The state of our affairs;

other than: Final Dividend On 12 August 2010, the directors of Telstra Corporation Limited resolved to pay a fully franked final dividend of 14 cents per ordinary share. The record date for the final dividend will be 27 August 2010 with payment being made on 24 September 2010. Shares will trade excluding the entitlement to the dividend on 23 August 2010. A provision for dividend payable has been raised as at the date of resolution, amounting to $1,737 million. The final dividend will be fully franked at a tax rate of 30%. The financial effect of the dividend resolution was not brought to account as at 30 June 2010. There are no income tax consequences for the Telstra Group resulting from the resolution and payment of the final ordinary dividend, except for $745 million franking debits arising from the payment of this dividend that will be adjusted in our franking account balance. The Dividend Reinvestment Plan (DRP) continues to be suspended. ACCC Proceedings Outcome On 28 July 2010 the Federal Court of Australia handed down its decision in proceedings commenced by the ACCC against us on 19 March 2009 in respect of 30 separate refusals to provide access to main distribution frame facilities in seven of Telstra’s exchanges between January 2006 and February 2008. We accepted liability in the proceedings in relation to a number of the allegations. The Federal Court decided to make declarations that Telstra breached its legal obligations and should pay a total penalty of $18.55 million. Telstra has indicated publicly that it will not appeal the decision.

Wesfarmers Limited and Its Controlled Entities Annual Report 2010 (in $ millions) Notes to the financial statements 2.

Summary of Significant Accounting Policies

(b) Statement of Compliance The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board. 29. Events After Balance Date Dividend A fully franked dividend of 70 cents per share resulting in a dividend payment of $810 million was declared for a payment date of 30 September 2010. The dividend has not been provided for in the 30 June 2010 full year financial statements. Board Appointments/Resignations On 6 July 2010, Wesfarmers announced the appointment of Ms. Vanessa Wallace as a new nonexecutive director, with effect from that date. On 16 September 2010, Wesfarmers announced the resignation from the Board of Wesfarmers of Mr. David White effective from the Company’s Annual General Meeting scheduled for 9 November 2010.

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Westpac Banking Corporation Annual Report 2010 (in $ millions) Notes to the financial statements Note 1. Summary of Significant Accounting Policies a.

Basis of Accounting

(i) General This general purpose financial report has been prepared in accordance with the requirements for an authorised deposit taking institution under the Banking Act 1959 (as amended), Australian Accounting Standards, which include the Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board (AASB), Urgent Issues Group Interpretations and the Corporations Act 2001. Note 44. Subsequent Events No matter or circumstance has arisen since the year ended 30 September 2010 which is not otherwise dealt with in this Financial Report, that has significantly affected or may significantly affect the operations of the Group, the results of its operations or the state of affairs of the Group in subsequent periods.

SECTION III REVENUE

Chapter 7: Revenue (IAS 18) SIC 31, Revenue—Barter Transactions

Involving Advertising Services IFRIC 13, Customer Loyalty Programs IFRIC 18, Transfers of Assets from Customers Chapter 8: Construction Contracts (IAS 11) IFRIC 15, Agreements for the Construction of

Real Estate Chapter 9: Accounting for Government Grants and Disclosure of Government Assistance (IAS 20) SIC 10, Government Assistance—No Specific

Relation to Operating Activities IFRIC 12, Service Concession Arrangements

Defined Chapter 10: Agriculture (IAS 41)

81

Chapter 7 REVENUE (IAS 18)

1.

OBJECTIVE

1.1 This Standard prescribes the accounting treatment for the recognition of revenue arising from sale of goods, for the rendering of services, and for interest, royalties, and dividends.

In November 2011, the International Accounting Standards Board (IASB) and the US-based Financial Accounting Standards Board (FASB) reissued an Exposure Draft (ED) titled Revenue from Contracts with Customers with the aim of improving financial reporting by creating a single revenue recognition Standard, clarifying the principles for recognizing revenue, and creating consistent principles that can be applied across various transactions, industries, and capital markets. The comment letters on the revised ED were due by March 13, 2012. If adopted, the proposals would supersede International Accounting Standard (IAS) 18, Revenue, and IAS 11, Construction Contracts, and related Interpretations. 1.2

2.

SYNOPSIS OF THE STANDARD

The summary of this Standard, which deals with the primary issue of when to recognize revenue, follows. 2.1

The provisions of this Standard should be applied in the accounting for revenue arising from • Sale of goods • Rendering of services • The use of the entity’s assets by third parties that yields interest, royalties, or dividends

2.1.2 This Standard, however, does not deal with revenue that arises from the following sources, since they are dealt with by other Standards: • • • • • • • •

Lease Agreements (IAS 17) Dividends from Investments That Are Accounted for under the Equity Method (IAS 28) Insurance Contracts (International Financial Reporting Standard [IFRS] 4) Changes in Fair Values of Financial Instruments (IAS 39) Changes in the Values of Current Assets Initial Recognition and Changes in Value of Biological Assets (IAS 41) Initial Recognition of Agricultural Produce (IAS 41) Extraction of Mineral Ores (IFRS 6) 83

84

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2.2 Revenue is defined under this Standard as the gross inflow of economic benefits during the period that arises in the course of ordinary activities of an entity, when those inflows result in increases in equity, other than increases relating to contributions from equity participants. 2.2.1 The amount of revenue arising on a transaction is usually determined by the terms of the agreement between the entity and the buyer or the user of the asset. 2.2.2 Revenue should be measured at the fair value of the consideration received or receivable. In measuring the fair value of the consideration received or receivable, the amount of any trade discounts and volume rebates allowed by the entity should be taken into account. 2.2.3 In the case of exchange of goods or services, no revenue must be recognized if the goods or services exchanged are similar in nature. In case the goods or services exchanged are dissimilar in nature, revenue should be recognized at the fair value of the goods or services received. If such fair value is not readily determinable, revenue should be recognized at the fair value of the goods given up or services provided. In both cases, revenue should be adjusted for any cash or cash equivalents transferred. 2.2.4 Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction. 2.2.5 The recognition criteria of the Standard should, in general conditions, be applied to each transaction. In case of complex transactions, the criteria should be applied to the each of the separately identifiable components of the transaction. An example of this is when an entity sells equipment at a price that includes a commitment to service the equipment for a period of two years. In such an instance, the amount related to the sales and service component should be identified by comparing the price to that of the same equipment that is sold without the service warranty. 2.3 Revenue is generally recognized when it is probable that the future economic benefits will flow to the entity and when the amount of revenue can be measured reliably. 2.4

Revenue arising from sale of goods is recognized when • An entity transfers the significant risks and rewards of ownership; • An entity gives up managerial involvement and effective control generally associated with ownership; • It is probable that economic benefits will flow to the entity; and • The amount of revenue and costs can be measured reliably.

2.4.1 The transfer of significant risks and rewards of ownership generally takes place when title passes to the buyer or at the time that the buyer receives possession of the goods. In certain cases, the transfer of risks and rewards of ownership does not coincide with the transfer of legal title or the passing of possession, as in the case of sale of a building that is still under construction (see International Financial Reporting Interpretations Committee [IFRIC] 15 in IAS 11, Construction Contracts). 2.4.2 In the case of a sale of goods that is made subject to conditions, the transaction should not be regarded as a sale for the purposes of recognizing revenue if the seller retains significant risks of ownership. 2.4.3 In case where the receipt of the consideration of a sale transaction is in doubt, revenue should not be recognized. However, when the collection of revenue accounted for in the previous reporting period is in doubt, the amount equivalent to the uncollectible amount must be recognized as an expense in the current reporting period. 2.4.4 At the time that revenue is recognized, the costs related to the same transaction must be recognized simultaneously. When the costs cannot be measured reliably, the related revenue should not be recognized. 2.5

Revenue from rendering of services is recognized

Revenue (IAS 18)

85

• In the period when the service is rendered; • When the outcome of the transaction can be reasonably estimated; and • When it is generally measured using the percentage-of-completion method. 2.5.1 In case the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue should be recognized only to the extent of the expenses recognized that are recoverable. 2.6 Revenue from interest should be measured using the effective interest method in accordance with IAS 39, Financial Instruments: Recognition and Measurement. 2.7 Revenue from royalties should be recognized on an accrual basis in accordance with the terms of the relevant agreement. 2.8 Revenue from dividends should be recognized when the shareholder’s right to receive dividends is established. 3. DISCLOSURE REQUIREMENTS The next disclosures shall be made in the financial statements. 3.1 The accounting policies adopted by an entity for the recognition of revenues shall be disclosed. In case of rendering of services, an entity shall disclose the method adopted for determining the stage of completion. 3.2 Amount of revenue derived by each significant category during the period shall be disclosed, including revenue arising from • • • • •

Sale of goods Rendering of services Interest Royalties Dividends

3.3 Amount of revenue arising from exchanges of goods or services included in each significant category of revenue shall also be disclosed. 4. SIC 31, Revenue—Barter Transactions Involving Advertising Services 4.1 An entity (seller) may enter into a barter transaction to provide advertising services in exchange for receiving advertising services from its customer. A seller that provides advertising services in the course of ordinary activities recognizes revenue under IAS 18 from a barter transaction involving advertising when the services are of dissimilar nature and the amount of revenue can be measured reliably. Standing Interpretations Committee (SIC) 31 applies only to exchange of dissimilar advertising services. 4.2 Revenue from barter transactions involving advertising services is recognized only if substantial revenue is also received from nonbarter transactions. 5.

IFRIC 13: CUSTOMER LOYALTY PROGRAMS

5.1 Customer loyalty programs are widely used by entities and businesses these days. Airlines, retail chains, restaurants, and credit card providers generally use such marketing and sales promotional tools to attract and retain customers. Such award credits granted to customers as part of such sales transactions should be accounted for as a separately identifiable component of the sales transaction. 5.2 The amount of the revenue attributable to award credits is to be measured at the fair value of the consideration received for them; when the award credits granted are part of a larger sale, the fair value is estimated by allocating the total consideration between the award credits and the other goods or services sold using an appropriate allocation method.

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6.

IFRIC 18: TRANSFERS OF ASSETS FROM CUSTOMERS

6.1 IFRIC 18 addresses the accounting for arrangements when a customer transfers an item of property, plant, and equipment to an entity, which item is then used by the entity to provide either connection to a network or ongoing access to a supply of goods or services. 6.2 This IFRIC provides guidance on when the entity that receives such assets should recognize them in its financial statements and also provides that the deemed cost of the asset transferred is its fair value on the date of transfer. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 Notes to the consolidated financial statements for the year ended 31 March 2011 Accounting Policies Revenue Revenue shown on the face of the income statement is the amount derived from the sale of goods and services outside of the Group in the normal course of business and is measured at the fair value of consideration received or receivable net of trade discounts, value added tax and other sales related taxes. Revenue from the sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership and control of the goods sold and the amount of revenue can be measured reliably. Revenue from services is recognised when it is probable that the economic benefits associated with the transaction will flow to the entity and the amount of revenue can be measured reliably. The accounting policies for the major revenue categories by operating segment are Health & Beauty Division Reimbursement of dispensing revenue and revenue derived from optical services is initially estimated because the actual reimbursement is often not known until after the month of sale. Consideration received from retail and optical sales is recorded as revenue at the point of sale less appropriate adjustments for returns. In respect of loyalty schemes (principally the Boots Advantage Card) as points are issued to customers the retail value of those points expected to be redeemed is deferred. When the points are used by customers they are recorded as revenue. Sales of gift vouchers are only included in revenue when vouchers are redeemed. Pharmaceutical Wholesale Division Wholesale revenue is recognised upon despatch of goods. When the Group acts in the capacity of an agent, or a logistics service provider, revenue is the service fees and is recognised upon performance of the services concerned. Other Segments Revenue is recognised upon despatch of goods.

Anheuser-Busch InBev NV Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Statement of Compliance (continued) (X) Income Recognition Income is recognized when it is probable that the economic benefits associated with the transaction will flow to the company and the income can be measured reliably. Goods sold In relation to the sale of beverages and packaging, revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, and no significant uncertainties remain regarding recovery of the consideration due, associated costs or the possible return of goods, and

Revenue (IAS 18)

87

there is no continuing management involvement with the goods. Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts, volume rebates and discounts for cash payments. Rental and Royalty Income Rental income is recognized under other operating income on a straight-line basis over the term of the lease. Royalties arising from the use by others of the company’s resources are recognized in other operating income on an accrual basis in accordance with the substance of the relevant agreement.

BAE Systems Annual Report 2010 Notes to the Group accounts for the year ended 31 December Accounting Policies (continued) Revenue and Profit Recognition Sales include the Group’s net share of sales of equity accounted investments. Revenue represents sales made by the Company and its subsidiary undertakings, excluding the Group’s share of sales of equity accounted investments. Long-Term Contracts The majority of the Group’s long-term contract arrangements are accounted for under IAS 11, Construction Contracts. Sales are recognised when the Group has obtained the right to consideration in exchange for its performance. This is usually when title passes or a separately identifiable phase (milestone) of a contract or development has been completed and accepted by the customer. No profit is recognized on contracts until the outcome of the contract can be reliably estimated. Profit is calculated by reference to reliable estimates of contract revenue and forecast costs after making suitable allowances for technical and other risks related to performance milestones yet to be achieved. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized immediately as an expense. Goods Sold and Services Rendered Revenue is measured at the fair value of the consideration received or receivable, net of returns, rebates and other similar allowances. Revenue from the sale of goods not under a long-term contract is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, there is no continuing management involvement with the goods, and the amount of revenue and costs can be measured reliably. Profit is recognised at the time of sale. Revenue from the provision of services not under a long-term contract is recognised in the income statement in proportion to the stage of completion of the contract at the reporting date. The stage of completion is measured on the basis of direct expenses incurred as a percentage of total expenses to be incurred for material contracts and labour hours delivered as a percentage of total labor hours to be delivered for time contracts. Sales and profits on intercompany trading are generally determined on an arm’s length basis. Lease Income Rental income from aircraft operating leases is recognized in revenue on a straight-line basis over the term of the relevant lease. Lease incentives granted are charged to the income statement over the term of the lease.

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CNP Assurances Annual Financial Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Note 16 Revenue Revenue comprises: • •

Earned premiums; Premium loading on financial instruments without DPF, reported under “Revenue from other activities.”

16.1 Earned Premiums and Revenue from Other Activities In € millions Business segment and contract type Insurance contracts Life Pure premiums Loading Non-life Pure premiums Loading Financial instruments with DPF Pure premiums Loading Earned premiums

31.12.2010 23,079.9 20,375.9 19,076.5 1,299.4 2,704.0 1,938.4 765.6 9,160.7 9,019.9 140.8 32,240.6

31.12.2009 19,649.3 17,055.6 15,936.2 1,119.5 2,593.7 1,876.7 717.0 12,873.8 12,712.0 161.8 32,523.1

31.12.2008 16,546.8 14,020.9 13,018.2 1,002.7 2,525.9 1,852.4 673.5 11,727.7 11,565.3 162.3 28,274.4

In € millions Revenue from other activities Financial instruments without DPF Loading On premiums On net assets Services (IAS 18) Other activities TOTAL

31.12.2010 75.1 75.1 74.5 0.7 116.1 7.9 199.0

31.12.2009 89.8 89.8 62.6 27.2 76.8 2.0 168.6

31.12.2008 84.4 84.4 47.7 36.7 69.3 4.7 158.4

16.2 Reconciliation to Reported Revenue In € millions Earned premiums Premium loading on financial instruments without DPF (IAS 39) TOTAL

31.12.2010 32,240.6 74.5

31.12.2009 32,523.1 62.6

31.12.2008 28,274.4 47.7

32,315.1

32,585.6

28,322.2

31.12.2010 10,613.1 10,548.3 733.4 1,521.8 1,730.5 844.5 6,185.9 137.6 32,315.1

31.12.2009 10,984.0 10,346.6 673.4 1,473.5 1,881.1 745.4 6,296.9 184.8 32,585.6

31.12.2008 11,718.2 8,131.5 720.1 1,457.5 2,036.2 915.5 3,256.7 86.5 28,322.2

16.3 Revenue by Partnership Centre In € millions La Banque Postale Caisse d’Epargne CNP Trésor Financial institutions Companies and local authorities Mutual Insurers Foreign subsidiaries Other TOTAL REVENUE

Revenue (IAS 18)

89

16.4 Revenue by Business Segment In € millions Savings Pensions Personal risk Loan Insurance Health insurance Property & Casualty Sub-total personal risk and other Other business segments TOTAL REVENUE

31.12.2010 23,587.3 3,160.5 1,727.7 3,024.5 480.3 334.8 5,567.3 0.0 32,315.1

31.12.2009 24,711.2 2,875.8 1,486.3 2,643.7 467.0 401.6 4,998.6 0.0 32,585.6

31.12.2008 20,618.9 2,856.5 1,587.1 2,563.7 349.3 346.5 4,846.5 0.2 28,322.2

31.12.2010 23,660.2 2,189.1 240.9 34.9 0.0 177.7 0.0 0.0 17.1 2,445.8 2,472.9 242.0 202.9 23.4 608.2 32,315.1

31.12.2009 23,999.6 2,051.9 216.6 16.9 0.0 161.6 138.3 54.8 7.9 1,878.6 3,502.0 264.0 214.4 0.9 78.1 32,585.6

31.12.2008 22,758.1 2,075.5 246.8 7.7 0.1 147.8 143.1 38.7 6.3 1,521.5 1,179.9 196.7 0.0 0.0 0.0 28,322.2

31.12.2010 31,446.9 868.2 32,315.1

31.12.2009 31,761.4 824.2 32,585.6

31.12.2008 27,454.2 868.0 28,322.2

16.5 Revenue by Company In € millions CNP Assurances CNP IAM Préviposte ITV CNP International La Banque Postale Prévoyance Global Global Vida CNP Seguros de Vida Caixa Seguros CNP UniCredit Vita CNP Vida Marfi n Insurance Holdings Ltd CNP Europe Barclays Vida y Pensiones TOTAL REVENUE

16.6 Direct and Inward Reinsurance Premiums In € millions Insurance premiums Inward reinsurance premiums TOTAL REVENUE

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Danske Bank Group Annual Report 2010 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010 Net interest and net trading income

DKK millions 2010 Financial portfolios at amortised cost Due from/to credit institutions and central banks Repo and reverse transactions Loans, advances and deposits Held-to-maturity investments Other issued bonds Subordinated debt Other financial instruments Total Financial portfolios at fair value Loans at fair value and bonds issued by Realkredit Danmark Trading portfolio and investment securities Assets and deposits under pooled schemes and unit-linked investment contracts Assets and liabilities under insurance contracts Total Total net interest and net trading income

Net interest income

Net trading income

Total

1,948 1,091 6,653 8,474 4,812 398 23,376

-87 864 25,550 180 -8,474 -4,812 193 13,414

-263 -367 -337 -1,394 3 -2,358

-350 864 25,183 180 -8,811 -6,206 196 11,056

27,213 9,926

20,266 -

6,947 9,926

17,003

6,947 26,929

-

-

-

-266

-266

5,696 42,835 79,625

20,266 43,642

5,696 22,569 35,983

-8,395 8,342 5,984

-2,699 30,911 41,967

Interest income

Interest expense

Net interest income

Net trading income

Total

4,289 4,403 49,005 276 529 58,502

3,836 1,350 18,755 11,637 4,000 416 39,994

453 3,053 30,250 276 -11,637 -4,000 113 18,508

433 -476 166 100 3 226

886 3,053 29,774 276 -11,471 -3,900 116 18,734

33,582 13,024

24,790 -

8,792 13,024

24,341

8,792 37,365

-

-

-

-407

-407

7,218 53,824 112,326

24,790 64,784

7,218 29,034 47,542

-10,059 13,875 14,101

-2,841 42,909 61,643

Interest income

Interest expense

1,861 1,955 32,203 180 591 36,790

Net interest and net trading income

DKK millions 2009 Financial portfolios at amortised cost Due from/to credit institutions and central banks Repo and reverse transactions Loans, advances and deposits Held-to-maturity investments Other issued bonds Subordinated debt Other financial instruments Total Financial portfolios at fair value Loans at fair value and bonds issued by Realkredit Danmark Trading portfolio and investment securities Assets and deposits under pooled schemes and unit-linked investment contracts Assets and liabilities under insurance contracts Total Total net interest and net trading income

Net trading income includes dividends from shares of DKK 1,284 million (2009: DKK 1,224 million) and foreign exchange adjustments of DKK 1,479 million (2009: DKK 2,404 million).

Revenue (IAS 18)

91

Net trading income from insurance contracts includes returns on assets of DKK -2,274 million (2009: DKK -4,736 million), adjustment of additional provisions of DKK -5,308 million (2009: DKK -1,211 million), adjustment of collective bonus potential of DKK 1,107 million (2009: DKK -1,286 million) and tax on pension returns of DKK -1,920 million (2009: DKK -2,826 million). Interest added to financial assets subject to individual impairment amounted to DKK 1,492 million (2009: DKK 1,472 million).

Holcim Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Revenue Recognition Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the entity and the amount of the revenue can be measured reliably. Revenue is measured at the fair value of the consideration received net of sales taxes and discounts. Revenue from the sale of goods is recognized when delivery has taken place and the transfer of risks and rewards of ownership has been completed. Interest is recognized on a time proportion basis that reflects the effective yield on the asset. Dividends are recognized when the shareholder’s right to receive payment is established. Certain activities of the Group are construction contract driven. Consequently, contract revenue and contract costs are recognized in the statement of income on the percentage of completion method, with the stage of completion being measured by reference to actual work performed to date.

Daimler Annual Report 2010 Notes to the financial statements Accounting Policies Revenue Recognition Revenue from sales of vehicles, service parts and other related products is recognized when the risks and rewards of ownership of the goods are transferred to the customer, the amount of revenue can be estimated reliably and collectability is reasonably assured. Revenue is recognized net of sales reductions such as cash discounts and sales incentives granted. Daimler uses sales incentives in response to a number of market and product factors, including pricing actions and incentives offered by competitors, the amount of excess industry production capacity, the intensity of market competition and consumer demand for the product. The Group may offer a variety of sales incentive programs at any point in time, including cash offers to dealers and consumers, lease subsidies which reduce the consumers’ monthly lease payment, or reduced financing rate programs offered to costumers. Revenue from receivables from financial services is recognized using the effective interest method. When loans are issued below market rates, related receivables are recognized at present value and revenue is reduced for the interest incentive granted. The Group offers an extended, separately priced warranty for certain products. Revenue from these contracts is deferred and recognized into income over the contract period in proportion to the costs expected to be incurred based on historical information. In circumstances in which there is insufficient historical information, income from extended warranty contracts is recognized on a straight-line basis. A loss on these contracts is recognized in the current period if the sum of the expected costs for services under the contract exceeds unearned revenue. For transactions with multiple deliverables, such as when vehicles are sold with free or reduced in price service programs, the Group allocates revenue to the various elements based on their estimated fair values. Sales in which the Group guarantees the minimum resale value of the product, such as sales to certain rental car companies, are accounted for similar to an operating lease. The guarantee of the resale value may take the form of an obligation by Daimler to pay any deficiency between the proceeds the

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customer receives upon resale in an auction and the guaranteed amount, or an obligation to reacquire the vehicle after a certain period of time at a set price. Gains or losses from the resale of these vehicles are included in gross profit. Revenue from operating leases is recognized on a straight-line basis over the lease term. Among the assets subject to “Operating leases” are Group products which are purchased by Daimler Financial Services from independent third-party dealers and leased to customers. After revenue recognition from the sale of the vehicles to independent third-party dealers, these vehicles create further revenue from leasing and remarketing as a result of lease contracts entered into. The Group estimates that the revenue recognized following the sale of vehicles to dealers equals approximately the additions to leased assets at Daimler Financial Services. Additions to leased assets at Daimler Financial Services were approximately €5 billion in 2010 (2009: approximately €4 billion).

Lufthansa Annual Report 2010 Consolidated Financial Statements Notes to the consolidated financial statement 3. Traffic revenue Traffic revenue by sector in €m Passenger Freight and mail Scheduled Charter

2010 19,186 3,082 22,268 21,829 439 22,268

2009 15,430 2,174 17,604 17,262 342 17,604

Of total freight and mail revenue EUR 2,633m was generated in the Logistics segment. Freight and mail revenue at SWISS, Austrian Airlines, British Midland and Germanwings from marketing cargo space on passenger flights amounted to EUR 449m (previous year: EUR 330m), and is shown in the segment reporting as other revenue from the Passenger Airline Group segment. 4. Other revenue Traffic revenue by sector in €m MRO services Catering services Travel services (commissions) IT services Ground services Other services

2010 2,207 1,539 183 248 98 781 5,056

2009 2,162 1,450 133 254 77 603 4,679

MRO services make up the majority of external revenue in the MRO segment. Other revenue in the MRO segment from the sale of material and hiring out material and engines, as well as logistics services, are classified as other services. The revenue listed under catering services originates exclusively in the Catering segment. LSG Food & Nonfood Handel GmbH and LSG Airport Gastronomiegesellschaft mbH, in particular, also earn revenue in the Catering segment, which does not relate to catering services and is shown under other services. Revenue from IT services relates to revenue from the IT Services segment. Other revenue includes revenue of EUR 188m (previous year: EUR 230m) from work in progress in connection with long-term production and service contracts. This revenue has been recognized in line with the percentage of completion method. If earnings from the whole contract could not be estimated reliably, the costs incurred for the contract were recognized. If the realizable revenue in these cases was below the costs incurred for the contract, write downs were made accordingly. The percentage of completion was calculated on the basis of the ratio of contract costs incurred by the balance sheet date to the estimated total costs for the contract.

Revenue (IAS 18)

93

Accumulated costs for unfinished contracts, i.e. including amounts recognized in prior years, amounted to EUR 213m (previous year: EUR 229m). Profits of EUR 36m were set off against them (previous year: EUR 50m). Advance payments by customers amounted to EUR 201m (previous year: EUR 233m). Unfinished contracts with a net credit balance – less any write-downs – are disclosed in trade receivables, “Note 28” on p. 187. Unfinished contracts for which advance payments by customers exceed the costs plus any offset pro rata profit are recognized as advance payments, “Note 43” on p. 199. No monies were withheld by customers.

Chapter 8 CONSTRUCTION CONTRACTS (IAS 11)

1.

OBJECTIVE

1.1 This Standard prescribes the accounting treatment for construction contracts in the financial statements of contractors.

In November 2011, the International Accounting Standards Board (IASB) and the US-based Financial Accounting Standards Board (FASB) reissued an Exposure Draft (ED) titled Revenue from Contracts with Customers with the aim of improving financial reporting by creating a single revenue recognition Standard, clarifying the principles for recognizing revenue, and creating consistent principles that can be applied across various transactions, industries, and capital markets. The comment letters on the revised ED were due by March 13, 2012. If adopted, the proposals would supersede International Accounting Standard (IAS) 11, Construction Contracts, and IAS 18, Revenue, and the related Interpretations. 1.2

2.

SYNOPSIS OF THE STANDARD

This Standard, which is applicable in accounting for construction contracts in the contractor’s (not contractee’s) financial statements, is summarized next. 2.1 A construction contract is a contract specifically negotiated for the construction of an asset or combination of assets that are closely interrelated or interdependent in terms of their design, technology, and function or their ultimate purpose or use. Construction contracts also include contracts for rendering services that are directly related to the construction of assets. 2.1.1 Construction contracts can either be fixed-price contracts or cost-plus contracts. 2.1.2 Fixed-price contracts are contracts where the contractor agrees to a fixed price or for a fixed rate per unit. However, in some cases, the contract price is subject to escalation. 2.1.3 Cost-plus contracts are contracts where the contractor is reimbursed the costs as defined in addition to a fixed percentage of the costs or a fixed fee. 2.2 If a contract relates to the construction of more than one asset and if separate proposals for the construction of each asset were submitted, if these proposals were subject to separate negotiation and finalization, and if the revenue and costs related to the construction of each asset can be determined, the contract should be treated as separate construction contracts. 95

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2.2.1 A group contract with a single or multiple customers can be treated as a single construction contract if all of the next items are true: • • • •

The group contract has been negotiated and finalized as a single package. The contracts are so interconnected that they form part of a single project. The contracts have to be performed sequentially or concurrently. The revenue and costs related to each construction activity cannot be determined.

2.2.2 When a contract provides for the construction of an additional asset at the customer’s option, construction of the additional asset should be treated as a separate construction contract if the nature of the asset differs significantly from that mentioned in the original contract and if the price of the additional asset is negotiated and finalized independent of the terms in the original contract. 2.3 Contract revenue shall comprise the amount of revenue initially agreed upon with the customer and the amount on account of variations from the agreed terms, claims made and incentives claimed, provided that it is probable that the contract will result in revenue and that they can be reliably measured. 2.3.1 Contract revenue should be measured at the fair value of the consideration that is received or is receivable. This revenue measurement may have to be revised during contract execution due to uncertainties that may arise and are resolved. 2.4 Contract costs shall comprise all costs that are directly related to the specific contract, general costs related to the contract that can be allocated to the contract, and all other costs that can be specifically charged to the customer on the basis of the terms of the contract agreement. 2.4.1 Contract costs must relate to the period from the date of obtaining the contract to the final date of its completion. In calculating the contract cost incurred, the cost that relates to future activity on the contract, such as cost of material delivered to the site and the advance payment made to subcontractors, should not be considered. 2.4.2 In case any incidental income that is not related to contract revenue is generated (such as sale of scrap materials), the above costs should be reduced by such income. 2.4.3 In case certain general costs can be allocated to the contract (e.g., payroll related to construction, indemnity insurance, costs of design and technical assistance), such costs should be allocated to the contract in a systematic and rational manner that is consistent from year to year. The allocation should also be based on the assumption of a normal level of construction activity. 2.5 In construction contracts, when the outcome can be estimated reliably, revenue from such construction contracts and the costs relating to the contracts are recognized using the percentageof-completion method. 2.5.1 In accordance with this Standard, the outcome of a fixed-price contract can be estimated reliably when • The total contract revenue can be measured reliably. • It is probable that the economic benefits associated with the contract will flow to the entity. • Both the contract costs to complete the contract and the stage of contract completion at the end of the reporting period can be measured reliably. • The contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. 2.5.2 In accordance with this Standard, the outcome of a cost-plus contract can be estimated reliably when • It is probable that the economic benefits associated with the contract will flow to the entity; and • The contract costs attributable to the contract, whether specifically reimbursable or not, can be clearly identified and measured reliably.

Construction Contracts ( IAS 11)

97

2.5.3 Under the percentage-of-completion method, revenue, costs, and profit from the contract are recognized by reference to the stage of completion of the contract at the end of the reporting period. 2.5.4 The stage of completion of a contract can be determined by different methods. This Standard recognizes three methods that reliably measure the extent of work completed: 1. Cost-to-cost method. The stage of completion or percentage of completion would be estimated by comparing the total cost incurred to the reporting date with the total expected cost of the entire contract. 2. Survey of work performed. 3. Completion of physical portion of the contract work. 2.5.5 The progress payments and advances received from the customers are not measures of the contract work completed. 2.6 In construction contracts, when the outcome cannot be estimated reliably (as in the early stages of a contract), revenue from the contract should be recognized to the extent of the contract costs incurred that are probable would be recoverable and such costs should be recognized in the period in which they are incurred. 2.7 When it is expected that the total contract cost will exceed the total contract revenue, such excess must be recognized as an expense immediately, irrespective of • Whether or not the contract work has commenced; • The stage of completion of contract; or • The amount of profits expected on other contracts that are not treated as a single contract. 2.8 The effect of the change in estimate of contract revenue or contract cost that arises from one reporting period to another is accounted for as a change in accounting estimate in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. The changed estimates are used to determine the contract revenue and contract expenses in the reporting period in which the change is made and in subsequent reporting periods. 3.

DISCLOSURES—IAS 11 These disclosures should be made under IAS 11.

3.1

An entity shall disclose each of the following: • Amount of contract revenue recognized as revenue in the reporting period • Methods used to determine the contract revenue recognized in the period • Methods used to determine the stage of completion of contracts in progress

3.2 An entity shall disclose each of the following for contracts in progress at the end of the reporting period: • Aggregate amount of costs incurred and recognized profits (less recognized losses) to date • Amount of advances received • Amount of retentions 3.3

An entity shall present both • Gross amount due from customers for contract work as an asset • Gross amount due to customers for contract work as a liability

4.

IFRIC 15, AGREEMENTS FOR THE CONSTRUCTION OF REAL ESTATE

4.1 Real estate entities that undertake the construction of residential real estate usually commence the marketing of individual units while the construction is still in progress or sometimes even before construction begins. Buyers of such individual units enter into agreements with the real

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estate entity to acquire specified units when they are ready for occupation. Initially buyers pay deposits and later progress payments (installments) to the real estate entity with the balance payable on delivery of the units. International Financial Reporting Interpretations Committee (IFRIC) 15 addresses whether such agreements for construction of real estate are within the scope of IAS 18 or IAS 11 and concludes that the construction of real estate is a construction contract within the scope of IAS 11 only when the buyer is able to specify the major structural elements of the design before construction begins and/or major structural changes once construction is in progress. If these conditions are not satisfied, the revenue from such a construction contract is accounted under IAS 18. 4.2 If within a single agreement a real estate entity contracts to deliver goods or services in addition to construction of real estate, IFRIC 15 concludes that such an agreement may need to be split into separately identifiable components, including one for the construction of real estate. The fair value of the total consideration received or receivable shall be allocated to each component. EXTRACT FROM PUBLISHED FINANCIAL STATEMENTS

Holcim Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 36 Construction Contracts Million CHF1 Contract revenue recognized during the year Contract costs incurred and recognized profits (less recognized losses) to date Progress billings to date Due to contract customers at the end of the reporting period Of which: Due from customers for contract work Due to customers for contract work

2010 1,341

2009 1,487

2,963 (2,982) (19)

3,127 (3,151) (24)

23 (42)

26 (50)

Chapter 9 ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE (IAS 20)

1.

OBJECTIVE

1.1 This Standard deals with the accounting for, and in the disclosure of government grants and in the disclosure of other forms of government assistance. 1.2

The Standard does not deal with • Special problems that arise due to reflecting the effects of changing prices on financial statements or similar supplementary information • Government assistance provided in the form of tax benefits (including income tax holidays, investment tax credits, accelerated depreciation allowances, and concessions in tax rates) • Government participation in the ownership of the entity • Government grants covered by International Accounting Standard (IAS) 41, Agriculture.

2.

SYNOPSIS OF THE STANDARD A summary of this Standard and its key terms is presented next.

2.1

Government grants, including nonmonetary grants, should be measured at fair value.

2.1.1 Government grants are government assistance in the form of transfers of resources by a government to an entity in return for the entity’s past or future compliance with certain conditions relating to the entity’s operating activities. This does not include those forms of government assistance that cannot reasonably be valued and those transactions with the government that cannot be distinguished from other normal trading transactions of the entity. 2.1.2 Government refers to a government, government agencies, and similar bodies, whether local, national, or international. 2.1.3 Government assistance is the action by a government to provide an economic benefit specific to an entity or group of entities qualifying under certain criteria. It does not include the bene99

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fits provided indirectly through actions affecting general trading conditions (e.g., the provision of infrastructure in development areas or the imposition of trading constraints on competitors). 2.2 Government grants (monetary and nonmonetary grants at fair value) should be recognized only if there is reasonable assurance that • The entity will comply with the conditions attaching to them. • The grants will be received. 2.2.1 Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s-length transaction. 2.3 The benefit of a government loan received at a rate below the market rate of interest should be considered as a government grant. This benefit of the below-market rate of interest should be measured as the difference between the initial carrying value of the loan determined in accordance with IAS 39, Financial Instruments: Recognition and Measurement, and the proceeds received. The loan amount should be recognized and measured in accordance with IAS 39, Financial Instruments: Recognition and Measurement. 2.4

This Standard provides two options for recognizing government grants related to assets: • Treat the grant as a reduction of the cost of the assets thereby incurring a reduced depreciation charge or • Treat it as deferred income and recognize the income on a systematic and rational basis over the useful life of the asset.

2.4.1 This Standard provides the two options for recognizing government grants related to income: • Treat the grant as a credit in the statement of comprehensive income, either separately or under a general heading (“Other Income”) or • Treat it as a deduction in reporting the related expense. 2.5 A government grant that becomes repayable should be accounted for as a change in accounting estimate in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. 2.5.1 The repayment of a grant related to income should be applied first against any unamortized deferred credit set up in respect of the grant. To the extent that the repayment exceeds any such deferred credit, or where no deferred credit exists, the repayment should be recognized immediately as an expense. 2.5.2 The repayment of a grant related to an asset should be accounted for by increasing the carrying amount of the asset or reducing the deferred income balance by the amount repayable. The cumulative additional depreciation that would have been recognized to date as an expense in the absence of the grant should be recognized immediately as an expense. 2.6 In the case of government grants that an entity becomes entitled to receive as compensation for expenses or losses already incurred, or for the purpose of giving financial support to the entity with no future related costs, the amount of such grants should be recognized in profit or loss in the period when the grants become receivable. 2.7 In the case of a nonmonetary government grant, both the asset and the grant should be recognized at either the fair value of the nonmonetary asset or at a nominal amount. 3.

DISCLOSURE REQUIREMENTS The entity receiving the government grant shall disclose the next points.

3.1 The entity must disclose the accounting policy adopted for government grants, including the methods of presentation adopted in the financial statements.

Accounting for Government Grants and Disclosure of Government Assistance (IAS 20)

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3.1.1 The entity must disclose the nature and extent of government grants recognized in the financial statements and an indication of other forms of government assistance from which the entity has directly benefited. 3.1.2 The entity must disclose any government grants that have unfulfilled conditions and any contingencies attached to the government assistance. 4. SIC 10, GOVERNMENT ASSISTANCE—NO SPECIFIC RELATION TO OPERATING ACTIVITIES Under Standing Interpretations Committee (SIC) 10, government assistance granted to enterprises that are not specifically related to its operating activities (e.g., granted to encourage or extend long-term support of business activities in certain regions or industry sectors) meets the definition of government grants in IAS 20. As such, it should not be credited directly to shareholders’ interests. 5.

IFRIC 12, SERVICE CONCESSION ARRANGEMENTS, DEFINED

5.1 International Financial Reporting Interpretations Committee (IFRIC) 12 explains the operator’s accounting treatment for a service concession arrangement with a government or other public sector body (the grantor) to develop, operate, and maintain the grantor’s infrastructure assets. 5.2 The operator recognizes a financial asset at fair value to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services. 5.3 Similarly, the operator recognizes an intangible asset at fair value to the extent that it receives a right (a license) to charge users of the public service. 5.4 The operator of a service concession arrangement recognizes and measures revenue in accordance with IAS 11 and IAS 18 for the services it performs. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Anheuser-Busch InBev Annual Report 2010 (in US $ millions) Notes to the consolidated financial statements 2.

Statement of Compliance

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and in conformity with IFRS as adopted by the European Union up to 31 December 2010 (collectively “IFRS”). AB InBev did not apply any European carve-outs from IFRS. AB InBev has not applied early any new IFRS requirements that are not yet effective in 2010. 3.

Summary of significant accounting policies

(X) Income Recognition Income is recognized when it is probable that the economic benefits associated with the transaction will flow to the company and the income can be measured reliably. Government Grants A government grant is recognized in the balance sheet initially as deferred income when there is reasonable assurance that it will be received and that the company will comply with the conditions attached to it. Grants that compensate the company for expenses incurred are recognized as other operating income on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the company for the acquisition of an asset are presented by deducting them from the acquisition cost of the related asset in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

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7.

Other Operating Income/(Expenses)

Million US dollar Government grants License income Net (additions to)/reversals of provisions Net gain on disposal of property, plant and equipment, intangible assets and assets held for sale Net rental and other operating income Research expenses as incurred

2010 243 96 (4)

2009 155 84 159

119

123

150 604 184

140 661 159

The government grants relate primarily to fiscal incentives given by certain Brazilian states based on the company’s operations and investments in those states. The net (additions to)/reversals of provisions in 2009 contained a curtailment gain of 164 m US dollar, following the amendment of post-retirement healthcare in the US.

Daimler AG Annual Report 2010 (in millions of euros) Notes to the consolidated financial statements 1.

Significant Accounting Policies

General Information The consolidated financial statements of Daimler AG and its subsidiaries (“Daimler” or “the Group”) have been prepared in accordance with Section 315a of the German Commercial Code (HGB) and International Financial Reporting Standards (IFRS) and related interpretations as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union. Government Grants Government grants related to assets are deducted in calculating the carrying amount of the asset and are recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense. Government grants which compensate the Group for expenses are recognized as other financial income in same periods as the expenses themselves. 6.

Other Operating Income and Expense

In millions of Euros Gains on sales of property, plant and equipment Government grants and subsidies Rental income, other than income relating to financial services Reimbursements under insurance policies Other miscellaneous income

2010

2009

148 110 45 22 646 971

44 137 51 20 441 693

Government grants and subsidies contain mainly reimbursements of social insurance contributions, granted by the Federal Employment Agency related to short-time work in the German production plants, as well as reimbursements relating to current partial retirement contracts.

Accounting for Government Grants and Disclosure of Government Assistance (IAS 20)

103

Koç Holding A.S. Annual Report 2010 (Turkish lira ’000s) Notes to the consolidated financial statements Note 2—Basis of Presentation of Consolidated Financial Statements 2.1 Basis of Presentation 2.1.1 Financial Reporting Standards The CMB regulated the principles and procedures of preparation, presentation and announcement of financial statements prepared by the entities with the Communiqué No: XI-29, “Principles of Financial Reporting in Capital Markets” (“the Communiqué”). According to the Communiqué, entities shall prepare their financial statements in accordance with International Financial Reporting Standards (“IAS/IFRS”) endorsed by the European Union. Until the differences of the IAS/IFRS as endorsed by the European Union between the ones issued by the International Accounting Standards Board (“IASB”) are announced by the Turkish Accounting Standards Board (“TASB”), IAS/IFRS issued by the IASB shall be applied. Accordingly, the Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”) issued by the TASB which are in line with the aforementioned standards shall be considered. 2.4 Summary of Significant Accounting Policies 2.4.29 Government Grants Government grants along with investment, research and development grants are accounted for on an accrual basis for estimated amounts expected to be realised under grant claims filed by the Group. These grants are accounted for as deferred income in the consolidated balance sheet and are credited to consolidated income statement on a straight-line basis over the expected lives of related assets. Note 27—Government Grants The Group is entitled by the following incentives and rights: a) 100% exemption from customs duty on machinery and equipment imported, b) Exemption from VAT on investment goods supplied from home and abroad, exemption from taxes, duties and charges, c) Incentives under the jurisdiction of the research and development law (100% corporate tax exemption, Social Security Institution incentives, etc.), d) Inward processing permission certificates, e) Cash refund from Tübitak-Teydeb for research and development expenditures, f) Insurance premium employer share incentive, g) Discounted corporate tax incentive, h) Investment incentive allowance (Note 16), i) Brand supporting government grants given by the Undersecretariat of Foreign Trade (Turquality).

Holcim Limited Annual Report 2010 (in millions CHF) Notes to the consolidated financial statements Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Property, Plant and Equipment Government grants received are deducted from property, plant and equipment and reduce the depreciation charge accordingly.

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Ericsson Annual Report 2010 (SEK million) Notes to the consolidated financial statements C1 Significant Accounting Policies The consolidated financial statements for the year ended December 31, 2010, have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU and RFR 1 “Additional rules for Group Accounting”, related interpretations issued by the Swedish Financial Reporting Board and the Swedish Annual Accounts Act. Government Grants Government grants are recognized when there is a reasonable assurance of compliance with conditions attached to the grants and that the grants will be received. For the Company, government grants are linked to performance of research or development work or to capital expenditures that are subsidized as governmental stimulus to employment or investments in a certain country or region. Government grants linked to research and development are normally deducted in reporting the related expense, whereas grants related to assets are accounted for deducting the grant when establishing the acquisition cost of the asset.

Chapter 10 AGRICULTURE (IAS 41)

1.

OBJECTIVE

1.1 This Standard prescribes the accounting treatment and disclosures in the financial statements of operations relating to agricultural activity. 1.2 The Standard does not apply to land related to agricultural activity (covered by International Accounting Standard [IAS] 16, Property, Plant, and Equipment, and IAS 40, Investment Property) and to intangible assets that are related to agricultural activity (covered by IAS 38, Intangible Assets). 2.

SYNOPSIS OF THE STANDARD

This Standard that applies to biological assets, agricultural produce at the point of harvest, and government grants received for agricultural activity. 2.1.

The key terms as defined in this Standard are

2.1.1 A biological asset is a living plant or animal. 2.1.2 Agricultural produce is the product obtained on harvesting the biological assets. 2.1.3 Agricultural activity is the process of managing the biological transformation and harvesting of biological assets, either for sale or for converting them into agricultural produce or additional biological assets. Government grants are as defined in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. 2.2 This Standard is applicable only to the agriculture produce that is the entity’s harvested product at the point of harvest; it is not applicable to the produce after harvest. 2.2.1 The items that are harvested become inventory, and the provisions of IAS 2, Inventories, or other related standard, are applicable. Similarly, this Standard does not deal with processing of product after harvesting (e.g., processing of coffee beans into coffee powder).

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2.3 A biological asset or agriculture produce should be recognized by an entity only when all the following conditions are satisfied: • The entity controls the assets as a result of past events; • It is probable that future economic benefits of the asset will flow to the entity; and • The fair value or cost of the asset can be measured reliably. 2.4 All biological assets should be measured initially, and at each subsequent reporting date, at their fair value less costs to sell, except in cases where the fair value cannot be measured reliably. 2.4.1 Agricultural produce that is harvested from the entity’s biological asset must be measured at its fair value less costs to sell at the point of harvest. Subsequent to the harvest, the produce is measured applying the principles of IAS 2 or any another applicable Standard. 2.4.2 Fair value is the amount for which an asset can be exchanged or a liability settled in an arm’s-length transaction between knowledgeable and willing parties. 2.4.3 Costs to sell are the direct incremental costs, other than finance costs and income tax, to be incurred on the disposal of an asset. Examples of such costs are commission to brokers and dealers and levies by regulatory authorities and commodity exchanges. 2.5 In determining the fair value for a biological asset or agricultural produce, it may be necessary to group together items in accordance with their significant attributes, such as age or quality. 2.5.1 When an active market based on its present location and condition exists for the biological asset or agricultural produce, the quoted price in that market should be the fair value of the asset. If an entity has access to different active markets, then the entity should choose the quoted price of the market that the entity is most likely to use to sell the asset. 2.5.2 When an active market does not exist, the entity can use, depending on its availability, either the most recent market transaction price or the market prices for similar assets, after adjustment to reflect any differences in the asset or any specified sector benchmarks, such as value of cattle expressed as meat per kilogram. 2.5.3 Active market is a market where the items traded are homogenous, willing buyers and sellers are normally found at any time, and prices are available to the public. 2.5.4 In case an entity contracts to sell its biological assets or produce at a future date, the contract prices should not be considered as the current fair value for the biological asset or produce. 2.5.5 In case the market prices or values are not available for an asset in its present condition, the entity can use the present value of the expected net cash flow from the asset that is discounted at a current market rate, which can either be a pretax rate or a posttax rate. 2.5.6 In case little biological transformation has taken place after initial costs have been incurred or the impact of biological transformation on the price is not expected to be significant, the cost can be considered as the fair value. An example of this is seedlings or trees planted immediately prior to the reporting date. 2.5.7 In case there is no separate active market for the biological assets on their own as they are physically attached to land (e.g., rubber trees in a plantation) but an active market exists for the combined assets, the entity should value the combined assets and then reduce the fair value by deducting the fair value of the land and land improvements to determine the fair value of the biological asset. 2.5.8 In case there is no quoted market price in an active market when the biological asset is first recognized and no other valuation methods are appropriate, the asset should be measured at cost less accumulated depreciation and any impairment losses. When circumstances do change and the fair value becomes reliably measurable, the entity should measure the asset at fair value less costs to sell.

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2.6 The gain that arises on the initial recognition of a biological asset at fair value less costs to sell and any changes in that fair value less costs to sell of the biological assets during the reporting period should be included in profit or loss for the period. An example is the gain that arises when a calf is born to a cow. 2.6.1 Any gain or loss that arises on the initial recognition of agricultural produce at fair value less costs to sell should be included in profit or loss for the period to which it relates. An example of this is the gain or loss on initial recognition of agricultural produce. (When harvested, the crop can have more value than the crop that has not been harvested.) 2.6.2 All the costs related to the biological assets, other than those related to their purchase, should be measured at fair value and recognized in profit or loss when incurred. 2.7 When a noncurrent biological asset meets the criteria to be classified as held for sale in accordance with International Financial Reporting Standards (IFRS) 5, Noncurrent Assets Held for Sale and Discontinued Operations, it is presumed that fair value can be measured reliably. For determining the cost, depreciation, and impairment losses, the provisions of IAS 2, IAS 16, Property, Plant, and Equipment, and IAS 36, Impairment of Assets, should be used. 2.8 An unconditional government grant that is related to a biological asset and measured at fair value less costs to sell should be recognized as income when the grant becomes receivable. 2.8.1 When conditions are attached to the government grant, income must be recognized only when those conditions are fulfilled. 2.8.2 The provisions of IAS 20 should be applied only to government grants that are related to biological assets which have been measured at cost less accumulated depreciation and impairment losses. 3.

DISCLOSURE REQUIREMENTS The next disclosures are prescribed by this Standard.

3.1

General

3.1.1 The entity should disclose both • The aggregate gain or loss that arises on the initial recognition of biological assets and agricultural produce and from the change in value less costs to sell of the biological assets and • A description of each group of biological assets. 3.1.2 If not disclosed elsewhere in the financial statements, the entity should disclose the nature of its activities and nonfinancial measures or estimates of the physical quantity of each group of its biological assets at period-end and of the output for agricultural produce during the period. 3.1.3 The entity should disclose the methods and assumptions applied in determining fair value of each group of agricultural produce at the point of harvest and of each group of biological assets. 3.1.4 The fair value less costs to sell of agricultural produce harvested during the period should be disclosed at the point of harvest. 3.1.5 The entity should also disclose • The existence and carrying amounts of biological assets whose title is restricted and that of any biological assets that are placed as security for liabilities • The amount of any commitments for the development or acquisition of biological assets

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3.1.6 Its financial risk management strategies A reconciliation of the changes in the carrying amount of biological assets between the beginning and the end of the current period shall be disclosed in this way: • Gain or loss arising from changes in fair value less costs to sell • Increase on purchases • Decrease on sales and biological assets classified as held for sale in accordance with IFRS 5 • Decrease due to harvest • Increase resulting from business combinations • Net exchange differences arising on translation of financial statements into different presentation currency and on translation of a foreign operation into the presentation currency of the reporting entity • Any other changes 3.2

Additional Disclosures

3.2.1 When biological assets that are stated at cost less accumulated depreciation and any accumulated impairment losses at the end of the reporting period, the entity shall disclose • • • • • •

A description of the biological assets An explanation as to why fair value cannot be measured reliably If possible, the range of estimates within which fair value is highly likely to lie The depreciation method used The useful lives or the depreciation rates used The gross carrying amount and the accumulated depreciation and impairment losses at the beginning and end of the period

3.2.2 When biological assets that are stated at cost less accumulated depreciation and any accumulated impairment losses are disposed of, the entity shall • Disclose any gain or loss on disposal • Provide reconciliation as in 3.1.6 • Provide the details of impairment losses including the reversals, if any, and depreciation 3.2.3 When the fair value of biological assets that were previously measured at cost less any accumulated depreciation and any accumulated impairment losses becomes reliably measurable during the current period, an entity shall disclose for those biological assets • A description of the biological assets • An explanation of why fair value has become reliably measurable • The effect of the change 3.3

Government Grants

3.3.1 With regard to government grants related to biological assets, the next disclosures with respect to the agricultural activity shall be made: • The nature and extent of government grants recognized in the financial statements • The conditions (attaching to the grants) that are unfulfilled and other contingencies attaching to government grants • Significant decreases expected in the level of government grants

Section IV NONCURRENT ASSETS, PROVISIONS, CURRENT LIABILITIES AND ASSETS

Chapter 11: Property, Plant and Equipment (IAS 16) IFRIC 1, Changes in Existing

Decommissioning, Restoration, and Similar Liabilities Chapter 12: Borrowing Costs (IAS 23) Chapter 13: Provisions, Contingent Liabilities (IAS 37) IFRIC 5, Rights to Interests Arising from

Decommissioning, Restoration, and Environmental Rehabilitation Funds IFRIC 6, Liabilities Arising from Participating

in a Specific Market—Waste Electrical and Electronic Equipment Chapter 14: Intangible Assets (IAS 38) SIC 32, Web Site Costs Chapter 15: Investment Property (IAS 40)

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Chapter 11 PROPERTY, PLANT AND EQUIPMENT (IAS 16)

1.

OBJECTIVE

1.1 This Standard sets out requirements for the recognition and measurement of property, plant and equipment and also prescribes the financial statement disclosure requirements. 1.2

This Standard does not apply to • Property, plant and equipment classified as held for sale under International Financial Reporting Standards (IFRS) 5, Noncurrent Assets Held for Sale and Discontinued Operations • Biological assets related to agricultural activity (see International Accounting Standards [IAS] 41, Agriculture) • Recognition and measurement of exploration and evaluation assets (see IFRS 6, Exploration for and Evaluation of Mineral Resources) • Mineral rights and mineral reserves, such as oil, natural gas, and nonrenewable resources

2.

SYNOPSIS OF THE STANDARD

This Standard helps users of financial statements to assess information about an entity’s investment in its property, plant and equipment and the changes in that investment. 2.1

The items of property, plant and equipment should be recognized when • It is probable that the future economic benefits associated with the asset will flow to the entity; and • Its cost can be measured reliably.

2.2. In the case of items that have individually insignificant value but will qualify as assets under the two basic recognition criteria just listed, this Standard permits the aggregation of such individually insignificant value items, provided they are similar in nature. An example of this is molds. 2.3 Property, plant and equipment that meet the recognition criteria should be initially recognized at cost. 111

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2.4 Cost includes purchase price, including import duties and any nonrefundable purchase taxes, less trade discounts and rebates granted by the supplier and costs that are directly attributable to bringing the asset to the location and condition that is necessary for it to be used by the entity for the intended purpose. Such costs include borrowing costs to the extent permitted by IAS 23, Borrowing Costs. 2.4.1 In case an asset manufactured by an entity in its normal course of business is to be included as property, plant and equipment, the cost is determined the same way as for the items to be sold, except that the profit element included in the above is eliminated. 2.4.2 In case an asset is acquired in exchange for another asset, the acquired asset must be measured at its fair value, unless the exchange transaction lacks commercial substance or the fair value cannot be reliably measured. In such cases, the acquired asset must be measured at cost less accumulated depreciation and impairment losses (the “carrying value”) of the asset that was given up on the exchange transaction. 2.4.3 In case an entity receives grants or subsidies for the acquisition of an asset, the carrying value of the asset has to be reduced to that extent, in accordance with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. 2.5 Items of property, plant and equipment that are utilized for rentals should be transferred at their carrying value to inventories when they cease to be used for rental purposes. Upon sale of such assets, the proceeds on sale must be recognized as revenue. 2.6 Subsequent to the initial recognition at cost, the measurement of property, plant and equipment should be done either under the cost model or the revaluation model. The model adopted by the entity should be applied to an entire class of property, plant and equipment. 2.7 Under the cost model, the entity shall carry the item of property, plant and equipment after its recognition at its cost less any accumulated depreciation and any accumulated impairment losses. 2.8 Under the revaluation model, the item of property, plant and equipment shall, after its recognition, be carried at the fair value at the date of the revaluation (“revalued amount”) less any subsequent accumulated depreciation and subsequent accumulated impairment losses. 2.8.1 The revaluation of property, plant and equipment should be carried out regularly on the entire class of assets to which that asset belongs. 2.8.2 The surplus on revaluation should be recognized in other comprehensive income and accumulated in equity under the heading of “revaluation surplus.” 2.8.3 The decreases on revaluation should be recognized in the profit and loss. In case any credit balance exists in the revaluation surplus in respect of that asset, the decrease to that extent should be recognized in “other comprehensive income.” 2.8.4 In case the increase in carrying amount reverses a revaluation decrease of the same asset that has been previously recognized in profit and loss, the increase in carrying amount should be recognized in profit and loss to the extent that it offsets the previous decrease in the carrying amount. 2.8.5 The difference between the depreciation charged on the revalued amount and that based on cost can be transferred from the revaluation surplus to retained earnings. 2.8.6 When a revalued asset is disposed of or otherwise derecognized, the revaluation surplus related to that asset may either be transferred directly to retained earnings or retained in the revaluation surplus account. Under no circumstances should the transfers from revaluation surplus to retained earnings be recognized in profit and loss. 2.9. Depreciation on each item of property, plant and equipment should be charged on a systematic basis over its expected useful life.

Property, Plant and Equipment (IAS 16)

113

2.9.1 Depreciation should be charged when the asset is at the location and condition and is available for the intended use. The charging of depreciation should cease when the asset is derecognized or reclassified as held for sale in accordance with IFRS 5. 2.9.2 The depreciable amount should take into account the expected residual value of the assets. The entity should review on an annual basis the useful life and the residual value, and the estimates should be revised as necessary in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. 2.9.3 The method of depreciation used should reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. The methods of depreciation permitted under this Standard are the “straight-line” method, the “diminishing balance” method, and the “units of production” method. 2.9.4 Any change in the depreciation method should be accounted for as a “change in an accounting estimate” in accordance with IAS 8. 2.9.5 The depreciation method that is applied to an asset by the entity should be reviewed annually and the method changed if the expected pattern of consumption of the future economic benefits embodied in the asset changes significantly. 2.10 Each component of an item of property, plant and equipment should be tested for impairment to ensure that it is not carried at more than the recoverable amount. 2.11 An item of property, plant and equipment should be derecognized either when it is disposed of or when no future economic benefits are expected from its use or disposal. 2.11.1 The gain or loss resulting from derecognition of an item of property, plant and equipment is the difference between the net proceeds on disposal if any, and the carrying amount of the item of property, plant and equipment. 2.11.2 The gain or loss resulting from derecognition of an item of property, plant and equipment should be included in profit and loss when the item is derecognized. 3.

DISCLOSURE REQUIREMENTS The next disclosures are required to be made under this Standard:

3.1

For each class of property, plant and equipment: • • • • • • • • • • • • • • • •

Measurement bases for determining the gross carrying amounts Depreciation method adopted Useful lives or depreciation rates used Gross carrying amount and accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period Additions Assets classified as held for sale Acquisitions through business combinations Increases and decreases arising from revaluations and from impairment losses and reversals thereof Depreciation Net exchange differences recognized under IAS 21, The Effects of Changes in Foreign Exchange Rates Other changes Existence and amounts of restrictions on ownership title Assets pledged as security for liabilities Assets in the course of construction Contractual commitments for the acquisition of property, plant and equipment Compensation for assets impaired, lost, or given up

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For property, plant and equipment stated at revalued amounts:

3.2

The effective date of the valuation Whether an independent valuer was involved Methods and significant assumptions used in assessing fair values The extent to which fair values were measured by reference to observable prices in an active market or to recent market transactions on an arm’s-length basis or were estimated using other techniques; • For each class of asset revalued, the carrying amount that would have been recognized if the class had not been revalued • The revaluation surplus, indicating the change for the period and any restrictions on distributions to shareholders • • • •

4. IFRIC 1, CHANGES IN EXISTING DECOMMISSIONING, RESTORATION, AND SIMILAR LIABILITIES 4.1 International Financial Reporting Interpretations Committee (IFRIC) 1 explains the accounting treatment for the changes in decommissioning, restoration, and similar liabilities that previously have been recognized both as part of the cost of an item of property, plant and equipment under IAS 16 and as a provision (liability) under IAS 37. 4.2 The interpretation addresses subsequent changes to the amount of the liability that may arise from • A revision in the timing or amount of the estimated decommissioning or restoration costs; or • A change in the current market-based discount rate; or • An increase in the liability that reflects the passage of time. 4.3 IAS 37 requires that the amount recognized as a provision to be the best estimate of the expenditure required to settle the obligation at the reporting date. This is measured at its present value, which IFRIC 1 confirms should be measured using a current market-based discount rate. 4.4 Where entities account for their property, plant and equipment using the cost model, the effect of these changes must be capitalized as part of the cost of the item and depreciated prospectively over the remaining life of the item to which they relate. This is consistent with the treatment under IAS 16 of other changes in estimate relating to property, plant and equipment. 4.5 Where entities account for their property, plant and equipment using the fair value model, a change in the liability alters the revaluation surplus or deficit on the item and the effect of the change is treated consistently with other revaluation surpluses or deficits. Any cumulative deficit is taken to profit or loss, but any cumulative surplus is credited to equity. 4.6 The increase in the liability that reflects the passage of time (unwinding of discount) is recognized in profit or loss as a finance cost as it occurs. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 (£ million) Notes to the consolidated financial statements for the year ended 31 March 2011 2

Accounting Policies

Basis of Accounting The consolidated financial statements have been prepared in accordance with the requirements of Swiss law and International Financial Reporting Standards (IFRSs), as they apply to the consolidated financial statements for the year ended 31 March 2011. Had the consolidated financial statements been prepared

Property, Plant and Equipment (IAS 16)

115

under IFRSs as adopted by the European Union, there would be no material changes to the information presented in these consolidated financial statements. Property, Plant and Equipment All property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and impairment losses. Depreciation of property, plant and equipment is provided to write off the cost, less residual value, in equal instalments over their expected useful economic lives which are: Freehold land and assets in the course of construction – not depreciated; • • • •

Freehold and long leasehold buildings – not more than 50 years; Short leasehold land and buildings - remaining period of lease; Plant and machinery – 3 to 10 years; and Fixtures, fittings, tools and equipment – 3 to 20 years.

Residual values, remaining useful economic lives and depreciation methods are reviewed annually and adjusted if appropriate. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the income statement. 16 Property, Plant and Equipment

2011 Cost At 1 April 2010 Acquisitions of businesses Additions Disposals of businesses Disposals Reclassified to assets held for sale Currency translation differences At 31 March 2011 Depreciation At 1 April 2010 Charge Disposals of businesses Disposals Reclassified to assets held for sale Currency translation differences At 31 March 2011 Net book value

2010 Cost At 1 April 2009 Acquisitions of businesses Additions Disposals Reclassified to assets held for sale Transfers from assets under course of construction Currency translation differences At 31 March 2010 Depreciation At 1 April 2009 Charge Disposals Currency translation differences At 31 March 2010 Net book value

Land and buildings £million

Plant and machinery £million

Fixtures, fittings, tools £million

Total £million

1,153 130 29 (61) (61) (4) (11) 1,175

180 1 13 – (5) – (1) 188

1,326 30 131 (34) (29) – (9) 1,415

2,659 161 173 (95) (95) (4) (21) 2,778

44 15 (5) (3) (1) (2) 48 1,127

55 17 – (3) – (1) 68 120

469 172 (15) (27) – (6) 593 822

568 204 (20) (33) (1) (9) 709 2,069

Land and buildings £million

Plant and machinery £million

Fixtures, fittings, tools £million

Total £million

1,192 – 29 (12) (15) (30)

158 – 23 (3) – 5

1,173 18 136 (22) – 25

2,523 18 188 (37) (15)

(11) 1,153

(3) 180

(4) 1,326

(18) 2,659

33 14 (1) (2) 44 1,109

43 17 (3) (2) 55 125

300 189 (16) (4) 469 857

376 220 (20) (8) 568 2,091

–

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Depreciation charges in the tables above include continuing and discontinued operations. Depreciation charges in respect of continuing operations were £203 million (2010: £215 million), of which £6 million (2010: £6 million) was recognised in cost of sales, £166 million (2010: £176 million) was recognised in selling, distribution and store costs, and £31 million (2010: £33 million) was recognised in administrative costs. Included within the net book values were amounts in respect of assets held under finance leases of £4 million (2010: £20 million) in land and buildings, £9 million (2010: £8 million) in plant and machinery and £6 million (2010: £15 million) in fixtures, fittings, tools and equipment. Property, plant and equipment with a carrying amount of £28 million (2010: £nil) have been pledged as security for certain of the Group’s borrowing facilities. Property, plant and equipment included assets in the course of construction of £41 million (2010: £20 million).

ArcelorMittal and Subsidiaries Annual Report 2010 (in millions of U.S. dollars, except share and per share data) Notes to the consolidated financial statements Note 1: Nature of Business, Basis of Presentation and Consolidation Basis of Presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollars with all amounts rounded to the nearest million, except for share and per share data. Note 2: Summary of Significant Accounting Policies Property, Plant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation and impairment. Cost includes professional fees and, for assets constructed by the Company, any related works to the extent that these are directly attributable to the acquisition or construction of the asset. Property, plant and equipment except land are depreciated using the straight-line method over the useful lives of the related assets, which are presented in the table below. Asset Category

Useful Life Range

Land Buildings Steel plant equipment Auxiliary facilities Other facilities

Not depreciated 10 to 50 years 15 to 30 years 15 to 30 years 5 to 20 years

Major improvements, which add to productive capacity or extend the life of an asset, are capitalized, while repairs and maintenance are charged to expense as incurred. Where a tangible fixed asset comprises major components having different useful lives, these components are accounted for as separate items. Property, plant and equipment used in mining activities are depreciated over its useful life or over the remaining life of the mine if shorter and if there is no alternative use possible. For the majority of assets used in mining activities, the economic benefits from the asset are consumed in a pattern which is linked to the production level and accordingly, assets used in mining activities are depreciated on a unit of production basis. Unit of production is based on the available estimate of proven and probable reserves. Pre-production expenditure such as exploration and evaluation assets are capitalized only when the mining entity’s management has a high degree of confidence in the project’s economic viability and it is probable that future economic benefits will flow to the Company. The capitalization can be justified through feasibility study, valuation report or similar positive assessment done by an external expert; through business plan, project plan, business forecast or other assessment prepared and validated by the management or; through management’s knowledge and expertise derived from similar projects.

Property, Plant and Equipment (IAS 16)

117

Capitalization of pre-production expenditure ceases when the mining property is capable of commercial production as it is intended by the management. General administration costs that are not directly attributable to a specific exploration area are charged to the statement of operations. Property, plant and equipment under construction are recorded as construction in progress until they are ready for their intended use; thereafter they are transferred to the related category of property, plant and equipment and depreciated over their estimated useful lives. Interest incurred during construction is capitalized. Gains and losses on retirement or disposal of assets are reflected in the statement of operations. Property, plant and equipment acquired by way of finance leases is stated at an amount equal to the lower of the fair value and the present value of the minimum lease payments at the inception of the lease. Each lease payment is allocated between the finance charges and a reduction of the lease liability. The interest element of the finance cost is charged to the statement of operations over the lease period so as to achieve a constant rate of interest on the remaining balance of the liability. The residual values and useful lives of property, plant and equipment are reviewed at each reporting date and adjusted if expectations differ from previous estimates. Depreciation methods applied to property, plant and equipment are reviewed at each reporting date and changed if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset. Note 10: Property, Plant and Equipment Property, plant and equipment are summarized as follows: Improvements Cost At December 31, 2008 Additions Acquisitions through business combinations Foreign exchange differences Disposals Other movements At December 31, 2009 Additions Foreign exchange differences Disposals Transfer to assets held for distribution Other movements At December 31, 2010 Accumulated depreciation and impairment At December 31, 2008 1 Depreciation charge for the year 1 Impairment Disposals Foreign exchange differences Other movements At December 31, 2009 1 Depreciation charge for the year 1 Impairment Disposals Foreign exchange differences Transfer to assets held for distribution Other movements At December 31, 2010 Carrying amount At December 31, 2009 At December 31, 2010 1

Land, buildings and equipment

Machinery and in progress

Construction Total

19,219 119

53,491 787

4,033 1,656

76,743 2,562

58

44

4

106

1,142 (116) 413 20,835 127 (1,015) (154) (1,120) 219 18,892

3,770 (729) 2,257 59,620 728 (2,835) (558) (2,840) 2,035 56,150

164 (104) (2,304) 3,449 2,733 (93) (8) (125) (2,120) 3,836

5,076 (949) 366 83,904 3,588 (3,943) (720) (4,085) 134 78,878

3,174 677 70 (59) 460 95 4,417 638 303 (81) (444) (171) (215) 4,447

13,274 3,895 367 (681) 2,173 (42) 18,986 3,653 208 (497) (1,785) (866) 268 19,967

44 — 127 (42) (1) (12) 116 19 — (1) (5) — (9) 120

16,492 1 4,572 1 564 (782) 2,632 41 23,519 1 4,310 1 511 (579) (2,234) (1,037) 44 24,534

3,333 3,716

60,385 54,344

16,418 14,445

40,634 36,183

Includes depreciation and impairment with respect to discontinued operations of 272 and 30, respectively, for the year ended December 31, 2010, and 277 and 12, respectively, for the year ended December 31, 2009.

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Other movements predominantly represent transfers between the categories and changes in the consolidation scope. During the year ended December 31, 2010, and in conjunction with its testing of goodwill for impairment, the Company analyzed the recoverable amount of its property, plant and equipment. Property, plant and equipment were tested at the CGU level. In certain instances, the CGU is an integrated manufacturing facility which may also be an Operating Subsidiary. Further, a manufacturing facility may be operated in concert with another facility, with neither facility generating cash flows that are largely independent from the cash flows of the other. In this instance, the two facilities are combined for purposes of testing for impairment. As of December 31, 2010, the Company determined it has 78 CGUs, excluding discontinued operations. The recoverable amounts of the CGUs are determined based on value in use calculation and follow similar assumptions as those used for the test on impairment for goodwill. Management estimates discount rates using pre-tax rates that reflect current market rates for investments of similar risk. The rate for each CGU was estimated from the weighted average cost of capital of producers, which operate a portfolio of assets similar to those of the Company’s assets. The impairment loss recorded in 2009 of 564, of which 12 relates to discontinued operations, was recognized as an expense as part of operating income (loss) in the statement of operations. An amount of 237 related to various idle assets where a decision was made to cease all future use (including 92 at ArcelorMittal Galati (coke oven batteries) and 65 at ArcelorMittal Las Truchas (primarily an electric arc furnace, rolling mill, oxygen furnace and wire rod mill). ArcelorMittal Galati is part of Flat Carbon Europe and ArcelorMittal Las Truchas is part of Long Carbon Americas & Europe. The remaining impairment of 327 consisted primarily of the following:

Cash-Generating Unit ArcelorMittal Tubular Products Roman ArcelorMittal Hunedoara SA ArcelorMittal Annaba Spa ArcelorMittal Tubular Products Marion Inc. ArcelorMittal Tubular Products Brampton ArcelorMittal Tubular Products Iasi SA JSC ArcelorMittal Tubular Products Aktau ArcelorMittal Construction

Reportable Segment Long Carbon Americas & Europe Long Carbon Americas & Europe Long Carbon Americas & Europe Long Carbon Americas & Europe Long Carbon Americas & Europe Long Carbon Americas & Europe Long Carbon Americas & Europe Distribution Solutions

Carrying 2008 Pretax 2009 Pretax Value as of December Discount Impairment Discount 31, 2009 Rate Rate Recorded 65

14.9%

16.9%

30

38

13.9%

14.5%

33

17

13.9%

15.1%

240

16

15.5%

19.0%

6

12

13.4%

16.0%

3

12

14.9%

16.9%

13

10

17.7%

17.1%

13

117

12.5%

14.3%

435

The impairment loss recorded in 2010 of 481 was recognized as an expense as part of operating income (loss) in the statement of operations. The impairment of 481 is described below. In connection with management’s annual test for impairment of goodwill as of November 30, 2010, property, plant and equipment was also tested for impairment at that date. Management concluded that the value in use of certain of the Company’s property, plant and equipment was less than its carrying amount due primarily to the economic downturn that began in 2008 which continued to have an impact in 2010. Accordingly, an impairment loss of 285 was recognized. The impairment of 285 consisted primarily of the following:

Cash-Generating Unit Ugolnaya Kompaniya “Severniy Kuzbass” ArcelorMittal Construction Wire Solutions

Reportable Segment AACIS Distribution Solutions Distribution Solutions

Carrying 2008 Pretax 2009 Pretax Value as of Discount December 31, Impairment Discount 2010 Rate Rate Recorded 166

16.8%

13.7%

239

70 43

14.3% 13.9%

12.2% 11.9%

386 312

A decision was made to cease all future use of various idle assets, and accordingly an impairment loss of 93 was recognized (including 35 at ArcelorMittal Belgium S.A. (primarily certain tools linked to a pick-

Property, Plant and Equipment (IAS 16)

119

ling line and a discontinued project) and 21 at ArcelorMittal Poland (primarily certain tools linked to a galvanizing line). ArcelorMittal Belgium S.A. and ArcelorMittal Poland are part of Flat Carbon Europe. The carrying amount of temporarily idle property, plant and equipment, at December 31, 2010 is of 474 (including 268 at Flat Carbon Europe, 174 at Flat Carbon Americas and 32 at Long Carbon Americas & Europe). In connection with the disposal of the Anzherskaya coal mine in Russia, which was part of the AACIS reportable segment, an impairment loss of 103 was recognized with respect to property, plant and equipment. The carrying amount of property, plant and equipment includes 499 and 423 of capital leases as of December 31, 2009 and 2010, respectively. The carrying amount of these capital leases is included in machinery and equipment. The carrying value of property, plant and equipment includes 2,985 and 2,955 of mining activity as of December 31, 2009 and 2010, respectively. The Company has pledged 750 and 264 in property, plant and equipment as of December 31, 2009 and 2010, respectively, to secure banking facilities granted to the Company. These facilities are further disclosed in note 15.

BAE Systems Annual Report 2010 (in £ millions) Notes to the Group accounts 1.

Accounting Policies

Basis of Preparation The consolidated financial statements of BAE Systems plc have been prepared on a going concern basis and in accordance with EU-endorsed International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee interpretations (IFRICs) and the Companies Act 2006 applicable to companies reporting under IFRS. Property, Plant and Equipment Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Depreciation is provided, normally on a straight-line basis, to write off the cost of property, plant and equipment over their estimated useful lives to any estimated residual value, using the following rates: Buildings Buildings

up to 50 years, or the lease term if shorter

Plant and machinery Computing equipment, motor vehicles and shortlife works equipment Research equipment Other equipment

8 years 10 to 15 years, or the project life if shorter

Aircraft Aircraft

up to 15 years, or the lease term if shorter

3 to 5 years

For certain items of plant and equipment in the Group’s US businesses, depreciation is normally provided on a basis consistent with cost reimbursement profiles under US government contracts. Typically this provides for a faster rate of depreciation than would otherwise arise on a straight-line basis. No depreciation is provided on freehold land and assets in the course of construction. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. Where applicable, useful lives reflect the component accounting principle.

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Assets obtained under finance leases are included in property, plant and equipment and stated at an amount equal to the lower of the fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. 12. Property, Plant and Equipment

Cost At 1 January 2009 Additions Acquisition of subsidiaries (note 29) Transfers from inventories Transfer to investment properties Transfer to other intangible assets Reclassification between categories Disposals Exchange adjustments At 31 December 2009 Additions Acquisition of subsidiaries (note 29) Transfers from inventories Transfers to inventories Transfer to investment properties Transfer to other intangible assets Reclassification between categories Disposals Exchange adjustments At 31 December 2010 Depreciation and impairment At 1 January 2009 Depreciation charge for the year Impairment charge for the year Reclassification between categories Disposals Exchange adjustments At 31 December 2009 Depreciation charge for the year Impairment charge for the year Transfers to inventories Transfer to investment properties Transfer to other intangible assets Reclassification between categories Disposals Exchange adjustments At 31 December 2010 Net book value: Freehold property Long leasehold property Short leasehold property Plant and machinery Fixtures, fittings and equipment Aircraft At 31 December 2010 At 31 December 2009 At 1 January 2009

Land and buildings £m

Plant and machinery £m

Aircraft £m

Total £m

1,972 245 85 – (2) – 28 (23) (110) 2,195 159 98 – – (15) – 17 (41) 64 2,477

2,529 187 53 2 – (4) (28) (78) (110) 2,551 225 15 1 (5) – (3) (18) (136) 51 2,681

826 48 – – – – – (43) (72) 759 20 – – (5) – – 1 (95) 21 701

5,327 480 138 2 (2) (4) – (144) (292) 5,505 404 113 1 (10) (15) (3) – (272) 136 5,859

605 80 11 (5) (20) (27) 644 101 29 – (1) – (12) (32) 12 741

1,690 184 2 5 (73) (63) 1,745 201 – (5) – (1) 13 (123) 29 1,859

586 51 10 – (32) (51) 564 34 14 (3) – – (1) (80) 17 545

2,881 315 23 – (125) (141) 2,953 336 43 (8) (1) (1) – (235) 58 3,145

1,511 173 52 – – – 1,736 1,551 1,367

– – – 734 88 – 822 806 839

– – – – – 156 156 195 240

1,511 173 52 734 88 156 2,714 2,552 2,446

Impairment 2010 The impairment charge of £43m in 2010 mainly comprises charges in respect of the carrying values of land and buildings in Saudi Arabia (£16m) and the US (£10m), and aircraft within the Regional Aircraft business (£14m). The impairment impacts the following segments: Electronics, Intelligence & Support (£10m); Land & Armaments (£3m); International (£16m); and HQ & Other Businesses (£14m).

Property, Plant and Equipment (IAS 16)

121

2009 The impairment charge of £23m mainly comprised charges in respect of aircraft carrying values within the Regional Aircraft business (£8m) and a £13m charge following the reassessment of the carrying value of certain assets within the International operating group. The impairment impacted the International (£13m), HQ & Other Businesses (£8m) and Land & Armaments (£2m) segments. Assets in the Course of Construction

Assets in the course of construction (including investment property (note 13)) At 31 December 2010 At 31 December 2009 Finance leases Net book value of assets held as capitalised finance leases At 31 December 2010 At 31 December 2009

Land and buildings £m

Plant and machinery £m

Aircraft £m

Total £m

67 133

77 76

– –

144 209

– –

– –

– 5

– 5

At 31 December 2009, none of the assets held under finance leases were sublet under operating leases. Operating Leases The future aggregate minimum lease income from the non-cancellable elements of operating leases for assets capitalized (including investment property (note 13)) are as follows:

Receipts due: Not later than one year Later than one year and not later than five years Later than five years

2010 £m

2009 £m

68 173 185 426

78 201 23 302

Under the terms of the lease agreements, no contingent rents are receivable. The leases have varying terms including escalation clauses and renewal rights. None of these terms represent unusual arrangements or create material onerous or beneficial rights or obligations. There is no lease income relating to assets held by the Group under capitalised finance leases within the above.

Holcim Limited Annual Report 2010 (in millions CHF) Notes to the consolidated financial statements Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Property, Plant and Equipment Property, plant and equipment is valued at acquisition or construction cost less depreciation and impairment loss. Cost includes transfers from equity of any gains or losses on qualifying cash flow hedges. Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight-line method, on the following bases: Land Buildings and installations Machinery Furniture, vehicles and tools

No depreciation except on land with raw material reserves 20 to 40 years 10 to 30 years 3 to 10 years

Costs are only included in the asset’s carrying amount when it is probable that economic benefits associated with the item will flow to the Group in future periods and the cost of the item can be measured reliably. Costs include the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. All other repairs and maintenance expenses are charged to the statement of income during the period in which they are incurred.

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Mineral reserves, which are included in the class “land” of property, plant and equipment, are valued at cost and are depreciated based on the physical unit-of-production method over their estimated commercial lives. Costs incurred to gain access to mineral reserves are capitalized and depreciated over the life of the quarry, which is based on the estimated tonnes of raw material to be extracted from the reserves. Interest cost on borrowings to finance construction projects which necessarily takes a substantial period of time to get ready for their intended use are capitalized during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed in the period in which they are incurred. Government grants received are deducted from property, plant and equipment and reduce the depreciation charge accordingly. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Property, plant and equipment acquired through a finance lease is capitalized at the date of the commencement of the lease term at the present value of the minimum future lease payments or, if lower, at an amount equal to the fair value of the leased asset as determined at the inception of the lease. The corresponding lease obligations, excluding finance charges, are included in either current or long-term financial liabilities. For sale and lease-back transactions, the book value of the related property, plant or equipment remains unchanged. Proceeds from a sale are included as a financing liability and the financing costs are allocated over the term of the lease in such a manner that the costs are reported over the relevant periods. 24 Property, Plant and Equipment

Million CHF 2010 Net book value as at January 1 Change in structure Additions Disposals Transferred from construction in progress Depreciation Impairment loss (charged to statement of income) Currency translation effects Net book value as at December 31 At cost of acquisition Accumulated depreciation/impairment Net book value as at December 31 Net asset value of leased property, plant and equipment Of which pledged/restricted 2009 Net book value as at January 1 Change in structure Additions Disposals Transferred from construction in progress Depreciation Impairment loss (charged to statement of income) Currency translation effects Net book value as at December 31 At cost of acquisition Accumulated depreciation/impairment Net book value as at December 31 Net asset value of leased property, plant and equipment Of which pledged/restricted

Furniture, vehicles, Construction tools in progress Machines

Land

Buildings, installations

5,585 67 36 (103) 74 (129) (4)

5,633 14 75 (21) 509 (333) (6)

9,765 4 169 (21) 1,396 (947) (10)

1,512 15 25 (18) 143 (302) (4)

2,998 42 1,516 0 (2,122) 0 (18)

25,493 142 1,821 (163) 0 (1,711) (42)

(473) 5,053 6,037 (984) 5,053 1

(555) 5,316 9,307 (3,991) 5,316 48

(884) 9,472 19,235 (9,763) 9,472 23

(109) 1,262 3,394 (2,132) 1,262 68

(176) 2,240 2,330 (90) 2,240 0

(2,197) 23,343 40,303 (16,960) 23,343 140

Total

210 4,684 707 32 (40) 167 (118) (15)

4,303 52 59 (32) 1,539 (298) (13)

8,169 218 168 (35) 2,006 (875) (21)

1,419 130 39 (39) 239 (312) (3)

4,687 63 2,209 (1) (3,951) 0 (80)

23,262 1,170 2,507 (147) 0 (1,603)

168 5,585 6,602 (1,017) 5,585 0

23 5,633 9,746 (4,113) 5,633 55

135 9,765 19,659 (9,894) 9,765 31

39 1,512 3,615 (2,103) 1,512 91

71 2,998 3,079 (81) 2,998 0

436 25,493 42,701 (17,208) 25,493

(132)

177 333

Property, Plant and Equipment (IAS 16)

123

The net book value of CHF 23,343 million (2009: 25,493) represents 57.9 percent (2009: 59.7) of the original cost of all assets. At December 31, 2010, the fire insurance value of property, plant and equipment amounted to CHF 33,912 million (2009: 36,144). Net gains on sale of property, plant and equipment amounted to CHF 66 million (2009: 55). In 2010, the impairment loss relates primarily to plants in Hungary, Spain and India and is included in production cost of goods sold in the statement of income. Included in land, buildings and installations is investment property with a net book value of CHF 87 million (2009: 94). The fair value of this investment property amounted to CHF 87 million (2009: 117). Rental income related to investment property amounted to CHF 2 million (2009: 3).

Telstra Corporation Limited and Controlled Entities Annual Report 2010 (in $ millions) Notes to the financial statements 1.

Basis of Preparation

1.1 Basis of Preparation of the Financial Report This financial report is a general purpose financial report prepared in accordance with the requirements of the Australian Corporations Act 2001 and Accounting Standards applicable in Australia. This financial report also complies with International Financial Reporting Standards and Interpretations published by the International Accounting Standards Board. 2.

Summary of Accounting Policies

2.10 Property, Plant and Equipment (a) Acquisition Items of property, plant and equipment are recorded at cost and depreciated as described in note 2.10 (b). The cost of our constructed property, plant and equipment includes: • • •

The cost of material and direct labour; An appropriate proportion of direct and indirect overheads; and Where we have an obligation for removal of the asset or restoration of the site, an estimate of the cost of restoration or removal if that cost can be reliably estimated.

Where settlement of any part of the cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of acquisition. The unwinding of this discount is recorded within finance costs. We account for our assets individually where it is practical and feasible and in line with commercial practice. Where it is not practical and feasible, we account for assets in groups. Group assets are automatically removed from our financial statements on reaching the group life. Therefore, any individual asset may be physically retired before or after the group life is attained. This is the case for certain communication assets as we assess our technologies to be replaced by a certain date. (b) Depreciation Items of property, plant and equipment, including buildings and leasehold property, but excluding freehold land, are depreciated on a straight line basis to the income statement over their estimated service lives. We start depreciating assets when they are installed and ready for use. The service lives of our significant items of property, plant and equipment are as follows:

Property, plant and equipment Buildings Buildings Fit outs Leasehold improvements Communication assets Network land and buildings Network support infrastructure Access fixed Access mobile

As at 30 June 2010 2009 Service life (years) Service life (years) 53 – 55 10 – 20 7 – 40

55 10 – 20 8 – 40

5 – 55 4 – 52 4 – 30 4 – 16

5 – 55 4 – 52 4 – 25 3 – 16

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124

Property, plant and equipment Content/IP products - core . Core network - data Core network - switch Core network - transport Specialised premise equipment International connect Managed service Network control layer Network product Other plant and equipment IT equipment Motor vehicles/trailer/caravan/huts Other plant and equipment

As at 30 June 2010 2009 Service life (years) Service life (years) 5 – 10 5 – 10 4–8 4–8 2 – 22 5 – 23 3 – 30 6 – 30 3–8 3–8 7 – 15 6 – 15 9 – 10 9 – 10 4 – 11 3 – 11 3 – 12 3–9 3–5 3 – 15 2 – 20

3–5 3 – 14 4 – 20

The service lives and residual values of our assets are reviewed each year. We apply management judgment in determining the service lives of our assets. This assessment includes a comparison with international trends for telecommunication companies, and in relation to communication assets, includes a determination of when the asset may be superseded technologically or made obsolete. The net effect of the reassessment of service lives for fiscal 2010 was a decrease in our depreciation expense of $124 million (2009: $92 million decrease) for the Telstra Group. Our major repairs and maintenance expenses relate to maintaining our exchange equipment and the customer access network. We charge the cost of repairs and maintenance, including the cost of replacing minor items which are not substantial improvements, to operating expenses. 13. Property, Plant and Equipment Telstra Group As at 30 June 2010 2009 $m $m Land and site improvements At cost Buildings (including leasehold improvements) At cost Accumulated depreciation/impairment. Communication assets (including leasehold improvements) At cost Accumulated depreciation/impairment Communication assets under finance lease At cost Accumulated depreciation/impairment. Other plant, equipment and motor vehicles At cost Accumulated depreciation/impairment. Equipment under finance lease At cost Accumulated depreciation/impairment Total property, plant and equipment At cost Accumulated depreciation/impairment

41

29

1,013 (546) 467

1,049 (553) 496

53,814 (32,137) 21,677

52,616 (30,154) 22,462

624 (536) 88

858 (673) 185

1,584 (963) 621

1,560 (837) 723

57,076 (34,182) 22,894

17 (17) 56,129 (32,234) 23,895

Property, Plant and Equipment (IAS 16)

125

Total Other plant, Communication equipment property, Communication assets under and motor plant and Land and site (a) (b) (c) assets vehicles equipment finance lease improvements Buildings $m $m $m $m $m $m Written down value at 1 July 2008 - additions - acquisitions through business combinations - disposals - disposals through sale of a controlled entity - impairment losses - depreciation expense - net foreign currency exchange differences - other Written down value at 30 June 2009 - additions - acquisitions through business combinations - disposals - disposals through sale of a controlled entity - impairment losses - depreciation expense - transfer to assets held for sale - net foreign currency exchange differences - other Written down value at 30 June 2010 (a) (b)

31 -

484 107

22,849 2,863

231 -

716 205

24,311 3,175

-

-

1

-

1

2

(2)

(7)

(33)

-

(3)

(45)

-

-

-

(7)

(7)

-

(4) (93)

(46)

(3) (189)

(23) (3,624)

-

5

91

-

-

96

-

4

3

-

3

10

29

496

22,462

185

723

23,895

14

56

2,326

-

126

2,522

-

-

-

-

1

1

(2)

(5)

(8)

-

(3)

(18)

-

-

-

-

(1)

(1)

-

(1) (73)

(47)

(1) (216)

(40) (3,440)

-

-

-

(7)

(7)

-

(6)

(12)

-

(2)

(20)

-

-

51

(50)

1

2

41

467

21,677

88

621

22,894

(16) (3,296)

(38) (3,104) -

Includes leasehold improvements. Includes certain network land and buildings which are essential to the operation of our communication assets.

(c)

Includes $44 million of capitalised borrowing costs directly attributable to qualifying assets. We have applied the revised AASB 123: “Borrowing Costs” prospectively for any new capital expenditure on qualifying assets incurred from 1 July 2009. Work in progress As at 30 June 2010, the Telstra Group has property, plant and equipment under construction amounting to $1,293 million (2009: $1,567 million). As these assets are not installed and ready for use, there is no depreciation being charged on these amounts.

Ericsson Annual Report 2010 (SEK million) Notes to the consolidated financial statements C1 Significant accounting policies The consolidated financial statements for the year ended December 31, 2010, have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU and RFR 1 “Additional rules for Group Accounting”, related interpretations issued by the Swedish Financial Reporting Board and the Swedish Annual Accounts Act. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is charged to income, generally on a straight-line basis, over the estimated useful life of each component of an item of property, plant and equipment, including buildings. Estimated useful lives are, in general, 25–50 years for real estate and 3–10 years for machinery and equipment. Depreciation

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and any impairment charges are included in Cost of sales, Research and development or Selling and administrative expenses. The Company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing a component and derecognizes the residual value of the replaced component. Impairment testing as well as recognition or reversal of impairment of property, plant and equipment is performed in the same manner as for intangible assets other than goodwill, see description under “Intangible assets other than goodwill” above. Gains and losses on disposals are determined by comparing the proceeds less cost to sell with the carrying amount and are recognized within other operating income and expenses in the income statement. C11 Property, Plant and Equipment 2010 Construction in Other Machinery and process and other technical equipment, tools and installations advance payments Total assets Real estate Accumulated acquisition costs Opening balance Additions Balances regarding divested/ acquired businesses Sales/disposals Reclassifications Translation difference Closing balance Accumulated depreciation Opening balance Depreciation Balances regarding divested businesses Sales/disposals Reclassifications Translation difference Closing balance Accumulated impairment losses Opening balance Impairment losses Reversals of impairment losses Sales/disposals Translation difference Closing balance Net carrying value

4,217 283 14

5,298 411 4

18,087 1,480 473

578 1,512 –5

28,180 3,686 486

–102 87 –261 4,238

–543 190 –356 5,004

–1,449 817 –832 18,576

–148 –1,094 –29 814

–2,242 – –1,478 28,632

–1,692 –361 –2

–3,557 –629 –3

–13,058 –2,309 –297

– – –

–18,307 –3,299 –302

60 4 122 –1,869

553 9 250 –3,377

1,384 –13 598 –13,695

– – – –

1,997 – 970 –18,941

–45 – – – 2 –43 2,326

–91 –6 – – 2 –95 1,532

–131 –3 12 – 3 –119 4,762

– – – – – – 814

–267 –9 12 – 7 –257 9,434

Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2010, amounted to SEK 303 (236) million. The reversal of impairment losses have been reported under Cost of sales.

Property, Plant and Equipment (IAS 16)

127

Property, Plant and Equipment 2009 Construction in Other Machinery and process and other technical equipment, tools and installations advance payments Total assets Real estate Accumulated acquisition costs Opening balance Additions Balances regarding divested/ acquired businesses Sales/disposals Reclassifications Translation difference Closing balance Accumulated depreciation Opening balance Depreciation Balances regarding divested businesses Sales/disposals Reclassifications Translation difference Closing balance Accumulated impairment losses Opening balance Impairment losses Reversals of impairment losses Sales/disposals Translation difference Closing balance Net carrying value

4,054 362

6,131 657

18,058 1,699

795 1,288

29,038 4,006

–

–183

–95

–1

–279

–282 240 –157 4,217

–1,241 151 –217 5,298

–2,184 947 –338 18,087

–148 –1,338 –18 578

–3,855 – –730 28,180

–1,545 –303

–4,211 –735

–12,967 –2,512

– –

–18,723 –3,550

–

112

191

–

303

174 –75 57 –1,692

1,188 –51 140 –3,557

1,873 126 231 –13,058

– – – –

3,235 – 428 –18,307

–47 – – – 2 –45 2,480

–125 – 33 – 1 –91 1,650

–148 –1 16 – 2 –131 4,898

– – – – – – 578

–320 –1 49 – 5 –267 9,606

Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2009, amounted to SEK 236 (229) million. The reversal of impairment losses have been reported under Cost of sales.

Imperial Tobacco Group Annual Report 2010 (£ million) Notes to the Financial Statements Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations as adopted by the European Union (collectively IFRS) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Property, Plant and Equipment Property, plant and equipment are initially recognised in the balance sheet at historical cost unless they are acquired as part of a business combination, in which case they are initially recognised at fair value. They are shown in the balance sheet at historical cost or fair value (depending on how they are acquired), less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the assets’ carrying amounts or recognised as a separate asset as appropriate only when it is probable that future economic benefits associated with them will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement as incurred.

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Land is not depreciated. Depreciation is provided on other property, plant and equipment so as to write off the initial cost of each asset to its residual value over its estimated useful life as follows: Buildings Plant and equipment Fixtures and motor vehicles

- up to 50 years - 2 – 20 years - 2 – 14 years

-

straight line straight line/reducing balance straight line

The assets’ residual values and useful lives are reviewed and, if appropriate, adjusted at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the income statement. 10 Property, Plant and Equipment 2010 £ million Cost At 1 October 2009 Additions Disposals Reclassifications Exchange movements At 30 September 2010 Depreciation and impairment At 1 October 2009 Depreciation charge for the year Impairment Disposals Reclassifications Exchange movements At 30 September 2010 Net book value At 30 September 2010

Property

Plant and equipment

Fixtures and motor vehicles

1,147 14 (9) 13 (52) 1,113

1,375 197 (46) (17) (17) 1,492

379 58 (18) 4 (13) 410

2,901 269 (73) – (82) 3,015

65 14 43 (1) – (3) 118

647 99 2 (15) (7) (6) 720

179 40 – (15) 7 (5) 206

891 153 45 (31) – (14) 1,044

995

772

204

1,971

Total

The net book value above includes land and buildings of £37 million (2009: £59 million) held under a finance lease. The impairment charge in 2010 relates mainly to reductions in the carrying value of surplus property acquired through the Altadis acquisition to reflect current property market conditions, which have been treated as restructuring costs. 2009 £ million Cost At 1 October 2008 Additions Disposals Reclassifications Exchange movements At 30 September 2009 Depreciation and impairment At 1 October 2008 Depreciation charge for the year Impairment Disposals Exchange movements At 30 September 2009 Net book value At 30 September 2009

Property

Plant and equipment

Fixtures and motor vehicles

1,042 13 (29) (10) 131 1,147

1,198 173 (49) – 53 1,375

305 59 (20) 10 25 379

2,545 245 (98) – 209 2,901

24 14 23 (3) 7 65

558 98 (8) (14) 13 647

143 40 – (13) 9 179

725 152 15 (30) 29 891

1,082

728

200

2,010

Land and buildings at net book value £ million Freehold Leasehold

2010 944 51 995

2009 1,011 71 1,082

No assets (2009: net book value of nil) are pledged as security for liabilities.

Total

Property, Plant and Equipment (IAS 16)

129

Lufthansa Annual Report 2010 (in € millions) Notes to consolidation and accounting policies International Financial Reporting Standards (IFRS) and Interpretations (IFRIC) applied The consolidated financial statements of Deutsche Lufthansa AG, Cologne, and its subsidiaries have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), taking account of interpretations by the International Financial Reporting Interpretations Committee (IFRIC) as applicable in the European Union (EU). 2 Summary of Significant Accounting Policies and Valuation Methods and Estimates Used as a Basis for Measurement Property, Plant and Equipment Tangible assets used in business operations for longer than one year are valued at cost less regular straight-line depreciation. The cost of production includes all costs directly attributable to the manufacturing process as well as appropriate portions of the indirect costs relating to this process. As a result of last year’s amendment to IAS 23, borrowing costs are now capitalised if they are incurred in close connection with the financing of the acquisition or production of a qualifying asset. In the reporting year borrowing costs of EUR 2m were capitalised. The useful lives applied to tangible assets correspond to their estimated/expected useful lives in the Group. New aircraft and spare engines are depreciated over a period of twelve years to a residual value of 15 percent. A useful life of between 20 and 45 years is assumed for buildings, whereby buildings, fixtures and fittings on rented premises are depreciated according to the terms of the lease or over a shorter useful life. Depreciation rates are mainly between 10 and 20 percent per annum. A useful life of up to ten years is fixed for plant and machinery. Operating and office equipment is depreciated over three to ten years in normal circumstances. Assets acquired second-hand are depreciated over their expected remaining useful life. 19 Property, Plant and Other Equipment

in €m Cost as of 1.1.2009 Accumulated depreciation Carrying amount 1.1.2009 Currency translation differences Additions due to changes in consolidation Additions Reclassifications Disposals due to changes in consolidation Disposals Reclassifications to assets held for sale Depreciation Reversal of impairment losses Carrying amount 31.12.2009

Land and buildings 1,982 – 795 1,187 2

Technical Other equipment, Advance payments and plant under equipment and operating and construction Total machinery office equipment 925 1,178 191 4,276 – 666 – 883 –1 – 2,345 259 295 190 1,931 0* 0* 0* 2

152

27

24

8

211

68 120 –

43 30 –

97 31 –

53 – 184 –

261 –3 –

– 13 –

–5 –

–2 –

–2 –

– 22 –

– 72 –

– 49 –

– 102 –

– –

– 223 –

1,444

305

343

65

2,157

Wiley International Trends in Financial Reporting under IFRS

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in €m Cost as of 1.1.2010 Accumulated depreciation Carrying amount 1.1.2010 Currency translation differences Additions due to changes in consolidation Additions Reclassifications Disposals due to changes in consolidation Disposals Reclassifications to assets held for sale Depreciation Reversal of impairment losses Carrying amount 31.12.2010 Cost as of 31.12.2010 Accumulated depreciation

Land and buildings 2,297 – 853 1,444 18

Technical Other equipment, Advance payments and plant under equipment and operating and construction Total machinery office equipment 1,008 1,218 65 4,588 – 703 – 875 – – 2,431 305 343 65 2,157 7 6 1 32

13

2

6

0*

21

16 18 –

24 11 –

87 25 –

46 – 64 –

173 – 10 –

–5 –

–4 –

–8 –

–4 –

– 21 –

– 77 1

– 52 –

– 104 –

– –

– 233 1

1,428 2,372 – 944

293 1,015 – 722

355 1,265 – 910

44 44 –

2,120 4,696 – 2,576

Rounded below EUR 1m.

Charges of EUR 21m (previous year: EUR 26m) exist over land and property. As in the previous year, pre-emption rights are registered for land held at EUR 251m (previous year: EUR 259m). Other property, plant and equipment carried at EUR 39m (previous year: EUR 40m) serves as collateral for existing financing arrangements. Miscellaneous equipment carried at EUR 192m (previous year: EUR 203m) was also acquired by means of finance leases, The following items of property, plant and equipment have been ordered, but are not yet at the Group’s economic disposal: in €m Land and buildings Technical equipment Operating and office equipment

31.12.2010 2 23 35 60

31.12.2009 3 13 21 37

Chapter 12 BORROWING COSTS (IAS 23)

1.

OBJECTIVE

1.1 This Standard prescribes the accounting treatment for borrowing costs. It does not deal with the actual or imputed cost of owners’ equity, including preferred capital that is not classified as a liability. 2.

SYNOPSIS OF THE STANDARD The summary of this Standard and the key terms defined therein are presented next.

2.1 This Standard defines borrowing costs as interest and other costs that are incurred by an entity in connection with the borrowing of funds. 2.2 The borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset should be capitalized as part of the cost of that asset only when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. 2.2.1 A qualifying asset is an asset that takes a substantial period of time to get it ready for its intended use or sale. Therefore, assets that are already ready for their intended use or sale or that can be purchased readily are not qualifying assets. 2.2.2 In case an entity specifically borrows funds for the purpose of obtaining a particular qualifying asset (“specific borrowing”), the amount of borrowing costs that are eligible for capitalization is the amount of actual borrowing costs incurred on such borrowing during the period, less any income earned on the temporary investment of those borrowings. 2.2.3 In case funds that are borrowed generally (“general borrowing”) are used for the purpose of obtaining a qualifying asset, the amount of borrowing costs that is eligible for capitalization should be determined by applying a capitalization rate to the expenditure on that asset. 2.2.4 The capitalization rate in such cases should be the weighted-average of the borrowing costs applicable to the general borrowings of the entity that are outstanding during the period. 2.2.5 The amount of borrowing costs capitalized during a period should not exceed the actual amount of borrowing costs incurred during that period. 131

Wiley International Trends in Financial Reporting under IFRS

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2.3 All other borrowing costs should be recognized as an expense in the period in which they are incurred. 2.4 The commencement of capitalization of borrowing costs as part of the cost of a qualifying asset shall be when all the next conditions are satisfied: • Expenditure for the acquisition, construction or production of a qualifying asset is being incurred; • Borrowing costs are being incurred; and • Activities that are necessary to prepare the asset for its intended use or sale are in progress. 2.5 The capitalization of borrowing costs should be suspended during extended periods in which active development is interrupted. This will depend on the facts of each situation. An example of a situation in which capitalization of borrowing costs should be suspended is when the construction activity of a building is stopped on account of the economic downturn. 2.6 Capitalization of borrowing costs should cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale is complete. When the construction of a qualifying asset is completed in parts and a completed part is able to be used, capitalization of borrowing costs in relation to that part should cease although construction continues for the other parts. 2.7 In case the carrying amount or the expected ultimate cost of the qualifying asset exceeds its recoverable amount or net realizable value, the carrying amount to be written down or written off in accordance with the requirements of other Standards. 3.

DISCLOSURE REQUIREMENTS

3.1

The financial statements should disclose • The amount of borrowing costs capitalized during the period; and • The rate of capitalization used to determine the amount of borrowing costs that are eligible for capitalization.

EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Anheuser-Busch InBev Annual Report 2010 (in US $ millions) Notes to the consolidated financial statements 2. Statement of Compliance The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and in conformity with IFRS as adopted by the European Union up to 31 December 2010 (collectively “IFRS”). AB InBev did not apply any European carve-outs from IFRS. AB InBev has not applied early any new IFRS requirements that are not yet effective in 2010. 3. Summary of Significant Accounting Policies (J) Property, Plant and Equipment Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses (refer accounting policy P). Cost includes the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management (e.g. non refundable tax and transport cost). The cost of a self constructed asset is determined using the same principles as for an acquired asset. The depreciation methods, residual value, as well as the useful lives are reassessed and adjusted if appropriate, annually. Borrowing cost directly attributable to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of such assets.

Borrowing Costs (IAS 23)

133

(U) Interest-Bearing Loans and Borrowings Interest-bearing loans and borrowings are recognized initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortized cost with any difference between the initial amount and the maturity amount being recognized in the income statement (in accretion expense) over the expected life of the instrument on an effective interest rate basis. (Y) Expenses Finance costs Finance costs comprise interest payable on borrowings, calculated using the effective interest rate method, foreign exchange losses, gains on currency hedging instruments offsetting currency losses, results on interest rate hedging instruments, losses on hedging instruments that are not part of a hedge accounting relationship, losses on financial assets classified as trading, impairment losses on available-for-sale financial assets as well as any losses from hedge ineffectiveness. All interest costs incurred in connection with borrowings or financial transactions are expensed as incurred as part of finance costs. Any difference between the initial amount and the maturity amount of interest-bearing loans and borrowings, such as transaction costs and fair value adjustments, are being recognized in the income statement (in accretion expense) over the expected life of the instrument on an effective interest rate basis (refer accounting policy U). The interest expense component of finance lease payments is also recognized in the income statement using the effective interest rate method. 11. Finance Cost and Income Recognized in profit or loss Finance costs Million US dollar Interest expense Capitalization of borrowing costs Accretion expense Net losses on hedging instruments that are not part of a hedge accounting relationship Net losses from hedge ineffectiveness Tax on financial transactions Other financial costs, including bank fees Non-recurring finance costs

2010 (3,065) 35 (159) – – (30) (117) (3,336) (925) (4,261)

2009 (3,522) 4 (381) (46) (46) (25) (121) (4,137) (625) (4,766)

Borrowing costs capitalized relate to the capitalization of interest expenses directly attributable to the acquisition and construction of qualifying assets mainly in Brazil. Interests are capitalized at a borrowing rate ranging between 6% and 12.5%. 24. Interest-Bearing Loans and Borrowings This note provides information about the company’s interest-bearing loans and borrowings. Non-current liabilities Million US dollar Secured bank loans Unsecured bank loans Unsecured bond issues Secured other loans Unsecured other loans Finance lease liabilities

2010 105 9,141 32,562 6 72 75 41,961

2009 53 18,616 28,126 6 204 44 47,049

2010 32 1,898 777 – 172 40 2,919

2009 30 1,559 387 14 19 6 2,015

Current liabilities Million US dollar Secured bank loans Unsecured bank loans Unsecured bond issues Secured other loans Unsecured other loans Finance lease liabilities

The current and non-current interest-bearing loans and borrowings amount to 44880m US dollar as of 31 December 2010, compared to 49064m US dollar as of 31 December 2009.

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To finance the acquisition of Anheuser-Busch, AB InBev entered into a 45 billion US dollar senior debt facilities agreement (of which 44 billion US dollar was ultimately drawn) and a 9.8 billion US dollar bridge facility agreement, enabling the company to consummate the acquisition, including the payment of 52.5 billion US dollar to shareholders of Anheuser-Busch, refinancing certain Anheuser-Busch indebtedness, payment of all transaction charges, fees and expenses and accrued but unpaid interest to be paid on Anheuser-Busch’s outstanding indebtedness, which together amounted to approximately 54.8 billion US dollar. On 18 December 2008, AB InBev repaid the debt it had incurred under the bridge facility with the net proceeds of the rights offering and cash proceeds it received from pre-hedging the foreign exchange rate between the euro and the US dollar in connection with the rights offering. As of 31 December 2009 the amounts outstanding under AB InBev’s 45 billion US dollar senior debt facilities had been reduced to17.2 billion US dollar. In 2010, AB InBev fully refinanced the debt incurred under the senior facility with the proceeds of new senior credit facilities and debt capital market offerings as shown below. •

•

On 26 February 2010, AB InBev obtained 17.2 billion US dollar in long-term bank financing. The new financing consisted of a 13.0 billion US dollar senior credit facilities agreement (“2010 senior facilities”) comprising a 5.0 billion US dollar term loan maturing in 2013 and a 8.0 billion US dollar multi-currency revolving credit facility maturing in 2015 bearing interest at a floating rate equal to LIBOR (or EURIBOR for euro-denominated loans) plus 1.175% and 0.975%, respectively; and 4.2 billion US dollar in long-term bilateral facilities that was subsequently canceled on 31 March 2010. On 24 March 2010, AB InBev issued four series of notes in an aggregate principal amount of 3.25 billion US dollar, consisting of 1.0 billion US dollar aggregate principal of notes due , 0.75 billion US dollar aggregate principal of notes due 2015 and 1.0 billion US dollar aggregate principal of notes due 2020 bearing interest at a rate of 2.3%,3.625% and 5.0% respectively and a note consisting of 0.5 billion US dollar aggregate principal of notes due 2013 and bearing an interest at a floating rate of 3 month US dollar LIBOR plus 0.73 %.

As of 6 April 2010, AB InBev had fully repaid the remaining balance under the 45 billion US dollar senior debt facilities from proceeds from the 2010 senior facilities, proceeds from the March 2010 bond issuance, cash generated from operations, proceeds of disposal activities and from draw downs from existing loan facilities. In addition to the above, AB InBev continued to refinance and repay its obligations under the 2010 senior facilities by using cash generated from operations, proceeds of disposal activities, draw downs from existing loan facilities and by using the proceeds of the following capital market offerings: • • •

On 10 April 2010, AB InBev issued notes from its European Medium Term Note program in an aggregate principal amount of 750m euro due 2018 bearing interest at a fixed rate of 4.0%. On 10 November 2010, AB InBev issued a Brazilian real linked series of notes in an aggregate principal amount of 750m Brazilian real due 2015, bearing an interest at a rate of 9.750%. On 8 December 2010, AB InBev issued a series of notes in an aggregate principal amount of 600m Canadian dollar due 2016, bearing an interest at a rate of 9.750%.

As of 31 December 2010, the outstanding balance of the 2010 senior facilities amounted to 4410 million US dollar. The interest rate on the outstanding 2010 senior facilities have effectively been fixed through a series of hedge arrangements. Terms and debt repayment schedule at 31 December 2010 Million US dollar Secured bank loans Unsecured bank loans Unsecured bond issues Secured other loans Unsecured other loans Finance lease liabilities

Total 137 11,039 33,339 6 244 115 44,880

1 year or less 32 1,898 777 – 171 40 2,918

1-2 years 58 3,993 3,878 – 13 5 7,947

2-3 years 29 4,611 3,311 6 14 1 7,972

3-5 years 12 525 7,912 – 23 2 8,474

More than 5 years 6 12 17,461 – 23 67 17,569

Borrowing Costs (IAS 23)

135

Terms and debt repayment schedule at 31 December 2009 Million US dollar Secured bank loans Unsecured bank loans Unsecured bond issues Secured other loans Unsecured other loans Finance lease liabilities

Total 83 20,175 28,513 20 223 50 49,064

1 year or less 30 1,559 387 14 19 6 2,015

1-2 years 22 5,648 819 – 104 4 6,597

2-3 years 16 427 3,784 – 14 4 4,245

3-5 years 15 12,416 6,684 6 26 1 19,148

More than 5 years – 125 16,839 – 60 35 17,059

2009 Payments 9

2009 Interests 3

2009 Principal 6

Finance lease liabilities Million US dollar Less than one year Between one and two years Between two and three years Between three and five years More than five years

2010 Payments 48

2010 Interests 8

2010 Principal 40

12

7

5

7

3

4

7

6

1

6

2

4

14

12

2

5

4

1

118 199

51 84

67 115

99 126

64 76

35 50

AB InBev’s net debt decreased to 39704 m US dollar as of 31 December 2009, from 45174 m US dollar as of 31 December 2009. Net debt is defined as non-current and current interest-bearing loans and borrowings and bank overdrafts minus debt securities and cash. Net debt is a financial performance indicator that is used by AB InBev’s management to highlight changes in the company’s overall liquidity position. The company believes that net debt is meaningful for investors as it is one of the primary measures AB InBev’s management uses when evaluating its progress towards deleveraging. The following table provides a reconciliation of AB InBev’s net debt as of the dates indicated: Million US dollar Non-current interest-bearing loans and borrowings Current interest-bearing loans and borrowings Bank overdrafts Cash and cash equivalents Interest-bearing loans granted (included within Trade and other receivables) Debt securities (included within Investment securities) Net debt

2010 41,961 2,919 44,880 14 (4,511)

2009 47,049 2,015 49,064 28 (3,689)

(38)

(48)

(641) 39,704

(181) 45,174

Apart from operating results net of capital expenditures, the net debt is mainly impacted by dividend payments to shareholders of AB InBev and AmBev (1924m US Dollar); the payment of interest and taxes (4450m US dollar); and the impact of changes in foreign exchange rates (725m US dollar decrease of net debt).

BP Group Annual Report 2010 (in US $ millions) Notes on financial statements 1.

Significant Accounting Policies

Basis of Preparation The consolidated financial statements have been prepared in accordance with IFRS and IFRS Interpretations Committee (IFRIC) interpretations issued and effective for the year ended 31 December 2010, or issued and early adopted. Property, Plant and Equipment Property, plant and equipment is stated at cost, less accumulated depreciation and accumulated impairment losses.

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The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligation, if any, and, for qualifying assets, borrowing costs. Finance Costs Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other finance costs are recognized in the income statement in the period in which they are incurred. 18. Finance Costs $ million Interest payable Capitalized at 2.75% (2009 2.75% and 2008 4.00%) a Unwinding of discount on provisions b Unwinding of discount on other payables b a b

2010 955 (254) 234 235 1,170

2009 906 (188) 247 145 1,110

2008 131 (162) 28 103 1,547

A Tax relief on capitalized interest is $71 million (2009 $63 million and 2008 $42 million). Unwinding of discount on provisions relating to the Gulf of Mexico oil spill was $4 million and unwinding of discount on other payables relating to the Gulf of Mexico oil spill was $73 million.

35. Finance Debt $ million Borrowings Net obligations under finance leases Disposal deposits Disposal deposits

Current 8,312 117 8,429 6,197 14,626

Noncurrent 30,017 693 30,710 30,710

2010 Total 38,329 810 39,139 6,197 45,336

Current 9,018 91 9,109 9,109

Noncurrent 25,020 498 25,518 25,518 25,518

2009 Total 34,038 589 34,627 34,627

Current finance debt includes the portion of long-term debt that will mature in the next 12 months, amounting to $6,976 million (2009 $3,965 million). Deposits for disposal transactions expected to complete in 2011 of $6,197 million (2009 nil) are also included. This debt will be considered extinguished on completion of the transactions. Current finance debt also includes US Industrial Revenue/Municipal bonds of $379 million (2009 $2,895 million) with earliest contractual repayment dates within one year, and the 2009 balance included $1,622 million for loans associated with long-term gas supply contracts backed by gas pre-paid bonds. The bondholders typically have the option to tender these bonds for repayment on interest reset dates with any bonds that are tendered being remarketed. The reduction in current finance debt in 2010 attributable to such bonds largely reflects the unsuccessful remarketing of the bonds during the year. BP has repaid $2,460 million of US Industrial Revenue/Municipal bonds and at 31 December 2010 either held or had retired the bonds. All of the outstanding bonds associated with long-term gas supply contracts, amounting to $1,527 million were held by BP with the liability now recorded within other payables on the balance sheet and the bonds recorded within other current investments. At 31 December 2010 $790 million (2009 $113 million) of finance debt was secured by the pledging of assets, and $4,780 million was secured in connection with deposits received relating to certain disposal transactions expected to complete in 2011 (2009 nil). In addition, in connection with $4,588 million (2009 nil) of finance debt, BP has entered into crude oil sales contracts in respect of oil produced from certain fields in offshore Angola and Azerbaijan to provide security to the lending banks. The remainder of finance debt was unsecured. The following table shows, by major currency, the group’s finance debt at 31 December and the weighted average interest rates achieved at those dates through a combination of borrowings and derivative financial instruments entered into to manage interest rate and currency exposures. The disposal deposits noted above are excluded from this analysis.

Borrowing Costs (IAS 23)

137

Weighted average interest rate %

Weighted average interest rate %

Weighted average time for which rate is fixed Years

US dollar Euro Other currencies

4 4 6

5 3 18

14,797 53 140 14,990

1 2 4

21,076 2,988 85 24,149

Total Amount $ million 2010 35,873 3,041 225 39,139

US dollar Euro Other currencies

4 4 6

4 2 14

12,525 63 171 12,759

1 2 3

20,566 1,199 103 21,868

2009 33,091 1,262 274 34,627

Fixed rate debt Amount $ million

Floating rate debt Amount $ million

The Euro debt not swapped to US dollar is naturally hedged for the foreign currency risk by holding equivalent Euro cash and cash equivalent amounts. Fair Values The estimated fair value of finance debt is shown in the table below together with the carrying amount as reflected in the balance sheet. Long-term borrowings in the table below include the portion of debt that matures in the year from 31 December 2010, whereas in the balance sheet the amount would be reported within current finance debt. The disposal deposits noted above are excluded from this analysis. The carrying amount of the group’s short-term borrowings, comprising mainly commercial paper, bank loans, overdrafts and US Industrial Revenue/Municipal bonds, approximates their fair value. The fair value of the group’s long-term borrowings and finance lease obligations is estimated using quoted prices or, where these are not available, discounted cash flow analyses based on the group’s current incremental borrowing rates for similar types and maturities of borrowing. 2010 Fair value

$ million Short term borrowings Long term borrowings Net obligations under finance leases Total finance debt

1,453 37,600 928 39,981

Carrying amount 1,453 36,876 810 39,139

2009 Fair value

Carrying amount

5,144 29,918 599 35,661

5,144 28,894 589 34,627

Telstra Corporation Limited and Controlled Entities Annual Report 2010 (in $ millions) Notes to the financial statements 1.

Basis of Preparation

1.1 Basis of Preparation of the Financial Report This financial report is a general purpose financial report prepared in accordance with the requirements of the Australian Corporations Act 2001 and Accounting Standards applicable in Australia. This financial report also complies with International Financial Reporting Standards and Interpretations published by the International Accounting Standards Board. 2.

Summary of Accounting Policies

2.15 Borrowings Borrowings are included as non-current liabilities except for those with maturities less than twelve months from the balance date, which are classified as current liabilities. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. All other borrowing costs are recognised as an expense in our income statement when incurred.

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Our borrowings fall into two categories: (a) Borrowings in a Designated Hedging Relationship Our offshore borrowings which are designated as hedged items are subject to either fair value or cash flow hedges. The method by which they are hedged determines their accounting treatment. Borrowings subject to fair value hedges are recognised initially at fair value. The carrying amount of our borrowings in fair value hedges (to hedge against changes in value due to interest rate or currency movements) is adjusted for fair value movements attributable to the hedged risk. Fair value is calculated using valuation techniques which utilise data from observable markets. Assumptions are based on market conditions existing at each balance date. The fair value is calculated as the present value of the estimated future cash flows using an appropriate market based yield curve which is independently derived and representative of Telstra’s cost of borrowing. These borrowings are remeasured each reporting period and the gains or losses are recognised in the income statement along with the associated gains or losses on the hedging instrument. Borrowings subject to cash flow hedges (to hedge against currency movements) are recognised initially at fair value based on the applicable spot price plus any transaction costs that are directly attributable to the issue of the borrowing. These borrowings are subsequently carried at amortised cost, translated at the applicable spot exchange rate at reporting date. Any difference between the final amount paid to discharge the borrowing and the initial borrowing proceeds is recognised in the income statement over the borrowing period using the effective interest method. When currency gains or losses on the borrowings are recognised in the income statement, the associated gains or losses on the hedging instrument are also transferred from the cash flow hedging reserve to the income statement. We use management judgement in determining the appropriate yield curve to use in the valuation, to appropriately designate our hedging relationships and to test for effectiveness. (b) Borrowings Not in a Designated Hedging Relationship Borrowings not in a designated hedging relationship include offshore loans, Telstra bonds and domestic loans. All such instruments are initially recognised at fair value plus any transaction costs that are directly attributable to the issue of the instruments and are subsequently measured at amortised cost. Any difference between the final amount paid to discharge the borrowing and the initial borrowing proceeds (including transaction costs) is recognised in the income statement over the borrowing period using the effective interest method. (c) Statement of Cash Flows Presentation Where our short term borrowings have a maturity period of three months or less, we report the cash receipts and subsequent repayments on a net basis in the statement of cash flows. 7. Expenses Finance costs

Note

Telstra Group Year ended 30 June 2010 $m 2009 $m

Finance costs Interest on borrowings Unwinding of discount on liabilities recognised at present value Loss/(gain) on fair value hedges - effective (iii) Loss/(gain) on cash flow hedges - ineffective Gain on transactions not in a designated hedge relationship/dedesignated from fair value hedge relationships (iv) Other Less: interest on borrowings capitalized

17

1,071 21 26 5

1,208 23 (61) (1)

(36) 16 1,103 (73) 1,030

(222) 20 967 967

(iii) We use our cross currency and interest rate swaps as fair value hedges to convert our foreign currency borrowings into Australian dollar floating rate borrowings. In the current year, we have seen our borrowing margins contract reflecting an improvement in financial markets, resulting in a partial reversal of previously recognised gains represented by the $26 million un-

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realised loss for the current year (2009: gain of $61 million). In addition to the contraction in Telstra’s borrowing margins, the following factors have also contributed to the net revaluation loss of $26 million: • • •

An increase in Australian base market rates as at 30 June valuation date; A reduction in the number of future interest flows as we approach maturity of the financial instrument; and Discount factor unwinding as the time to maturity shortens.

It is important to note that in general it is our intention to hold our borrowings and associated derivative instruments to maturity. Accordingly, unrealised revaluation gains and losses will be recognised in our finance costs over the life of the financial instrument and will progressively unwind to nil at maturity. Refer to note 18 for further details regarding our hedging strategies. (iv) A combination of the following factors has resulted in a net unrealised gain of $36 million (2009: gain of $222 million) associated with financial instruments that are either not in a designated hedge relationship or were previously designated in a hedge relationship and no longer qualify for hedge accounting: • • •

The valuation impacts described at (iii) above for fair value hedges; The different measurement bases of the borrowings (measured at amortised cost) and the associated derivatives (measured at fair value); and A net loss of $21 million for the amortisation impact of unwinding previously recognised gains on those borrowings that were dedesignated from hedge relationships.

Notwithstanding that these borrowings and the related derivative instruments do not satisfy the requirements for hedge accounting, they are in effective economic relationships based on contractual face value amounts and cash flows over the life of the transaction. 13. Property, Plant and Equipment Note 13 (c) Property, plant and equipment include $44 million of capitalised borrowing costs directly attributable to qualifying assets. We have applied the revised AASB 123: “Borrowing Costs” prospectively for any new capital expenditure on qualifying assets incurred from 1 July 2009.

J Sainsbury plc Annual Report and Financial Statements 2010 (in £ millions) Notes to the financial statements 2

Accounting Policies

(a) Statement of Compliance The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and International Financial Reporting Interpretations Committee (“IFRICs”) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs. Property, Plant and Equipment Land and Buildings Land and buildings are stated at cost less accumulated depreciation and any recognised impairment loss. Properties in the course of construction are held at cost less any recognised impairment loss. Cost includes directly attributable costs and borrowing costs capitalised in accordance with the Group’s accounting policy. Capitalisation of Interest Interest costs that are directly attributable to the acquisition or construction of qualifying assets are capitalised to the cost of the asset, gross of tax relief.

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6

Finance Income and Finance Costs

Interest on bank deposits and other financial assets IAS 19 pension financing credit (note 30) Finance income Borrowing costs Secured borrowings Unsecured borrowings Obligations under finance leases Provisions — amortisation of discount (note 22) Interest capitalised – qualifying assets IAS 19 pension financing charge (note 30) Financing fair value movements Finance costs

2010 £m 33 33

2009 £m 28 24 52

(75) (47) (3) (2) (127) 15 (24) (12) (148)

(119) (33) (3) (1) (156) 15 (7) (148)

11 Property, Plant and Equipment Interest Capitalised Interest capitalised included in additions amounted to £15 million (2009: £15 million) for the Group and £nil (2009: £nil) for the Company. Accumulated interest capitalised included in the cost of property, plant and equipment net of disposals amounted to £267 million (2009: £255 million) for the Group and £nil (2009: £nil) for the Company. The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 4.0 per cent (2009: 6.5 per cent). 20 Borrowings

Secured loans Loan due 2018 Loan due 2031 Unsecured loans Bank overdrafts Bank loan Term loans due 2015 Convertible bond due 2014 Loan notes Finance lease obligations Total borrowings

Company 2010 Within one year £m Bank overdrafts Bank loan Term loan due 2015 Convertible bond due 2014 Total borrowings

Group 2010 Within one year £m

Group 2010 After one year £m

Group 2010 Total £m

Group 2009 Within one year £m

Group 2009 After one year £m

Group 2009 Total £m

38 15

1,074 861

1,112 876

37 33

1,105 872

1,142 905

3 4

50 142

3 50 146

28 35 12

150

28 35 162

1

171

172

-

-

-

9 3 73

59 2,357

9 62 2,430

8 1 154

2 48 2,177

10 49 2,331

Company 2009 Within one year £m 8 35 -

Company 2009 After one year £m -

Company 2009 Total £m 8 35 -

-

43

Company 2010 Within one year £m 1 1

Company 2010 After one year £m 50 102

Company 2010 Total £m 1 50 103

1

171

172

-

3

323

326

43

Secured Loans Secured loans are secured on 129 (2009: 128) supermarket properties (note 11) and comprise loans from two finance companies: •

A fixed rate amortising loan with an outstanding principal value of £1,100 million (2009: £1,130 million) at a weighted average rate of 4.98 per cent stepping up to 5.36 per cent from April 2013 with an effective interest rate of 5.21 per cent and carrying amount of £1,112 million (2009: £1,142 million) repayable over eight years; and

Borrowing Costs (IAS 23)

•

141

An inflation-linked amortising loan with an outstanding principal value of £850 million (2009: £872 million) at a fixed real rate of 2.36 per cent where principal and interest are uplifted annually by RPI subject to a cap at five per cent and floor at nil per cent with a carrying amount of £876 million (2009: £905 million) repayable over 21 years.

Bank Overdrafts Bank overdrafts are repayable on demand and bear interest at a spread above bank base rate. Bank Loan In May 2009, the Group increased and rolled over a maturing bilateral £35 million bank loan into a new three-year loan of £50 million. Bank Loans Due 2015 In January 2010, the Group restructured its existing £150 million bank loan due 2015 into a new £110 million floating rate bank loan due 2015, leaving a £40 million loan due 2015 based on the original floating rate terms subject to a cap rate. Convertible Bond Due 2014 In July 2009, the Group issued £190 million of unsecured convertible bonds due July 2014. The bonds pay a coupon of 4.25 per cent payable semi-annually. Each bond is convertible into ordinary shares of J Sainsbury plc at any time up to 9 July 2014 with an initial conversion price of 418.5 pence. The Group has entered into interest rate swaps to convert all of the £190 million convertible bond from fixed to floating rates of interest. These transactions have been accounted for as fair value hedges (note 29). The net proceeds of the convertible bond have been split into a liability component of £166 million and an equity component of £24 million. The equity component represents the fair value of the embedded option to convert the bond into ordinary shares of the Company. Face value of the convertible bond issued in July 2009 Equity component Liability component on initial recognition in July 2009 Interest expense Interest paid Other1 Liability component at 20 March 2010 1

2010 £m 190 (24) 166 8 (4) 2 172

2009 £m -

Other relates to fair value movements and fees.

Undrawn Borrowing Facilities The Group maintains three committed revolving credit facilities for standby liquidity purposes including a new £50 million three-year bilateral facility entered into in May 2009. In February 2010, the Group entered into a new five-year €50 million bilateral term loan. At 20 March 2010, no advance had been made under the new bank loan. Expiry of facility £400 million revolving credit facility £163 million revolving credit facility £50 million bilateral revolving credit facility No amounts were drawn down on the facilities at 20 March 2010 (2009: nil).

February 2012 May 2011 May 2012

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Obligations Under Finance Leases Minimum lease payments 2010 £m Amounts payable under finance leases: Within 1 year Within 2 to 5 years inclusive After 5 years Less: future finance charges Present value of lease obligations Disclosed as: Current Non-current

7 25 177 209 (147) 62 3 59 62

Minimum lease payments 2009 £m 3 12 177 192 (143) 49

Present value of minimum lease payments 2010 £m 3 13 46 62

Present value of minimum lease payments 2009 £m 1 1 47 49

1 48 49

Finance leases have effective interest rates of 4.30 per cent to 9.00 per cent (2009: 4.30 per cent to 8.50 per cent). The average remaining lease term is 76 years (2009: 77 years).

Chapter 13 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (IAS 37)

1.

OBJECTIVE

1.1 This Standard ensures that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities, and contingent assets and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing, and amount. This Standard excludes from its scope obligations and contingencies that are covered by other International Financial Reporting Standards (IFRS). 2.

SYNOPSIS OF THE STANDARD

This Standard, which aims to ensure that only present obligations arising from past obligating events (if they meet all criteria of recognition as required by the Standard) are recognized in the financial statements, is summarized next. 2.1

Provision is a liability of uncertain timing or amount.

2.2

An entity must recognize a provision if, and only if • A present obligation (legal or constructive) has arisen as a result of a past event (which should be an “obligating event”), • Outflow of resources is probable (i.e., “more likely than not”), and • The amount to be recognized can be estimated reliably.

2.2.1 An obligating event is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative but to settle the obligation. 2.2.2 A constructive obligation arises if past practice creates a valid expectation on the part of a third party. An example of this is the long-standing policy of a retail store that allows customers to return merchandise within a specified period. 2.3 The amount recognized as a provision should be the best estimate of the expenditure required to settle the present obligation at the reporting date. In other words, it is the amount that an 143

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entity would rationally pay to settle the obligation at the reporting date or to transfer it to a third party. 2.3.1 In determining the best estimate, the entity should take into account the risks and uncertainties that surround the underlying events. The expected cash outflows should be discounted to their present values, in cases in which the effect of the time value of money is material. 2.3.2 In case the expenditure required for settling a provision is expected to be reimbursed by another party in part or full, the reimbursement should be recognized as a reduction of the required provision only when it is certain that the reimbursement will be received if the entity settles the obligation. 2.3.3 In the case of restructuring (as in closure of business locations) provisions should include only direct expenditures related to such restructuring. They should not include costs associated with ongoing activities of the entity. 2.4 The amount of the provision should be reviewed and adjusted at each reporting date. If an outflow is no longer probable, the provision should be reversed to income. 2.5

A contingent liability is: • A possible obligation arising from past events and whose existence depends on whether some uncertain future event occurs, or • A present obligation that arises from past events but payment is not probable or the amount cannot be measured reliably.

2.5.1 Contingent liabilities should not be recognized but should be disclosed unless the probability of an outflow of economic resources is remote, in which case disclosure is not required. 2.6

A contingent asset is • A possible asset that arises from past events, and • Whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise.

2.6.1 Contingent assets should not be recognized but should be disclosed in those cases where an inflow of economic benefits is probable. When the realization of income is virtually certain, the related asset is not a contingent asset and its recognition is appropriate. 3.

DISCLOSURE REQUIREMENTS The next minimum disclosures are required to be made under this Standard.

3.1

Following reconciliation for each class of provision: • • • • • •

3.2

Opening balance Additions Amounts used (i.e., amounts charged against the provision) Amounts released (reversed) Unwinding of the discount Closing balance

Brief description for each class of provision: • • • • •

Nature of the obligation Expected timing of the outflow Uncertainties about the amount or timing of those outflows Assumptions made regarding future events Amount of any expected reimbursement

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145

4. IFRIC 5, RIGHTS TO INTERESTS ARISING FROM DECOMMISSIONING, RESTORATION, AND ENVIRONMENTAL REHABILITATION FUNDS 4.1 Under International Financial Reporting Interpretations Committee (IFRIC) 5, where entities have obligations to decommission assets or to perform environmental restoration or rehabilitation and it contributes to a fund that is established to pay for the obligation, it should apply the provisions of International Accounting Standard (IAS) 27, Consolidated and Separate Financial Statements, Standing Interpretations Committee (SIC) 12, Consolidation—SpecialPurpose Entities, IAS 28, Investments in Associates, and IAS 31, Interests in Joint Ventures, to determine whether decommissioning funds should be consolidated, proportionately consolidated, or accounted for under the equity method. 4.2 In case the fund is not consolidated, proportionately consolidated, or accounted for under the equity method, and the fund does not relieve the contributor of its obligation to pay decommissioning costs, the contributor should recognize its obligation to pay decommissioning costs as a liability and its rights to receive reimbursement from the fund as a reimbursement under IAS 37. 4.3

A right to reimbursement should be measured at the lower of: • The amount of the decommissioning obligation recognized; and • The contributor’s share of the fair value of the net assets of the fund.

4.4 The changes in the carrying amount of this right (other than contributions to and payments from the funds) should be recognized in profit or loss. 4.5 When a contributor has an obligation to make potential additional contributions to the fund, that obligation is a contingent liability within the scope of IAS 37. A provision should be recognized when it becomes probable that the additional contributions will be made. 4.6 IFRIC 5 amends IAS 39 to exclude from its scope rights to reimbursement for an expenditure required to settle a liability recognized as a provision. Such rights will be accounted for in accordance with IAS 37. 5. IFRIC 6, LIABILITIES ARISING FROM PARTICIPATING IN A SPECIFIC MARKET—WASTE ELECTRICAL AND ELECTRONIC EQUIPMENT 5.1 This Interpretation clarifies the event that triggers a liability that is to be recognized under IAS 37 if an entity that is engaged in production of electrical goods has an obligation to contribute to waste management costs relating to the decommissioning of the waste electrical and electronic equipment that are supplied to private households. 5.2 The specific issue that IFRIC 6 addresses is this: What is the event under IAS 37 that gives rise to a liability when an entity has an obligation to contribute to waste management costs based on its share of the market in a measurement period? 5.3 It states that the event of participation in the market during the measurement period gives rise to the liability. 5.4 The measurement period is a period in which market shares are determined for the purposes of allocating waste management costs. IFRIC 6 states that it is this date, rather than the date of production of the equipment or incurrence of costs, that is the triggering event for liability recognition.

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EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 (in £ millions) Notes to the consolidated financial statements 2

Accounting Policies

Basis of Accounting The consolidated financial statements have been prepared in accordance with the requirements of Swiss law and International Financial Reporting Standards (IFRSs), as they apply to the consolidated financial statements for the year ended 31 March 2011. Had the consolidated financial statements been prepared under IFRSs as adopted by the European Union, there would be no material changes to the information presented in these consolidated financial statements. Provisions Provisions are recognised in the statement of financial position when there is a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and that obligation can be measured reliably. If the effect of the time value of money is material, provisions are discounted using a current pretax rate that reflects the risks specific to the liability. 30 Provisions

2011 At 1 April 2010 Acquisitions of businesses Disposals of businesses Provisions created during the year Provisions utilised during the year Provisions released during the year Unwinding of discount on provisions At 31 March 2011 Current Non-current

Restructuring and reorganisation £million 45 – – 48 (30) (1) – 62 45 17 62

Vacant property £million 30 – – 8 (9) – 1 30 11 19 30

Other £million 6 18 (1) 3 (1) – – 25 3 22 25

Total £million 81 18 (1) 59 (40) (1) 1 117 59 58 117

Restructuring and Reorganisation The restructuring and reorganisation provision relates primarily to the restructuring programmes announced in the Pharmaceutical Wholesale Division and in the UK part of the Health & Beauty Division and related contract manufacturing activities respectively. Vacant Property The vacant property provisions represent recognition of the present value of the expected net costs arising from vacant properties and sub-let properties. The exact timing of utilisation of these provisions will vary according to the individual properties concerned. Other The other provision relates mainly to long service award entitlements accrued on a probability-weighted basis. 35 Commitments and Contingent Liabilities Commitments Capital expenditure contracted for at the year-end but not yet incurred was £37 million (2010: £23 million) in respect of property, plant and equipment and software. Contingent Liabilities The Group had aggregate contingent liabilities of £87 million (2010: £14 million), including £25 million for letters of guarantee provided to certain suppliers, a £17 million guarantee provided by Andreae-Noris

Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

147

Zahn AG for certain of its customers and a financial guarantee issued to a third party to underwrite £10 million of loan finance on asset disposals that occurred in a prior year.

Anglo American plc Annual Report 2010 (in US $ millions) Notes to the Financial Statements 1.

Accounting Policies

Basis of Preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations as adopted for use by the European Union, with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and with the requirements of the Disclosure and Transparency rules of the Financial Services Authority in the United Kingdom as applicable to periodic financial reporting. 26. Provisions for liabilities and charges 2010 US $ million At 1 January Charged to the income statement Capitalised Unwinding of discount Amounts applied Unused amounts reversed (3) Transfers Disposal of businesses Currency movements At 31 December (1)

(2)

(3)

Environmental (1) (1) restoration Decommissioning 839 84 (2) (8) 46 (14) (26) (51) (1) 62 931

336 15 18 20 (1) (3) (36) (2) 27 374

Other

Total

617 242 (5) 2 (168) (29) 120 – 28 807

1,792 341 5 68 (183) (58) 33 (3) 117 2,112

The Group makes contributions to controlled funds to meet the cost of some of its environmental restoration and decommissioning liabilities. Amounts capitalised in the environmental restoration provision relate to amounts that will be recovered from third parties when the actual expenditure is incurred. Includes amounts transferred to assets held for sale.

Maturity analysis of total provisions US$ million

2010

2009

Current Non-current

446 1,666 2,112

209 1,583 1,792

Environmental Restoration The Group has an obligation to undertake restoration, rehabilitation and environmental work when environmental disturbance is caused by the development or ongoing production of a mining property. A provision is recognised for the present value of such costs. It is anticipated that these costs will be incurred over a period in excess of 20 years. Decommissioning Provision is made for the present value of costs relating to the decommissioning of plant or other site restoration work. It is anticipated that these costs will be incurred over a period in excess of 20 years. Other Other provisions primarily relate to subsidiaries’ cash settled share-based payments, other employee entitlements (including long service and leave entitlements), indemnities, warranties and legal claims. It is anticipated that these costs will be incurred over a five year period.

148

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34. Contingent Liabilities and Contingent Assets Contingent Liabilities The Group is subject to various claims which arise in the ordinary course of business. Additionally, and as set out in the 2007 demerger agreement, Anglo American and the Mondi Group have agreed to indemnify each other, subject to certain limitations, against certain liabilities. Having taken appropriate legal advice, the Group believes that the likelihood of a material liability arising is remote. At 31 December 2010, the Group and its subsidiaries had provided aggregate amounts of $813 million (2009: $704 million) of loan and performance guarantees to banks and other third parties primarily in respect of environmental restoration and decommissioning obligations. For information relating to contingent liabilities in respect of associates and joint ventures refer to notes 17 and 18 respectively. No contingent liabilities were secured on the assets of the Group at 31 December 2010 or 31 December 2009. Contingent Assets There were no significant contingent assets in the Group at 31 December 2010 or 31 December 2009. Other Kumba Iron Ore Limited (Kumba) Kumba’s Sishen Iron Ore Company (SIOC) notified ArcelorMittal South Africa Limited (ArcelorMittal) on 5 February 2010, that it was no longer entitled to receive 6.25 Mtpa of iron ore contract mined by SIOC at cost plus 3% from Sishen Mine, as a result of the fact that ArcelorMittal had failed to convert its old order mining right. This contract mining agreement, concluded in 2001, was premised on ArcelorMittal owning an undivided 21.4% interest in the mineral rights of Sishen Mine. As a result of ArcelorMittal’s failure to convert its old order mining right, the contract mining agreement automatically lapsed and became inoperative in its entirety as of 1 May 2009. As a result, a dispute arose between SIOC and ArcelorMittal, which SIOC has referred to arbitration. SIOC and ArcelorMittal reached an interim pricing arrangement in respect of the supply of iron ore to ArcelorMittal from Sishen Mine. This arrangement will endure until 31 July 2011. Both parties have exchanged their respective pleadings, and the arbitration panel has been appointed. After ArcelorMittal failed to convert its old order mining right, SIOC applied for the residual 21.4% mining right previously held by ArcelorMittal and its application was accepted by the Department of Mineral Resources (DMR) on 4 May 2009. A competing application for a prospecting right over the same area was also accepted by the DMR. SIOC objected to this acceptance. Notwithstanding this objection, a prospecting right over the 21.4% interest was granted by the DMR to Imperial Crown Trading 289 (Proprietary) Limited (ICT). SIOC initiated a review application in the North Gauteng High Court on 21 May 2010 in relation to the decision of the DMR to grant a prospecting right to ICT. SIOC initiated an application on 14 December 2010 to interdict ICT from applying for a mining right in respect of Sishen Mine and the DMR from accepting an application from ICT, or granting such 21.4% mining right to ICT pending the final determination of the review application. This application is currently pending. The DMR informed SIOC on 12 January 2011 that ICT had applied for a 21.4% mining right over Sishen Mine on 9 December 2010, and that the DMR had accepted this application on 23 December 2010. The DMR’s acceptance of the application means that the mining right application will now be evaluated according to the detailed process stipulated in the Mineral Resources & Petroleum Development Act 2004 before a decision is made as to whether or not to grant the mining right. SIOC does not believe that it was lawful for the DMR to have accepted ICT’s application, pending the High Court Review initiated in May 2010, and has formally objected to, and appealed against, the DMR’s acceptance of ICT’s mining right application. SIOC has also requested that its interdict application be determined on an expedited basis, in order to prevent the DMR from considering ICT’s mining right application until the finalisation of the review proceedings. In addition, SIOC is in the process of preparing a challenge against the DMR’s decision of 25 January 2011 to reject SIOC’s May 2009 application to be granted the residual 21.4% mining right. Finally, on 26 January 2011, SIOC lodged a new application for the residual 21.4% mining right. On 4 February 2011 SIOC made an application to join ArcelorMittal as a respondent in the review proceedings. SIOC will continue to take the necessary steps to protect its shareholders’ interests in this regard.

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Anglo American South Africa Limited (AASA) AASA, a wholly owned subsidiary of the Company, is a defendant in 25 separate lawsuits, each one on behalf of a former mineworker (or his dependents or survivors) who allegedly contracted silicosis working for gold mining companies in which AASA was a shareholder and to which AASA provided various technical and administrative services. The aggregate amount of the 25 claims is less than $5 million, although if these claims are determined adversely to AASA, there are a substantial number of additional former mineworkers who may seek to bring similar claims. The first trials of these claims are not expected before late 2012. 35. Commitments At 31 December the Group had the following outstanding capital commitments and commitments under non-cancellable operating leases: Capital commitments US$ million Contracted but not provided

2010 2,669

2009 2,877

2010

2009

135 85 158 339 717

140 95 194 399 828

Operating leases US$ million Expiry dates Within one year Greater than one year, less than two years Greater than two years, less than five years Greater than five years

Operating leases relate principally to land and buildings, vehicles and shipping vessels.

BP Group Annual Report 2010 (in US $ millions) Notes on financial statements 1.

Significant Accounting Policies

Basis of Preparation The consolidated financial statements have been prepared in accordance with IFRS and IFRS Interpretations Committee (IFRIC) interpretations issued and effective for the year ended 31 December 2010, or issued and early adopted. Provisions, Contingencies and Reimbursement Assets Provisions are recognized when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where appropriate, the future cash flow estimates are adjusted to reflect risks specific to the liability. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax risk-free rate that reflects current market assessments of the time value of money. Where discounting is used, the increase in the provision due to the passage of time is recognized within finance costs. Provisions are split between amounts expected to be settled within 12 months of the balance sheet date (current) and amounts expected to be settled later (non-current). Contingent liabilities are possible obligations whose existence will only be confirmed by future events not wholly within the control of the group, or present obligations where it is not probable that an outflow of resources will be required or the amount of the obligation cannot be measured with sufficient reliability. Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of economic resources is considered remote. Where the group makes contributions into a separately administered fund for restoration, environmental or other obligations, which it does not control, and the group’s right to the assets in the fund is restricted, the obligation to contribute to the fund is recognized as a liability where it is probable that such additional contributions will be made. The group recognizes a reimbursement asset separately, being the

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lower of the amount of the associated restoration, environmental or other provision and the group’s share of the fair value of the net assets of the fund available to contributors. Amounts that BP has a contractual right to recover from third parties are contingent assets. Such amounts are not recognized in the accounts unless they are virtually certain to be received. 2.

Significant Event—Gulf of Mexico Oil Spill (Extract)

As a consequence of the Gulf of Mexico oil spill, BP has incurred costs during the year and has recognized liabilities for future costs. Liabilities of uncertain timing or amount and contingent liabilities have been accounted for and/or disclosed in accordance with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’. These are discussed in further detail in Note 37 for provisions and Note 44 for contingent liabilities. BP’s rights and obligations in relation to the $20-billion trust fund which was established during the year have been accounted for in accordance with IFRIC 5 ‘Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds’. 37. Provisions

$ million Decommissioning Environmental At 1 January 2010 9,020 1,719 Exchange adjustments (114) – Acquisitions 188 – New or increased provisions 1,800 1,290 Write-back of unused provisions (12) (120) Unwinding of discount 168 29 Change in discount rate 444 22 Utilization (164) (460) Reclassified as liabilities directly associated with assets held for sale (381) (1) Deletions (405) (14) At 31 December 2010 10,544 2,465 Of which – current 432 635 – non-current 10,112 1,830 $ million At 1 January 2009 Exchange adjustments New or increased provisions Write-back of unused provisions Unwinding of discount Change in discount rate Utilization Deletions At 31 December 2009 Of which – current – non-current

Decommissioning 8,418 398 169 – 184 324 (383) (90) 9,020 287 8,733

Litigation and claims 1,076 (7) 2

Clean Water Act penalties – – –

10,883

15,171

3,510

– – – (9,840)

(51) 18 9 (4,250)

– – – –

(466) (649) 19 234 (6) 469 (755) (15,469)

– – 1,043 982 61

– (1) 11,967 7,011 4,956

– – 3,510 – 3,510

(1) (383) (1) (421) 2,378 31,907 429 9,489 1,949 22,418

Spill response – – –

Environmental 1,691 15 588 (259) 32 18 (308) (58) 1,719 368 1,351

Litigation 1,446 22 302 (99) 15 (35) (574) (1) 1,076 433 643

Other 2,098 29 1,256 (228) 16 8 (361) (3) 2,815 572 2,243

Other Total 2,815 14,630 (50) (171) 15 205 808

33,462

Total 13,653 464 2,315 (586) 247 315 (1,626) (152) 14,630 1,660 12,970

The group makes full provision for the future cost of decommissioning oil and natural gas production facilities and related pipelines on a discounted basis on the installation of those facilities. The provision for the costs of decommissioning these production facilities and pipelines at the end of their economic lives has been estimated using existing technology, at current prices or future assumptions, depending on the expected timing of the activity, and discounted using a real discount rate of 1.5% (2009 1.75%). These costs are generally expected to be incurred over the next 30 years. While the provision is based on the best estimate of future costs and the economic lives of the facilities and pipelines, there is uncertainty regarding both the amount and timing of these costs. Provisions for environmental remediation are made when a clean-up is probable and the amount of the obligation can be estimated reliably. Generally, this coincides with commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The provision for environmental liabilities has been estimated using existing technology, at current prices and discounted using a real discount rate of 1.5% (2009 1.75%). The majority of these costs are expected to be incurred over the next 10 years. The extent and cost of future remediation programmes are inherently difficult to estimate. They

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depend on the scale of any possible contamination, the timing and extent of corrective actions, and also the group’s share of the liability. The litigation category includes provisions for matters related to, for example, commercial disputes, product liability, and allegations of exposures of third parties to toxic substances. Included within the other category at 31 December 2010 are provisions for deferred employee compensation of $728 million (2009 $789 million) and for expected rental shortfalls on surplus properties of $45 million (2009 $246 million). These provisions are discounted using either a nominal discount rate of 3.75% (2009 4.0%) or a real discount rate of 1.5% (2009 1.75%), as appropriate. Provisions Relating to the Gulf of Mexico Oil Spill Provisions relating to the Gulf of Mexico oil spill, included in the table above, are separately presented below: $ million At 1 January 2010 New or increased provisions Unwinding of discount Change in discount rate Utilization At 31 December 2010 Of which – current – non-current Of which - payable from the trust fund

Environmental – 929 4 5 (129) 809 314 495 382

Spill response – 10,883 – – (9,840) 1,043 982 61 –

Litigation and claims – 14,939 – – (3,966) 10,973 6,642 4,331 9,162

Clean Water Act penalties Total – – 3,510 30,261 – 4 – 5 – (13,935) 3,510 16,335 – 7,938 3,510 8,397 –

9,544

As described in Note 2, BP has recorded provisions at 31 December 2010 relating to the Gulf of Mexico oil spill including amounts in relation to environmental expenditure, spill response costs, litigation and claims, and Clean Water Act penalties, each of which is described below. Environmental The amounts committed by BP for a 10-year research programme to study the impact of the incident on the marine and shoreline environment of the Gulf of Mexico have been provided for. BP’s commitment is to provide $500 million of funding, and the remaining commitment, on a discounted basis, of $427 million was included in provisions at 31 December 2010. This amount is expected to be spent evenly over the 10-year period. As a responsible party under the OPA 90, BP faces claims by the United States, as well as by State, tribal, and foreign trustees, if any, for natural resource damages (“Natural Resource Damages claims”). These damages include, amongst other things, the reasonable costs of assessing the injury to natural resources as well as some emergency restoration projects which are expected to occur over the next two years. BP has been incurring natural resource damage assessment costs and a provision has been made for the estimated costs of the assessment phase. The assessment covers a large area of potential impact and will take some time to complete in order to determine both the severity and duration of the impact of the oil spill. The process of interpreting the large volume of data collected is expected to take at least several months and, in order to determine potential injuries to certain animal populations, data will need to be collected over one or more reproductive cycles. This expected assessment spend is based upon past experience as well as identified projects. A provision of $382 million has been established for these items. Until the size, location and duration of the impact is assessed, it is not possible to estimate reliably either the amounts or timing of the remaining Natural Resource Damages claims, therefore no amounts have been provided for these items and they are disclosed as a contingent liability. See Note 44 for further information. Spill Response The remaining provision for spill response includes the estimated future costs of both subsea operations as well as surface and shoreline work. The subsea response provision is based on the remaining activities expected to be undertaken and has been calculated using daily rates of costs incurred to date. This includes the rig costs to complete the plugging and abandonment of the second relief well, which is in progress and is expected to complete in early March 2011, and the recovery of the subsea infrastructure used as part of the various containment systems. The majority of the vessels involved in the response have now been decontaminated. The provision includes the costs of decontaminating the remaining 25 vessels, which is expected to be complete by the end of April 2011.

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The provision for surface and shoreline response is based on the daily costs currently being incurred which are underpinned by headcount, equipment and the number of vessels on hire. At the end of the year, there were approximately 360 vessels on hire and the number of personnel involved in response activities was approximately 6,200. BP and the US Coast Guard are working closely with state and local officials to clean Gulf Coast beaches before the 2011 spring and summer tourism seasons and this is the basis on which the provision at 31 December 2010 has been calculated. The provision also includes an estimate of future federal response costs and ongoing monitoring that will be required until the end of the second quarter of 2012. Litigation and Claims Individual and Business Claims, and State and Local Claims under the Oil Pollution Act of 1990 (OPA 90) and claims for personal injury BP faces claims under OPA 90 by individuals and businesses for removal costs, damage to real or personal property, lost profits or impairment of earning capacity, loss of subsistence use of natural resources and for personal injury (“Individual and Business Claims”) and by state and local government entities for removal costs, physical damage to real or personal property, loss of government revenue and increased public services costs (“State and Local Claims”). The estimated future cost of settling Individual and Business Claims, State and Local Claims under OPA 90 and claims for personal injuries, both reported and unreported, has been provided for. Claims administration costs have also been provided for. BP believes that the history of claims received to date, and settlements made, provides sufficient data to enable the company to use an approach based on a combination of actuarial methods and management judgments to estimate IBNR (Incurred But Not Reported) claims to determine a reliable best estimate of BP’s exposure for claims not yet reported in relation to Individual and Business claims, and State and Local claims under OPA 90. The amount provided for these claims has been determined in accordance with IFRS and represents BP’s current best estimate of the expenditure required to settle its obligations at the balance sheet date. The measurement of this provision is subject to significant uncertainty. Actual costs could ultimately be significantly higher or lower than those recorded as the claims and settlement process progresses. In estimating the amount of the provision, BP has determined a range of possible outcomes for Individual and Business Claims, and State and Local Claims. These determinations are based on BP’s claims payment experience, the application of insurance industry benchmark data, the use of a combination of actuarial and statistical methods and management judgments where appropriate. The methods selected are consistent with those used by the insurance industry to estimate a range of total expenditures for both reported and unreported claims. These methods have been adopted on the basis that, at this stage of development, the application of insurance industry standard techniques for the estimation of ultimate losses is an appropriate approach for the costs arising from the Deepwater Horizon oil spill. Through the application of this approach, BP has concluded that a reasonable range of possible outcomes for the amount of the provision as at 31 December 2010 is $6 billion to $13 billion. BP believes that the provision recorded at 31 December 2010 of $9.2 billion represents a reliable best estimate from within this range of possible outcomes. This amount is shown as payable from the trust fund under Litigation and claims in the table above. The provision is in addition to the $3.4 billion of claims paid in 2010. Of this total paid, $3.2 billion is included within utilization of provision in the table, and the remaining $0.2 billion was a period expenditure prior to the recognition of the provision at the end of the second quarter 2010. Also included within the total utilization of provision of $4 billion under Litigation and claims are amounts relating to claims administration costs and legal fees. Of the total payments of $3.4 billion during the year, $3 billion was paid out of the trust fund and $0.4 billion was paid by BP. BP’s management has utilized actuarial techniques and its judgment in determining this reliable best estimate. However, it is possible that the final outcome could lie outside this range. Many key assumptions underlie and influence both the range of possible outcomes and the reliable best estimates of total expenditures derived for both categories of claims. These key assumptions include the amounts that will ultimately be paid in relation to current claims, the number, type and amounts for claims not yet reported, the scope and number of claims that can be resolved successfully in the claims process, the resolution of rejected claims, the outcomes of any litigation, the effects on tourism and fisheries and other economic and environmental factors.

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The outcomes of claims and litigation are likely to be paid out over many years to come. BP will reevaluate the assumptions underlying this analysis on a quarterly basis as more information becomes available and the claims process matures. BP also faces other litigation for which no reliable estimate of the cost can currently be made. Therefore no amounts have been provided for these items. Legal Fees Estimated legal fees have been provided for where we have been able to estimate reliably those which will arise in the next two years. Clean Water Act Penalties A provision has been made for the estimated penalties for strict liability under Section 311 of the Clean Water Act. Such penalties are subject to a statutory maximum calculated as the product of a per-barrel maximum penalty rate and the number of barrels of oil spilled. Uncertainties currently exist in relation to both the per-barrel penalty rate that will ultimately be imposed and the volume of oil spilled. A charge for potential Clean Water Act Section 311 penalties was first included in BP’s second-quarter 2010 interim financial statements. At the time that charge was taken, the latest estimate from the intraagency Flow Rate Technical Group created by the National Incident Commander in charge of the spill response was between 35,000 and 60,000 barrels per day. The mid-point of that range, 47,500 barrels per day, was used for the purposes of calculating the charge. For the purposes of calculating the amount of the oil flow that was discharged into the Gulf of Mexico, the amount of oil that had been or was projected to be captured in vessels on the surface was subtracted from the total estimated flow up until when the well was capped on 15 July 2010. The result of this calculation was an estimate that approximately 3.2 million barrels of oil had been discharged into the Gulf. This estimate of 3.2 million barrels was calculated using a total flow of 47,500 barrels per day multiplied by the 85 days from 22 April 2010 through 15 July 2010 less an estimate of the amount captured on the surface (approximately 850,000 barrels). This estimated discharge volume was then multiplied by $1,100 per barrel – the maximum amount the statute allows in the absence of gross negligence or wilful misconduct – for the purposes of estimating a potential penalty. This resulted in a provision of $3,510 million for potential penalties under Section 311. In utilizing the $1,100 per-barrel input, the company took into account that the actual per-barrel penalty a court may impose, or that the Government might agree to in settlement, could be lower than $1,100 per barrel if it were determined that such a lower penalty was appropriate based on the factors a court is directed to consider in assessing a penalty. In particular, in determining the amount of a civil penalty, Section 311 directs a court to consider a number of enumerated factors, including ”the seriousness of the violation or violations, the economic benefit to the violator, if any, resulting from the violation, the degree of culpability involved, any other penalty for the same incident, any history of prior violations, the nature, extent, and degree of success of any efforts of the violator to minimize or mitigate the effects of the discharge, the economic impact of the penalty on the violator, and any other matters as justice may require.” Civil penalties above $1,100 per barrel up to a statutory maximum of $4,300 per barrel of oil discharged would only be imposed if gross negligence or wilful misconduct were alleged and subsequently proven. The company expects to seek assessment of a penalty lower than $1,100 per barrel based on several of these factors. However, the $1,100 per-barrel rate was utilized for the purposes of calculating a charge after considering and weighing all possible outcomes and in light of: (i) the company’s conclusion that it did not act with gross negligence or engage in wilful misconduct; and (ii) the uncertainty as to whether a court would assess a penalty below the $1,100 statutory maximum. On 2 August 2010, the United States Department of Energy and the Flow Rate Technical Group had issued an estimate that 4.9 million barrels of oil had flowed from the Macondo well, and 4.05 million barrels had been discharged into the Gulf (the difference being the amount of oil captured by vessels on the surface as part of BP’s well containment efforts). It was and remains BP’s view, based on the analysis of available data by its experts, that the 2 August 2010 Government estimate and other similar estimates are not reliable estimates because they are based on incomplete or inaccurate information, rest in large part on assumptions that have not been validated, and are subject to far greater uncertainties than have been acknowledged. As BP has publicly asserted, including at a 22 October 2010 meeting with the staff of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, the company believes that the 2 August 2010 discharge estimate and similar estimates are overstated by a significant amount, and that the flow rate is potentially in the range of 20-50% lower. If the flow rate is 50% lower than the 2 August 2010 estimate, then the amount

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of oil that flowed from the Macondo well would be approximately 2.5 million barrels, and the amount discharged into the Gulf would be approximately 1.6 million barrels. If the flow rate is 20% lower than the 2 August 2010 estimate, then the amount of oil that flowed from the Macondo well would be approximately 3.9 million barrels and the amount discharged into the Gulf would be approximately 3.1 million barrels, which is not materially different from the amount we used for our original estimate at the second quarter. Therefore, for the purposes of calculating a provision for fines and penalties under Section 311 of the Clean Water Act, the company has continued to use an estimate of 3.2 million barrels of oil discharged to the Gulf of Mexico as its current best estimate, as defined in paragraphs 36-40 of IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, of the amount which may be used in calculating the penalty under Section 311 of the Clean Water Act. This reflects an estimate of total flow from the well of approximately 4 million barrels, and an estimate of approximately 850,000 barrels captured by vessels on the surface. In utilizing this estimate, the company has taken into consideration not only its own analysis of the flow and discharge issue, but also the analyses and conclusions of other parties, including the US government. The estimate of BP and of other parties as to how much oil was discharged to the Gulf of Mexico may change, perhaps materially, over time. One factor that would impact the flow rate estimate is the completion of the analysis on the blowout preventer which is now in the custody of the federal government. Similar situations exist with regard to other pieces of physical evidence critical to the flow rate analysis. Changes in estimates as to flow and discharge could affect the amount actually assessed for Clean Water Act fines and penalties. The year-end provision continued to be based on a per-barrel penalty of $1,100 for the reasons discussed above, including the company’s continued conclusion that it did not act with gross negligence or engage in wilful misconduct. The amount and timing of these costs will depend upon what is ultimately determined to be the volume of oil spilled and the per-barrel penalty rate that is imposed. It is not currently practicable to estimate the timing of expending these costs and the provision has been included within non-current liabilities on the balance sheet. No other amounts have been provided as at 31 December 2010 in relation to other potential fines and penalties because it is not possible to measure the obligation reliably. Fines and penalties are not covered by the trust fund. 44. Contingent Liabilities and Contingent Assets Contingent Liabilities Relating to the Gulf of Mexico Oil Spill As a consequence of the Gulf of Mexico oil spill, as described on pages 34 to 39, BP has incurred costs during the year and recognized provisions for certain future costs. Further information is provided in Note 2 and Note 37. BP has provided for its best estimate of certain claims under the Oil Pollution Act of 1990 (OPA 90) that will be paid through the $20-billion trust fund. It is not possible, at this time, to measure reliably any other items that will be paid from the trust fund, namely any obligation in relation to Natural Resource Damages claims, and claims asserted in civil litigation, nor is it practicable to estimate their magnitude or possible timing of payment. Natural resource damages resulting from the oil spill are currently being assessed (see Note 37 for further information). BP and the federal and state trustees are collecting extensive data in order to assess the extent of damage to wildlife, shoreline, near shore and deepwater habitats, and recreational uses, among other things. Because the affected areas and their uses vary by seasons, we anticipate that we will need at least a full year, and perhaps materially longer, after the initial oil impacts to gain an understanding of the natural resource damages. In addition, if early restoration projects are undertaken, these projects could mitigate the total damages resulting from the incident. Accordingly, until the size, location and duration of the impact have been determined and the effects of early restoration projects are assessed, or other actions such as potential future settlement discussions occur, it is not possible to obtain a range of outcomes or to estimate reliably either the amounts or timing of the remaining Natural Resource Damages claims. BP is named as a defendant in more than 400 civil lawsuits brought by individuals, corporations and governmental entities in US federal and state courts resulting from the Gulf of Mexico oil spill. Additional lawsuits are likely to be brought. The lawsuits assert, among others, claims for personal injury in connection with the incident itself and the response to it, and wrongful death, commercial or economic injury, breach of contract and violations of statutes. The lawsuits, many of which purport to be class actions, seek various remedies including compensation to injured workers and families of deceased workers, recovery for commercial losses and property dam-

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age, claims for environmental damage, remediation costs, injunctive relief, treble damages and punitive damages. These pending lawsuits are at the very early stages of proceedings and most of the claims have been consolidated into one of two multi-district litigation proceedings. A trial of liability issues in the pending multi-district litigation is currently scheduled for February 2012. Damage issues will be scheduled for trial thereafter. Until further fact and expert disclosures occur, court rulings clarify the issues in dispute, liability and damage trial activity nears, or other actions such as possible settlements occur, it is not possible given these uncertainties to arrive at a range of outcomes or a reliable estimate of the liability. See Legal proceedings on page 130 for further information. Therefore no amounts have been provided for these items as of 31 December 2010. Although these items, which will be paid through the trust fund, have not been provided for at this time, BP‘s full obligation under the $20-billion trust fund has been expensed in the income statement, taking account of the time value of money. The aggregate of amounts paid and provided for items to be settled from the trust fund currently falls within the amount committed by BP to the trust fund. For those items not covered by the trust fund it is not possible to measure reliably any obligation in relation to other litigation or potential fines and penalties except, subject to certain assumptions detailed in Note 37, for those relating to the Clean Water Act. It is also not possible to reliably estimate legal fees beyond two years. There are a number of federal and state environmental and other provisions of law, other than the Clean Water Act, under which one or more governmental agencies could seek civil fines and penalties from BP. For example, a complaint filed by the United States sought to reserve the ability to seek penalties and other relief under a number of other laws. Given the large number of claims that may be asserted, it is not possible at this time to determine whether and to what extent any such claims would be successful or what penalties or fines would be assessed. Therefore no amounts have been provided for these items. The magnitude and timing of possible obligations in relation to the Gulf of Mexico oil spill are subject to a very high degree of uncertainty as described further in Risk factors on pages 27 to 32. Any such possible obligations are therefore contingent liabilities and, at present, it is not practicable to estimate their magnitude or possible timing of payment. Furthermore, other material unanticipated obligations may arise in future in relation to the incident. Contingent Assets Relating to the Gulf of Mexico Oil Spill BP is the operator of the Macondo well and holds a 65% working interest, with the remaining 35% interest held by two co-owners, Anadarko Petroleum Corporation (APC) and MOEX Offshore 2007 LLC (MOEX). Under the Operating Agreement, MOEX and APC are responsible for reimbursing BP for their proportionate shares of the costs of all operations and activities conducted under the Operating Agreement. In addition, the parties are responsible for their proportionate shares of all liabilities resulting from operations or activities conducted under the Operating Agreement, except where liability results from a party’s gross negligence or wilful misconduct, in which case that party is solely responsible. BP does not believe that it has been grossly negligent nor has it engaged in wilful misconduct under the terms of the Operating Agreement or at law. As of 31 December 2010, $6 billion had been billed to the co-owners, which BP believes to be contractually recoverable. Billings to co-owners are based upon costs incurred to date rather than amounts provided in the period. As further costs are incurred, BP believes that certain of the costs will be billable to our co-owners under the Operating Agreement. Our co-owners have each written to BP indicating that they are withholding payment in light of the investigations surrounding, and pending determination of the root causes of, the incident. In addition, APC has publicly accused BP of having been grossly negligent and stated it has no liability for the incident, both of which claims BP refutes and intends to challenge in any legal proceedings. There are also audit rights concerning billings under the Operating Agreement which may be exercised by APC and MOEX, and which may or may not lead to an adjustment of the amount billed. BP may ultimately need to enforce its rights to collect payment from the co-owners through an arbitration proceeding as provided for in the Operating Agreement. There is a risk that amounts billed to co-owners may not ultimately be recovered should our co-owners be found not liable for these costs or be unable to pay them. BP believes that it has a contractual right to recover the co-owners’ shares of the costs incurred, however, no recovery amounts have been recognized in the financial statements as at 31 December 2010. Other Contingent Liabilities There were contingent liabilities at 31 December 2010 in respect of guarantees and indemnities entered into as part of the ordinary course of the group’s business. No material losses are likely to arise from such contingent liabilities. Further information is included in Note 27.

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Lawsuits arising out of the Exxon Valdez oil spill in Prince William Sound, Alaska, in March 1989 were filed against Exxon (now ExxonMobil), Alyeska Pipeline Service Company (Alyeska), which operates the oil terminal at Valdez, and the other oil companies that own Alyeska. Alyeska initially responded to the spill until the response was taken over by Exxon. BP owns a 46.9% interest (reduced during 2001 from 50% by a sale of 3.1% to Phillips) in Alyeska through a subsidiary of BP America Inc. and briefly indirectly owned a further 20% interest in Alyeska following BP’s combination with Atlantic Richfield Company (Atlantic Richfield). Alyeska and its owners have settled all the claims against them under these lawsuits. Exxon has indicated that it may file a claim for contribution against Alyeska for a portion of the costs and damages that Exxon has incurred. BP will defend any such claims vigorously. It is not possible to estimate any financial effect. In the normal course of the group’s business, legal proceedings are pending or may be brought against BP group entities arising out of current and past operations, including matters related to commercial disputes, product liability, antitrust, premises-liability claims, general environmental claims and allegations of exposures of third parties to toxic substances, such as lead pigment in paint, asbestos and other chemicals. BP believes that the impact of these legal proceedings on the group’s results of operations, liquidity or financial position will not be material. With respect to lead pigment in paint in particular, Atlantic Richfield, a subsidiary of BP, has been named as a co-defendant in numerous lawsuits brought in the US alleging injury to persons and property. Although it is not possible to predict the outcome of the legal proceedings, Atlantic Richfield believes it has valid defences that render the incurrence of a liability remote; however, the amounts claimed and the costs of implementing the remedies sought in the various cases could be substantial. The majority of the lawsuits have been abandoned or dismissed against Atlantic Richfield. No lawsuit against Atlantic Richfield has been settled nor has Atlantic Richfield been subject to a final adverse judgment in any proceeding. Atlantic Richfield intends to defend such actions vigorously. The group files income tax returns in many jurisdictions throughout the world. Various tax authorities are currently examining the group’s income tax returns. Tax returns contain matters that could be subject to differing interpretations of applicable tax laws and regulations and the resolution of tax positions through negotiations with relevant tax authorities, or through litigation, can take several years to complete. While it is difficult to predict the ultimate outcome in some cases, the group does not anticipate that there will be any material impact upon the group’s results of operations, financial position or liquidity. The group is subject to numerous national and local environmental laws and regulations concerning its products, operations and other activities. These laws and regulations may require the group to take future action to remediate the effects on the environment of prior disposal or release of chemicals or petroleum substances by the group or other parties. Such contingencies may exist for various sites including refineries, chemical plants, oil fields, service stations, terminals and waste disposal sites. In addition, the group may have obligations relating to prior asset sales or closed facilities. The ultimate requirement for remediation and its cost are inherently difficult to estimate. However, the estimated cost of known environmental obligations has been provided in these accounts in accordance with the group’s accounting policies. While the amounts of future costs could be significant and could be material to the group’s results of operations in the period in which they are recognized, it is not practical to estimate the amounts involved. BP does not expect these costs to have a material effect on the group’s financial position or liquidity. The group also has obligations to decommission oil and natural gas production facilities and related pipelines. Provision is made for the estimated costs of these activities, however there is uncertainty regarding both the amount and timing of these costs, given the long-term nature of these obligations. BP believes that the impact of any reasonably foreseeable changes to these provisions on the group’s results of operations, financial position or liquidity will not be material. The group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. This is because external insurance is not considered an economic means of financing losses for the group. Losses will therefore be borne as they arise rather than being spread over time through insurance premiums with attendant transaction costs. The position is reviewed periodically. 45. Capital Commitments Authorized future capital expenditure for property, plant and equipment by group companies for which contracts had been placed at 31 December 2010 amounted to $11,279 million (2009 $9,812 million). In addition, at 31 December 2010, the group had contracts in place for future capital expenditure relating to

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investments in jointly controlled entities of $437 million (2009 $622 million) and investments in associates of $80 million (2009 $170 million). BP’s share of capital commitments of jointly controlled entities amounted to $1,117 million (2009 $926 million).

Holcim Limited Annual Report 2010 (in millions CHF) Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Site Restoration and Other Environmental Provisions The Group provides for the costs of restoring a site where a legal or constructive obligation exists. The cost of raising a provision before exploitation of the raw materials has commenced is included in property, plant and equipment and depreciated over the life of the site. The effect of any adjustments to the provision due to further environmental damage as a result of exploitation activities is recorded through operating costs over the life of the site to reflect the best estimate of the expenditure required to settle the obligation at the end of the reporting period. Changes in the measurement of a provision that result from changes in the estimated timing or amount of cash outflows, or a change in the discount rate, are added to, or deducted from, the cost of the related asset to the extent that they relate to the asset’s installation, construction or acquisition. All provisions are discounted to their present value. Emission Rights The initial allocation of emission rights granted is recognized at nominal amount (nil value). Where a Group company has emissions in excess of the emission rights granted, it will recognize a provision for the shortfall based on the market price at that date. The emission rights are held for compliance purposes only and therefore the Group does not intend to speculate with these in the open market. Other Provisions A provision is recognized when there exists a legal or constructive obligation arising from past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of this amount. Contingent Liabilities Contingent liabilities arise from conditions or situations where the outcome depends on future events. They are disclosed in the notes to the financial statements. 33 Provisions Site restoration and other environmental provisions Million CHF January 1 Change in structure Provisions recognized Provisions used during the year Provisions reversed during the year Currency translation effects December 31 Of which short-term provisions Of which long-term provisions

585 0 146 (37) (25) (51) 618 47 571

Specific business risks 282 0 81 (42) (52) (30) 239 30 209

Other provisions 648 3 216 (126) (182) (37) 522 179 343

Total 2010

Total 2009

1,515 3 443 (205) (259) (118) 1,379 256 1,123

1,375 215 494 (270) (344) 45 1,515 252 1,263

Site restoration and other environmental provisions represent the Group’s legal or constructive obligations of restoring a site. The timing of cash outflows of this provision is dependent on the completion of raw material extraction and the commencement of site restoration. Specific business risks comprise litigation and restructuring costs which arise during the normal course of business. Provisions for litigations mainly relate to antitrust investigations, product liability as well as tax claims and are set up to cover legal and administrative proceedings. In 2010, it includes several provisions for risks related to direct and indirect taxes of CHF 32 million (2009: 41) and a provision of CHF

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21 million (2009: 27) related to the German antitrust investigation set up in 2002. Total provisions for litigations amounted to CHF 180 million (2009: 210) at December 31. The timing of cash outflows of provisions for litigations is uncertain since it will largely depend upon the outcome of administrative and legal proceedings. Provisions for restructuring costs relate to various restructuring programs and amounted to CHF 59 million (2009: 72) at December 31. These provisions are expected to result in future cash outflows mainly within the next one to three years. Other provisions relate mainly to provisions that have been set up to cover other contractual liabilities. The composition of this item is extremely manifold and comprises as at December 31, among other things: various severance payments to employees of CHF 111 million (2009: 101), provisions for vacation and overtime of CHF 91 million (2009: 99), provisions for health insurance and pension schemes, which do not qualify as benefit obligations, of CHF 22 million (2009: 64), provisions related to sales and other taxes of CHF 71 million (2009: 104) and provisions for contingent liabilities arising from business combinations of CHF 77 million (2009: 89). The expected timing of the future cash outflows is uncertain. 38 Contingencies, Guarantees and Commitments Contingencies In the ordinary course of business, the Group is involved in lawsuits, claims, investigations and proceedings, including product liability, commercial, environmental, health and safety matters, etc. There are no single matters pending that the Group expects to be material in relation to the Group’s business, financial position or results of operations. At December 31, 2010, the Group’s contingencies amounted to CHF 363 million (2009: 436). It is possible, but not probable and estimable, that the respective legal cases will result in future liabilities. The Group operates in countries where political, economic, social and legal developments could have an impact on the Group’s operations. The effects of such risks which arise in the normal course of business are not foreseeable and are therefore not included in the accompanying consolidated financial statements. Guarantees At December 31, 2010, guarantees issued to third parties in the ordinary course of business amounted to CHF 508 million (2009: 335). Commitments In the ordinary course of business, the Group enters into purchase commitments for goods and services, buys and sells investments, associated companies and Group companies or portions thereof. It is common practice that the Group makes offers or receives call or put options in connection with such acquisitions and divestitures. At December 31, 2010, the Group’s commitments amounted to CHF 1,236 million (2009: 1,775), of which CHF 342 million (2009: 532) relate to the purchase of property, plant and equipment. Holcim has agreed to subscribe to a private placement issued by its associated company Huaxin Cement Co. Ltd. Amounting to a maximum of CNY 1 billion (CHF 142 million) and so confirms its commitment to further deepen the strategic relationship with Huaxin.

Chapter 14 INTANGIBLE ASSETS (IAS 38)

1.

OBJECTIVE

1.1 The Standard addresses accounting for “intangible assets” (defined in International Accounting Standard [IAS] 38) other than those intangible assets that are covered by other International Financial Reporting Standards (IFRS) (i.e., financial assets, as defined by IAS 32, Financial Instruments: Presentation, or exploration and evaluation assets, covered by IFRS 6, Exploration for and Evaluation of Mineral Resources, or expenditure on the development and extraction of minerals, oil, natural gas, and similar nonregenerative resources). 1.2 If another IFRS prescribes the accounting for a specific type of intangible asset, the accounting of such intangible assets shall be in accordance with the provisions of those IFRS. For instance, goodwill acquired in a business combination, although an intangible asset, shall not be accounted under this Standard but should be recognized in accordance with the requirements prescribed in IFRS 3, Business Combinations. Similarly, this Standard will not apply to certain other intangible assets specifically covered by other IFRS (including deferred assets [covered by IAS 12, Income Taxes]; leases [covered by IAS 17, Leases]; or assets arising from employment benefits [covered by IAS 19, Employee Benefits]). 2.

SYNOPSIS OF THE STANDARD

This Standard requires an entity to recognize an intangible asset when specified criteria are met. 2.1 An intangible asset is an identifiable nonmonetary asset without physical substance. Examples of such assets are computer software, customer lists, patents and copyrights, import quotas, franchises, customer loyalty, market share, and market rights. 2.2

The three critical attributes of an intangible asset are • Identifiability • Control over the resource • Existence of future economic benefits

2.2.1 An intangible asset is identifiable if it is separable or arises from contractual or legal rights. 159

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2.2.2 An entity controls an asset if it has the power to obtain the future economic benefits flowing from the underlying resource and also has the right to restrict the access of others to those benefits. 2.2.3 The future economic benefits flowing from an intangible asset may include revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the assets by the entity. 2.3

An intangible asset shall be recognized if, and only if • It is probable that the expected future economic benefits will flow to the entity; and • The cost of the asset can be reliably measured.

2.3.1 Certain expenditures are specifically disallowed for inclusion in cost of an intangible asset. These are cost of introducing a new product, cost of conducting a business in a new location or with a new class of customers (including training costs associated with the above), and administrative and general overhead costs. 2.3.2 In accordance with this Standard (and IFRS 3), an acquirer shall recognize at the acquisition date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been recognized by acquiree before the “business combination.” If an intangible asset is acquired in a business combination, under IFRS 3, the cost of that intangible asset is its fair value at the acquisition date. 2.4 The recognition requirements will apply whether an intangible asset is acquired externally or generated internally. The Standard specifies additional recognition criteria for internally generated intangible assets. 2.4.1 Internally generated assets that meet the criteria prescribed under this Standard may be recognized. In order to assess whether this criterion is met, an entity classifies the generation of the asset between a research phase and a development phase. 2.4.2 Intangible asset arising from research cannot be recognized as an intangible asset. 2.4.3 An intangible asset arising from development shall be recognized if, and only if, an entity can demonstrate all these points: • The technical feasibility of completing the intangible asset so that it will be available for sale or use • Its intention to complete the intangible asset and use it or sell it • Its ability to use or sell it • Ways and means as to how the intangible asset will generate probable future economic benefits • The availability of adequate resources to complete the intangible asset • Its ability to measure reliably the expenditure attributable to the intangible asset during such development 2.4.4 If an entity cannot distinguish the “research phase” of an internal project for creating an intangible asset from the “development phase,” the entity should treat the expenditure for that project as if it were incurred in the research phase only. 2.5 This Standard prohibits an entity from reinstating an intangible asset, at a later date, if it was originally charged to expense. 2.6 An intangible asset is measured initially “at cost.” The cost of a separately acquired intangible asset is its purchase price (including import duties and nonrefundable taxes) and any directly attributable costs (such as professional fees arising from bringing an asset to its working condition and cost of testing whether the asset is functioning properly).

Intangible Assets (IAS 38)

161

2.6.1 After initial measurement, an entity has a choice of using either the cost model or the revaluation model as its accounting policy. (This is similar to the requirements of IAS 16, Property, Plant and Equipment). 2.6.2 In case an intangible asset is accounted for using the revaluation model, all the other assets in its class should also be accounted under this model unless there is no active market for those assets. 2.7 Subsequent expenditure on an intangible asset after its purchase or completion should be recognized as an expense when it is incurred, unless it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and the expenditure can be measured and attributed to the asset reliably. 2.8 An intangible asset with a finite life is amortized over its useful life. The depreciable amount of an intangible asset with a finite life shall be allocated on a systematic basis over its useful life. 2.8.1 An intangible asset with an indefinite useful life shall not be amortized. (In accordance with IAS 36, Impairment of Assets, an entity is required to test it for impairment.) 3.

SIC 32, WEB SITE COSTS

3.1 Standing Interpretations Committee (SIC) Interpretation 32 states an entity may incur internal expenditure on the development and operation of its own web-site for internal and external access. A website developed for external access may be used for promotional and advertising purposes. A website designed for internal access may be used to store company policies and customer information. 3.2 A website that arises from development and is for internal or external access is an intangible asset that is subject to the requirements of IAS 38. 3.3 A website arising from development shall be recognized as an intangible asset if it satisfies the requirements of IAS 38 in relation to recognition and measurement as well probable future economic benefits (i.e., if an entity can demonstrate how a website developed solely or primarily for promotion and advertising its own products or services will generate probable future economic benefits). 3.4 Any internal expenditure on the development and operation of an entity’s own website shall be accounted according to IAS 38. For example, the “planning stage” is similar in nature to the “research phase” (as outlined in IAS 38), and expenditure incurred during this period shall be recognized as an expense. Similarly, the “application and infrastructure development stage” to the extent the content is being developed for purposes other than advertisement or promotion, is comparable in nature to the “development phase” (as outlined in IAS 38); therefore, according to the Interpretation (SIC 32), it may be included in the cost of a website and recognized as an intangible asset (if the expenditure is directly attributable to and is necessary in creating, producing, or preparing the website for it to be capable of operating as intended by the management). In contrast, to the extent the content development relates to advertising and promoting the entity’s own products or services, the expenditure incurred in the “content development stage” is to be recognized as an expense. 4.

DISCLOSURE REQUIREMENTS The next disclosures are required to be made under this Standard.

4.1

For each class of intangible assets: • Useful life, amortization method, gross carrying amount and any accumulated amortization at the beginning and at the end of the period • Line item(s) of the statement of comprehensive income in which any amortization is included • Reconciliation of carrying amount at the beginning and the end of the period (showing separately additions, assets classified as held for sale under IFRS 5, increases or de-

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162

creases from revaluations, impairment losses recognized, impairment losses reversed, any amortization recognized during the period, net exchange differences arising from translation of the financial statements of a foreign operation into the presentation currency of the entity, and other changes in the carrying amount during the period). Additional disclosures include those listed next.

4.2

• In the case of an intangible asset with indefinite useful life, the carrying amount and the reasons supporting the assessment of an indefinite useful life • In the case of each individual intangible asset that is material to the entity’s financial statements, a description, the carrying amount, and remaining amount • Amortization period • In the case of intangible assets acquired by way of a government grant and initially recognized at fair value: Fair value initially recognized • The assets’ carrying amounts • After recognition, whether assets are measured under the cost model or the revaluation model •

• In the case of intangible assets whose titles are restricted, the existence and their carrying amounts; and in the case of intangible assets that are pledged as security, their carrying amounts. • The amounts of any contractual commitments for the acquisition of intangible assets For intangible assets measured after recognition using the “revaluation model”:

4.3

• By class of intangible assets, the effective date of the revaluation; the carrying amount of the revalued intangible assets; and the carrying amounts that would have been recognized had the assets been measured after recognition using the “cost model” • The amount of the revaluation surplus relating to intangible assets at the beginning and at the end of the period, indicating the changes during the period and any restriction on the distribution of this surplus to shareholders • The methods and significant assumptions applied in estimating the fair values of the intangible assets 4.4 riod.

The aggregate amount of research and development expenditure recognized during the pe-

4.5

In addition, an entity is encouraged (but not required) to disclose, with a description: • Any fully amortized intangible assets still in use; and • Significant intangible assets controlled by the entity but not recognized as assets as they do not meet the recognition criteria in this Standard or were acquired before the 1998 version of this Standard was effective.

EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 Notes to the consolidated financial statements for the year ended 31 March 2011 2.

Accounting Policies

Intangible Assets Intangible assets are stated at cost or deemed cost less any impairment and accumulated amortisation. The principal categories of intangible assets are:

Intangible Assets (IAS 38)

163

Pharmacy Licences Pharmacy licences, being the exclusive right to operate as a pharmacy, are capitalised where there is an asset that can be separated from other identifiable assets that together form a pharmacy business. Brands Brands consist of corporate and product brands acquired as part of business combinations that meet the criteria for separate recognition. Costs in relation to internally generated brands are not capitalised. Customer Relationships Customer relationships consist of relationships with customers established through contracts, or noncontractual customer relationships that meet the criteria for separate recognition, that have been acquired in a business combination. Other Intangible Assets Other intangible assets comprise product licences which give the right to sell certain products in specific countries and clinical data used to review therapy effectiveness which are recognised separately as intangible assets when they are acquired. Software Software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset. Certain direct and indirect development costs associated with internally developed software, including direct costs of materials and services, and payroll costs for employees devoting time to the software projects, are capitalised once the project has reached the application development stage. The costs are amortised from when the asset is ready for use. Costs incurred during the preliminary project stage, maintenance and training costs, and research and development costs are expensed as incurred. Amortisation Where an intangible asset is considered to have a finite life, amortisation is charged to the income statement on a straight-line basis over the useful life from the date the asset is available for use. Pharmacy licences recognised as intangible assets do not expire and therefore are considered to have an indefinite life. Certain brands have been identified as having an indefinite life, based on their life and history along with current market strength and future development plans. Those assets considered to have an indefinite life are not amortised and are tested for impairment at each year end. The useful lives for those intangible assets with a finite life are: • • • •

Brands – 10 to 20 years; Customer relationships – 4 to 20 years; Product licences – 5 to 15 years; and Software – 3 to 8 years.

Amortisation periods and methods are reviewed annually and adjusted if appropriate. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the income statement. 14. Other Intangible Assets

2011 Cost At 1 April 2010 Acquisitions of businesses Additions Disposals of businesses Disposals Currency translation differences At 31 March 2011 Amortisation At 1 April 2010 Charge Disposals of businesses Disposals Currency translation differences At 31 March 2011 Net book value

Pharmacy licences £million

Brands £million

Customer relationships £million

Other Software intangible Total £million assets £million £million

1,283 10 -(9) --1,284

2,990 -----2,990

1,267 271 ---(19) 1,519

268 3 82 (3) (8) -342

8 11 3 (4) --7

5,816 284 85 (16) (8) (19) 6,142

------1,284

13 10 ---23 2,967

225 104 --2 331 1,188

121 45 (1) (8) -157 185

1 1 (1) --1 6

360 160 (2) (8) 2 512 5,630

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2010 Cost At 1 April 2009 Acquisitions of businesses Additions Disposals Reclassified to assets held for sale Currency translation differences At 31 March 2010 Amortisation At 1 April 2009 Charge Disposals Currency translation differences At 31 March 2010 Net book value

Pharmacy licences £million

Brands £million

1,285 1 1 -(4) -1,283

2,986 4 ----2,990

-----1,283

6 7 --13 2,977

Software £million

Other intangible assets £million

1,263 18 ---(14) 1,267

221 -52 (4) -(1) 268

4 -4 ---8

5,759 23 57 (4) (4) (15) 5,816

139 87 -(1) 225 1,042

81 44 (3) (1) 121 147

-1 --1 7

226 139 (3) (2) 360 5,456

Customer relationships £million

Total £million

Amortisation charges in the tables above include continuing and discontinued operations. Amortisation charges in respect of continuing operations were £160 million (2010: £138 million), of which £126 million (2010: £106 million) was recognised in selling, distribution and store costs, and £34 million (2010: £32 million) was recognised in administrative costs.

Anglo American plc Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 14 Intangible Assets

US$ million Net book value At 1 January Acquired through business combinations Additions Transfer to assets held for sale and disposals Amortisation charge for the year Impairments (2) Reversal of contingent consideration Currency movements At 31 December Cost Accumulated amortization

2010 Licences and other (1) intangibles Goodwill

Total

2009 Licences and other (1) intangibles Goodwill

Total

82 – 43

2,694 – –

2,776 – 43

91 – 31

2,915 19 –

3,006 19 31

(17) (31) – – 8 85 168 (83)

(339) – – (90) (34) 2,231 2,231 –

(356) (31) – (90) (26) 2,316 2,399 (83)

(9) (14) (39) – 22 82 139 (57)

(8) – (312) – 80 2,694 2,694 –

(17) (14) (351) – 102 2,776 2,833 (57)

(1)

The goodwill balances provided are net of cumulative impairment charges of $323 million at 31 December 2010 (2009: $357 million). (2) Relates to Iron Ore Brazil.

Impairment Tests for Goodwill Goodwill is allocated for impairment testing purposes to cash generating units (CGUs) or groups of CGUs which reflect how it is monitored for internal management purposes. This allocation largely represents the Group’s segments set out below. Any goodwill associated with CGUs subsumed within these segments is not significant when compared to the goodwill of the Group, other than in Iron Ore and Manganese and Other Mining and Industrial where the material components of goodwill are split out below:

Intangible Assets (IAS 38)

US$ million Platinum Copper Nickel Iron Ore and Manganese Iron Ore Brazil Thermal Coal Other Mining and Industrial Tarmac Other

165

2010 230 124 10

2009 230 124 10

1,148 88 504

1,251 88 811

127 2,231

180 2,694

For the purposes of goodwill impairment, the recoverable amount of a CGU is determined based on a value in use or fair value less costs to sell basis. Value in use is based on the present value of future cash flows expected to be derived from the CGU or reportable segment in its current state. Fair value less costs to sell is normally supported by market observable data (in the case of listed subsidiaries, market share price at 31 December of the respective entity) or discounted cash flow models taking account of assumptions that would be made by market participants. Expected future cash flows are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including ore reserves and production estimates, together with economic factors such as commodity prices, discount rates, exchange rates, estimates of costs to produce reserves and future capital expenditure. Management believes that any reasonably possible change in a key assumption on which the recoverable amounts are based would not cause the carrying amounts to exceed their recoverable amounts. Cash flow projections are based on financial budgets and life of mine or non-mine production plans, incorporating key assumptions as detailed below: Reserves and Resources Ore reserves and, where considered appropriate, mineral resources are incorporated in projected cash flows, based on ore reserves and mineral resource statements and exploration and evaluation work undertaken by appropriately qualified persons. Mineral resources are included where management has a high degree of confidence in their economic extraction, despite additional evaluation still being required prior to meeting the requirements of reserve classification. For further information refer to the Ore Reserves and Mineral Resources section of the Annual Report. Commodity Prices Commodity prices are based on latest internal forecasts for commodity prices, benchmarked with external sources of information, to ensure they are within the range of available analyst forecasts. Where existing sales contracts are in place, the effects of such contracts are taken into account in determining future cash flows. Operating Costs and Capital Expenditure Operating costs and capital expenditure are based on financial budgets covering a three year period. Cash flow projections beyond three years are based on life of mine plans or non-mine production plans as applicable, and internal management forecasts. Cost assumptions incorporate management experience and expectations, as well as the nature and location of the operation and the risks associated therewith. Non-Commodity Based Businesses For non-commodity based businesses, margin and revenue are based on financial budgets covering a three year period. Beyond the financial budget, revenue is forecast using a steady growth rate consistent with the markets in which those businesses operate, and for those periods five years or more from the balance sheet date, at a rate not exceeding the long term growth rate for the country of operation. Where existing sales contracts are in place, the effects of such contracts are taken into account in determining future cash flows. Discount Rates Cash flow projections are discounted based on a real post-tax discount rate of 6% (2009: 6%). Adjustments to the rate are made for any risks that are not reflected in the underlying cash flows or to calculate an equivalent pre-tax rate where appropriate.

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Foreign Exchange Rates Foreign exchange rates are based on latest internal forecasts for foreign exchange, benchmarked with external sources of information and relevant countries of operation.

Anheuser-Busch InBev NV Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 15. Intangible Assets 2010 Million US dollar Acquisition cost Balance at end of previous year Effect of movements in foreign exchange Acquisitions through business combinations Acquisitions and expenditures Disposals through the sale of subsidiaries Disposals Transfer to/from other asset categories Balance at end of year Amortization and impairment losses Balance at end of previous year Effect of movements in foreign exchange Amortization Disposals through the sale of subsidiaries Disposals Impairment losses Transfer to/from other asset categories Balance at end of year Carrying value At 31 December 2009 At 31 December 2010

Brands 21,655 (5)

Commercial intangibles 1,449

2009

Software 802

Other 161

Total 24,067

Total 24,330

(36)

(20)

3

(58)

75

15 368

-50

-10

15 428

13 168

-(21)

-(7)

-(1)

-(29)

(583) (44)

-----21,650 --------21,655 21,655

11 1,786

23 848

(4) 169

(400)

(465)

(37)

(902)

(693)

19 (101)

10 (135)

1 (12)

30 (248)

(47) (266)

-25 (2)

73 34 (6) 3 (902)

-17 -(10) (475) 1,049 1,311

-7 (2)

-1 --

30 24,453

2 (583)

11 (36)

3 (1,094)

337 265

124 133

23,165 23,359

108 24,067

23,165 --

AB InBev is the owner of some of the world’s most valuable brands in the beer industry. As a result, certain brands and distribution rights are expected to generate positive cash flows for as long as the company owns the brands and distribution rights. Given AB InBev’s more than 600-year history, certain brands and their distribution rights have been assigned indefinite lives. Acquisitions and expenditures of commercial intangibles mainly represent supply and distribution rights, exclusive multi-year sponsorship rights and other commercial intangibles. Intangible assets with indefinite useful lives are comprised primarily of brands and certain distribution rights that AB InBev purchases for its own products, and are tested for impairment during the fourth quarter of the year or whenever a triggering event has occurred. As of 31 December 2010, the carrying amount of the intangible assets amounted to 23 359m US dollar (31 December 2009; 23 165m US dollar) of which 22 296m US dollar was assigned an indefinite useful life (31 December 2009: 22 265m US Dollar) and 1063m US dollar a finite life (31 December 2009: 900m US dollar). The carrying amount of intangible assets with indefinite useful lives was allocated to the different countries as follows:

Intangible Assets (IAS 38)

167

Million US dollar Country USA Argentina China Paraguay Bolivia UK Uruguay Canada Russia Chile Germany

2010 21,077 354 239 189 169 104 50 40 27 27 20 22,296

2009 21,036 371 231 188 169 109 51 38 27 25 20 22,265

Intangible assets with indefinite useful lives have been tested for impairment using the same methodology and assumptions as disclosed in Note 24 Goodwill. Based on the assumptions described in that note, AB InBev concluded that no impairment charge is warranted. While a change in the estimates used could have a material impact on the calculation of the fair values and trigger an impairment charge, the company is not aware of any reasonable possible change in a key assumption used that would cause a business unit’s carrying amount to exceed its recoverable amount.

BAE Systems Annual Report 2010 Notes to the Group accounts for the year ended 31 December 1.

Accounting Policies

Intangible Assets Goodwill Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of joint ventures and associates is included in the carrying value of equity accounted investments. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Research and Development The Group undertakes research and development activities either on its own behalf or on behalf of customers. Group-funded expenditure on research activities is written off as incurred and charged to the income statement. Group-funded expenditure on development activities applied to a plan or design for the production of new or substantially improved products and processes is capitalised as an internally generated intangible asset if certain conditions are met. The expenditure capitalised includes the cost of materials, direct labour and related overheads. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Capitalised development expenditure is amortised over the expected life of the product. Where the research and development activity is performed for customers, the revenue arising is recognised in accordance with the Group’s revenue recognition policy. Other Intangible Assets Acquired computer software licences for use within the Group are capitalised as an intangible asset on the basis of the costs incurred to acquire and bring to use the specific software. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Capitalised software development expenditure is stated at cost less accumulated amortisation and impairment losses. Group-funded expenditure associated with enhancing or maintaining computer software programmes for sale is recognised as an expense as incurred. Trademarks and licences have definite useful lives and are carried at cost less accumulated amortisation and impairment losses.

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Intangible assets arising from a business combination are recognised at fair value, amortised over their estimated useful lives and subject to impairment testing. The most significant intangible assets recognised by the Group on businesses acquired to date are in relation to programmes. For programme-related intangibles, amortisation is set on a programme-by-programme basis over the life of the individual programme. Amortisation for customer-related intangibles is also set on an individual basis. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the intangible assets. The estimated useful lives are as follows: Programme and customer related Programme and customer related Other Acquired computer software licences Capitalised software development Capitalised research and development expenditure Trademarks and licences Other intangibles

up to 15 years 2 to 5 years 2 to 5 years up to 10 years up to 20 years up to 10 years

11. Intangible Assets

Goodwill £m Cost or valuation At 1 January 2009 Additions: Acquired separately Internally developed Reclassification from equity accounted 3 investments (note 14) 4 Acquisition of subsidiaries (note 29) (restated ) Adjustment on finalisation of provisional 5 goodwill Disposals Transfer from property, plant and equipment Exchange adjustments 4 At 31 December 2009 (restated ) Additions: Acquired separately Internally developed Acquisition of subsidiaries (note 29) 6 Adjustment to fair value of consideration Disposals Asset reclassifications Transfer from property, plant and equipment Transfer from inventories Exchange adjustments At 31 December 2010 Amortisation and impairment At 1 January 2009 Disposals 7 Amortisation charge Impairment charge Exchange adjustments

Programme and customer 1 related £m

Other £m

2

Total £m

13,201

1,728

417

15,346

– – 253

– – –

28 14 –

28 14 253

420 5

225 11

– –

645 16

– – (655) 13,224

– – (144) 1,820

(7) 4 (8) 448

(7) 4 (807) 15,492

– – 161 (64) (12) – – – 279 13,588

– – 37 – – 27 – – 60 1,944

17 2 4 – (6) (27) 3 3 21 465

17 2 202 (64) (18) – 3 3 360 15,997

151 (7) 67 8 (3)

3,040 (7) 286 973 (106)

2,333 – – 725 (55)

556 – 219 240 (48)

Intangible Assets (IAS 38)

At 31 December 2009 Disposals 7 Amortisation charge Impairment charge Asset reclassifications Transfer from property, plant and equipment Exchange adjustments At 31 December 2010 Net book value At 31 December 2010 4 At 31 December 2009 (restated ) At 1 January 2009

169

Goodwill £m 3,003 – – 84 – – 36 3,123 10,465 10,221 10,868

Programme and customer 1 related £m 967 – 327 30 15 – 34 1,373

2

Other £m 216 (6) 65 11 (15) 1 13 285

571 853 1,172

180 232 266

Total £m 4,186 (6) 392 125 – 1 83 4,781 11,216 11,306 12,306

1

Relates to intangible assets recognised on acquisition of subsidiary companies, mainly in respect of ongoing programme relationships and the acquired order book. 2 Other intangibles includes patents, trademarks, software and internally funded development costs. 3 Goodwill arising on the formation of the BVT joint venture in the year ended 31 December 2008 and goodwill associated with the Group’s initial 50% shareholding in Fleet Support Limited was reclassified from equity accounted investments to intangible assets in accordance with IFRS 3 (2004) in 2009 upon acquisition of VT Group’s 45% shareholding in the BVT joint venture (see note 14). 4 Restated following finalisation of the fair values recognised on acquisition of the 45% shareholding in BVT Surface Fleet Limited (see note 29). 5 Adjustment on finalisation of provisional goodwill relating to the acquisition of MTC Technologies, Inc., Tenix Defence Holdings Pty Limited, Tenix Toll Defence Logistics Pty Limited, Detica Group Plc and IST Dynamics in 2008. The amounts were not considered material for the restatement of comparative information in 2009. 6 See note 29. 7 Amortisation is included in operating costs in the income statement. The 2010 charge for programme and customer related intangibles includes an acceleration of amortisation (£137m) reflecting the profile of vehicle deliveries under the Family of Medium Tactical Vehicles contract.

The Group has no indefinite life intangible assets other than goodwill. The Group’s approach to goodwill impairment testing is set out in the accounting policies on page 132. Impairment Testing In order to calculate the recoverable amount of the Group’s goodwill, all goodwill balances have been considered with regard to value in use calculations. These calculations use risk-adjusted future cash flow projections based on the Group’s five-year Integrated Business Plan (IBP) and include a terminal value based on the projections for the final year of that plan, with an inflationary growth rate assumption applied. The IBP process uses historic experience, available government spending data and the Group’s order book. Pre-tax discount rates, derived from the Group’s post-tax weighted average cost of capital of 7.28% (2009 7.72%) (adjusted for risks specific to the market in which the cash-generating unit (CGU) operates), have been used in discounting these projected risk-adjusted cash flows. Significant CGUs 2010 The Group has two CGUs with allocated goodwill which is significant in comparison with the total carrying amount of goodwill, the Electronic Solutions business (£2.0bn) within Electronics, Intelligence & Support (EI&S), and the Land & Armaments business (£3.6bn). The key assumptions underpinning the cash flow projections are, for Electronic Solutions, continuing demand from the US government for electronic warfare systems (where the business has a leadership position) and other technology-based solutions, and for Land & Armaments, the continued demand in the Group’s home markets and from exports for existing and successor military land and tracked vehicles, upgrade programmes and support. The pre-tax discount rates used to discount the risk-adjusted five-year cash flow projections were 9.1% and 9.0%, respectively. The growth rate assumption applied to the final year of these projections was 3%. 2009 The Group had three CGUs with allocated goodwill which was significant in comparison with the total carrying amount of goodwill. These were the US-based electronic warfare, network and mission solu-

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tions business in the EI&S operating group (£2.6bn), and the US-based ex-United Defense Industries, Inc. (UDI) (£2.0bn) and ex-Armor Holdings, Inc. (Armor) (£1.7bn preimpairment below) businesses in the Land & Armaments operating group. The key assumptions underpinning the cash flow projections were, for the EI&S CGU, the continuing demand from the US government for electronic warfare systems, mission solutions and other technology-based solutions, and from non-military agencies for network solutions, and for the Land & Armaments CGUs, the continued demand in the Group’s home markets and from exports for existing and successor military land and tracked vehicles, upgrade programmes and support. The pre-tax discount rates used to discount the risk-adjusted five-year cash flow projections were 9.9%, 9.8% and 10.3%, respectively. The growth rate assumption applied to the final year of these projections was 3% (2% for Armor). Whilst there are no other CGUs with allocated goodwill balances exceeding 15% of the Group’s total goodwill balance, the majority of the projected cash flows within the remaining CGUs are underpinned by expected levels of government spending on defence and security, and the Group’s ability to capture a broadly consistent market share. The directors have not identified any reasonably possible material changes relating either specifically to the global military vehicle market, or to the levels of defence and security spending in the Group’s home markets, particularly in the US, that would cause the carrying value of goodwill to exceed its recoverable amount. The Group continues to monitor changes in US defence budgets on an annual basis. Impairment—Goodwill 2010 The total goodwill impairment charge of £84m mainly arose in Surface Ships (£70m) reflecting the underperformance of the ex-VT Group export ship contracts. The pre-tax discount rate was 10.4%. 2009 The total goodwill impairment charge of £725m mainly arose in three CGUs, Armor (£526m), Products Group (£156m) and Detica (£34m). The Armor impairment charge reflected both the non-award of a follow-on contract for production of vehicles under the Family of Medium Tactical Vehicles (FMTV) programme and the subsequent impact on the growth prospects of the business. The Products Group impairment charge reflected a weaker outlook for the business as spending from customer discretionary budgets had reduced in both domestic and export markets. The pre-tax discount rate used was 9.5%. The Detica impairment charge related to the discontinued financial services element of the business. The pre-tax discount rate used was 10.0%. Impairment—Intangible Assets 2010 The total intangible assets impairment charge of £41m comprises £30m relating to programme and customer related intangibles, and £11m relating to other intangibles. The charge impacted the EI&S (£8m), Land & Armaments (£25m) and Programmes & Support (£8m) operating groups. 2009 The total intangible assets impairment charge of £248m comprised £240m relating to programme and customer related intangibles, and £8m relating to other intangibles. The charge impacted the EI&S (£8m), Land & Armaments (£236m) and International (£4m) operating groups. The charge relating to Land & Armaments included £108m in respect of the Products Group business, £66m relating to the FMTV non-award and a number of individually small items each calculated on a programme-by-programme basis.

Intangible Assets (IAS 38)

171

BHP Billiton Annual Report 2010 Notes to Financial Statements for the year ended 30 June 2010 14 Intangible Assets 2010 Other Goodwill intangibles US$M US$M Cost At the beginning of the financial year Additions Disposals Exchange variations taken to reserves Transfer to assets held for sale Transfers and other movements At the end of the financial year Accumulated amortisation and impairments At the beginning of the financial year Disposals Charge for the year Impairments for the year Exchange variations taken to reserves Transfer to assets held for sale Transfers and other movements At the end of the financial year (a) Total intangible assets (a)

Total US$M

2009 Other Goodwill intangibles US$M US$M

Total US$M

398 ----(28) 370

426 85 (8) (1) -(5) 497

824 85 (8) (1) -(33) 867

442 ---(27) (17) 398

418 141 (22) (3) -(108) 426

860 141 (22) (3) (27) (125) 824

--------370

163 (8) 27 -(1) -(1) 180 317

163 (8) 27 -(1) -(1) 180 687

---27 -(27) --398

235 (16) 19 7 (2) -(80) 163 263

235 (16) 19 34 (2) (27) (80) 163 661

The Group’s aggregate net book value of goodwill is US$370 million (2009: US$398 million), representing less than one per cent of net equity at 30 June 2010 (2009: less than two per cent). The goodwill is allocated across a number of cash generating units (CGUs) in different Customer Sector Groups, with no CGU or Customer Sector Group accounting for more than US$150 million of total goodwill.

CNP Assurances Annual Financial Report 2010 Note to the consolidated financial statements for the year ended 31 December 2010 Note 7 Intangible Assets 7.1 Intangible Assets by Category

In € millions (1) Goodwill (2) Value of business in force Value of distribution agreements Software Internally-developed software Other Other TOTAL (1) (2)

Cost 849.5 472.1 180.2 229.0 93.7 135.3 161.9 1,892.7

Amortisation (63.1) (197.2) (9.6) (193.5) (73.0) (120.5) 0.0 (463.4)

31.12.2010 Impairment losses (104.0) (147.1) 0.0 (0.1) 0.0 (0.1) 0.0 (251.2)

Impairment reversals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Carrying amount 682.5 127.8 170.6 35.4 20.7 14.8 161.9 1,178.2

Prior to transition to IFRS on 1 January 2005, intangible assets were amortised under Local GAAP. The amount of impairment before tax is recorded in the income statement under “Amortisation of value of In-Force business acquired.”

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In € millions (1) Goodwill (2) Value of business in force Software Internally-developed software Other TOTAL (1) (2)

(2)

7.2

Amortisation (58.5) (158.3) (181.7) (69.9) (111.8) (398.5)

Impairment reversals 0.0 0.0 0.0 0.0 0.0 0.0

Carrying amount 775.6 70.2 31.8 13.5 18.2 877.6

Prior to transition to IFRS on 1 January 2005, intangible assets were amortised under Local GAAP. The amount of impairment before tax is recorded in the income statement under “Amortisation of value of In-Force business acquired.”

In € millions (1) Goodwill (2) Value of business in force Software Internally-developed software Other TOTAL (1)

Cost 938.1 356.2 213.6 83.5 130.1 1,507.9

31.12.2009 Impairment losses (104.0) (127.7) (0.1) 0.0 (0.1) (231.8)

Cost 775.5 286.1 195.4 79.1 116.3 1,257.0

Amortisation (63.3) (116.9) (166.1) (67.1) (99.0) (346.3)

31.12.2008 Impairment losses 0.0 0.0 (0.1) 0.0 (0.1) (0.1)

Impairment reversals 0.0 0.0 0.0 0.0 0.0 0.0

Carrying amount 712.2 169.2 29.2 12.0 17.2 910.6

Prior to transition to IFRS on 1 January 2005, intangible assets were amortised under Local GAAP. The amount of impairment before tax is recorded in the income statement under “Amortisation of value of In-Force business acquired.”

Goodwill

7.2.1 Goodwill by Company In € millions Global Global Vida La Banque Postale Prévoyance Caixa group CNP UniCredit Vita Marfin Insurance Holdings Ltd Barclays Vida y Pensiones TOTAL

Original goodwill 34.4 17.8 45.8 360.6 366.5 81.6 60.0 966.7

Net goodwill at Net goodwill at Net goodwill at 30 December 2010 31 December 2009 31 December 2008 0.0 0.0 25.8 0.0 0.0 13.3 22.9 22.9 22.9 270.9 239.8 184.6 247.0 262.5 366.5 81.6 85.9 99.1 60.0 164.5 682.5 775.6 712.2

The Group’s annual goodwill impairment testing procedures are described in Note 3.9.1. The recoverable amount of the CGUs to which the entities listed above have been allocated corresponds to their value in use, based on net asset value plus expected future cash flows from existing policies and new business. Expected future revenues are estimated by taking the embedded value of In-Force insurance policies and financial instruments, and the value of new business. CNP UniCredit Vita The expected future cash flows are taken from the five-year business outlook (2010-2015) validated by management and extrapolated using a stable or decreasing growth rate for new business between 2018 and 2029, and then discounted to present value using a post-tax discount rate of 7.89% in line with the average weighted cost of capital. As explained in the summary of significant accounting policies, the recoverable amount is determined based on the assumption that the distribution agreement will be renewed. At end-May 2010, UniCredit and CNP Assurances signed an agreement aimed at strengthening their partnership, notably through the intention of both partners to develop a personal risk business. The partners also decided that the distribution agreement should be tacitly renewable at the end of the current contractual term (2017). The decrease in the value of goodwill attributable to CNP UniCredit Vita is due to adjustments to the acquisition price booked over the period. At 31 December 2010, a comparison of the recoverable amount and the carrying amount, and the application of a range of reasonable discount rates to future cash flows did not result in the recognition of an impairment loss provision.

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At 31 December 2009, impairment totalling €104 million was recognised in order to bring the carrying amount back into line with the recoverable amount of goodwill calculated at the same date. Caixa Group The expected future cash flows are taken from the five-year business outlook (2010-2015) validated by management and extrapolated using a stable or decreasing growth rate for new business between 2015 and 2029, and then discounted to present value using a post-tax discount rate of approximately 13%. At 31 December 2010, as in the previous period, a comparison of the recoverable amount and the carrying amount, and the application of a range of reasonable discount rates to future cash flows did not result in the recognition of an impairment loss provision. At present, based only on an analysis of forecast cash flows through to the end of the current agreement in force (2021), there is no need to recognise an impairment loss provision. Marfin Insurance Holdings Ltd The expected future cash flows are taken from the five-year business outlook (2010-2015) validated by management and extrapolated using a stable or decreasing growth rate for new business between 2015 and 2029 (i.e., one year after the end of the current agreement in force), and then discounted to present value using post-tax discount rates of approximately 9% and 13% for the Cypriot and Greek businesses, respectively. At 31 December 2010, as in the previous period, a comparison of the recoverable amount and the carrying amount, and the application of a range of reasonable discount rates to future cash flows did not result in the recognition of an impairment loss. The decrease in the value of goodwill attributable to Marfin Insurance Holdings Ltd is due to adjustments to the acquisition price - actually paid, or estimated and relating to future periods – that were booked during the period. Barclays Vida y Pensiones The expected future cash flows are taken from the five-year business outlook (2010-2015) validated by management and extrapolated using a stable or decreasing growth rate for new business between 2015 and 2034 (when the current agreement with Barclays expires), and then discounted to present value using post-tax discount rates of 8.33%, 9.13% and 7.89% for the Spanish, Portuguese and Italian businesses, respectively. At 31 December 2010, a comparison of the recoverable amount and the carrying amount, and the application of a range of reasonable discount rates to future cash flows did not result in the recognition of an impairment loss. The year-on-year decrease in the value of goodwill attributable to Barclays Vida y Pensiones is due to the completion of the acquisition audit work during the period (see Note 5.2).

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CNP Assurances Annual Financial Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Global and Global Vida Global and Global Vida were sold on 3 March 2010. 7.2.2 Changes in Goodwill for the Period In € millions Carrying amount at the beginning of the period Goodwill recognised during the period Adjustments to provisional accounting Adjustments resulting from changes in earnouts Adjustments resulting from subsequent recognition of deferred tax assets Translation adjustment on gross value Other movements Impairment losses Translation adjustment on movements during the period Increase in interest rates Non-current assets held for sale and discontinued operations CARRYING AMOUNT AT THE END OF THE PERIOD

7.3

31.12.2010 775.6 0.0 (104.4) (4.3) 0.0

31.12.2009 712.2 164.5 (13.2) 0.0 0.0

31.12.2008 659.2 99.1 0.0 0.0 0.0

35.7 (15.5) 0.0 (4.6) 0.0 0.0 682.5

63.4 0.0 (104.0) (8.2) 0.0 (39.1) 775.6

(52.9) 0.0 0.0 6.8 0.0 0.0 712.2

Value of In-Force Business and Distribution Agreements

7.3.1 Value of Business in Force In € millions Caixa group (1) CNP UniCredit Vita CNP Vida CNP Seguros de Vida (2) Marfin Insurance Holdings Ltd Barclays Vida y Pensiones(3) TOTAL

Original value 122.6 175.3 24.0 0.9 44.4 101.4 468.6

Carrying amount at Carrying amount at Carrying amount at 31 December 2010 31 December 2009 31 December 2008 8.4 10.1 10.0 0.0 0.0 136.8 0.0 20.7 21.9 0.1 0.3 0.5 35.3 39.1 0.0 84.0 0.0 0.0 127.8 70.2 169.2

(1)

At 31 December 2009, the Group’s share of the value of CNP Unicredit Vita’s In-Force business was written down in full for an amount of €45 million net of tax. (2) In-Force business was recognised for an amount of €44.4 million following completion of the acquisition audit work, based on a 100% share. (3) In-Force business was recognised for an amount of €101.4 million following completion of the acquisition audit work, based on a 100% share.

7.3.2 Changes in the Value of Business in Force In € millions Gross at the beginning of the period Newly-consolidated companies Translation reserve Acquisitions for the period Disposals for the period Gross at the end of the period Accumulated amortisation and impairment at the beginning of the period Translation adjustments (1) Amortisation for the period (2) Impairment losses recognised during the period Impairment losses reversed during the period Disposals for the period Accumulated amortisation and impairment at the end of the period CARRYING AMOUNT AT THE END OF THE PERIOD (1)

31.12.2010 356.2 0.0 14.5 101.4 0.0 472.1 (289.7) (13.3) (21.9) (19.4) 0.0 0.0 (344.3) 127.8

31.12.2009 286.1 0.0 25.7 44.4 0.0 356.2 (116.9) (23.0) (22.1) (127.7) 0.0 0.0 (289.7) 66.5

31.12.2008 307.7 0.0 (21.6) 0.0 0.0 286.1 (121.3) 18.8 (14.4) 0.0 0.0 0.0 (116.9) 169.2

At 31 December 2009, pending final calculation of the value of Barclays Vida y Pensiones’ In-Force business, the Group recognised a charge of €3.7 million (the Group’s pre-tax share was €1.8 million) to reflect the amortisation of In-Force

Intangible Assets (IAS 38)

(2)

175

business in the consolidated financial statements. However, the value of the goodwill recognised for Barclays Vida y Pensiones (value of €164.5 million) was not written down by the estimated amount of the amortization of In-Force business so as not to pre-empt the work involved in calculating final goodwill. In view of the relatively small amount involved, the amount of goodwill initially estimated and recognised for Barclays Vida y Pensiones (i.e., €164.5 million) has not been reduced by the aforementioned amortisation charge. At 31 December 2010, impairment related to the value of CNP Vida’s In-Force business. At 31 December 2009, the amount of impairment before tax of the value of CNP UniCredit Vita’s In-Force business was recorded in the income statement under “Amortisation of value of In-Force business acquired.”

7.3.3 Distribution Agreements In € millions Carrying amount at the beginning of the period Acquisitions for the period Amortisation for the period Adjustments Impairment losses Translation adjustments Other movements CARRYING AMOUNT AT THE END OF THE PERIOD

31.12.2010 0.0 180.2 (9.6) 0.0 0.0 0.0 0.0 170.6

31.12.2009 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

31.12.2008 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

At 31 December 2010, the Group recognised €180.2 million before taxes in respect of distribution agreements with Barclays Vida y Pensiones, based on a 100% share. 7.4

Software

7.4.1 Internally-Developed Software In € millions Carrying amount at the beginning of the period Acquisitions for the period Amortisation for the period Impairment losses Translation adjustments Other movements CARRYING AMOUNT AT THE END OF THE PERIOD

31.12.2010 13.5 10.2 (3.0) 0.0 0.0 0.0 20.7

31.12.2009 12.0 4.4 (2.9) 0.0 0.0 0.0 13.5

31.12.2008 10.1 5.1 (3.2) 0.0 0.0 0.0 12.0

31.12.2010 18.2 170.8 (8.6) (3.7) 0.0 0.0 176.7

31.12.2009 17.2 13.1 (12.0) (0.1) 0.0 0.0 18.2

31.12.2008 18.0 9.9 (9.1) (1.9) 0.0 0.3 17.2

7.4.2 Other S and Other Intangible Assets In € millions Carrying amount at the beginning of the period Acquisitions for the period Amortisation for the period Impairment losses Translation adjustments Other movements CARRYING AMOUNT AT THE END OF THE PERIOD

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Compass Group Annual Report 2010 Accounting Policies for the year ended 30 September 2010 10 Other Intangible Assets

Other intangible assets Cost At 1 October 2008 Additions Disposals Business acquisitions Reclassified Currency adjustment At 30 September 2009 At 1 October 2009 Additions Disposals Business acquisitions Reclassified Currency adjustment At 30 September 2010 Amortisation At 1 October 2008 Charge for the year Disposals Business acquisitions Reclassified Currency adjustment At 30 September 2009 At 1 October 2009 Charge for the year Disposals Business acquisitions Reclassified Currency adjustment At 30 September 2010 Net book value At 30 September 2009 At 30 September 2010

Contract and other intangibles Computer Arising on software acquisition Other £m £m £m

Total £m

160 15 (5) – 27 18 215 215 19 (3) 1 7 1 240

65 – (1) 28 – 10 102 102 – – 21 – 4 127

428 102 (38) – 3 49 544 544 103 (33) 4 26 6 650

653 117 (44) 28 30 77 861 861 122 (36) 26 33 11 1,017

80 21 (3) – 18 10 126 126 25 (2) – 3 – 152

3 7 (1) – – – 9 9 7 – – – – 16

177 68 (32) – – 20 233 233 65 (31) – 8 4 279

260 96 (36) – 18 30 368 368 97 (33) – 11 4 447

311 371

493 570

89 88

93 111

Contract-related intangible assets, other than those arising on acquisition, result from payments made by the Group in respect of client contracts and generally arise where it is economically more efficient for a client to purchase assets used in the performance of the contract and for the Group to fund these purchases.

Intangible Assets (IAS 38)

177

Danske Bank Group Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 Intangible assets 2010 Goodwill Cost at 1 January 18,250 Additions 388 Disposals Foreign currency translation 135 Cost at 31 December 18,773 Amortisation and impairment charges at 1 January Amortisation charges during the year Impairment charges during the year Reversals of amortisation and impairment charges Foreign currency translation Amortisation and impairment charges at 31 December Carrying amount at 31 December 18,773 Amortisation period Annual impairment test

Software developed 2,515 346 2,861 1,480 415 32 1 1,928 933 3 years

Customer relations 4,435 62 4,497 1,345 437 56 1,838 2,659 3-10 years

2009 Cost at 1 January 19,573 Additions Disposals 1,458 Foreign currency translation 135 Cost at 31 December 8,250 Amortisation and impairment charges at 1 January Amortisation charges during the year Impairment charges during the year 1,458 Reversals of amortisation and impairment charges 1,458 Foreign currency translation Amortisation and impairment charges at 31 December Carrying amount at 31 December 18,250 Amortisation period Annual impairment test

2,194 321 2,515 963 517 -1,480 1,035 3 years

4,369 66 4,435 838 436 71 1,345 3,090 3-10 years

Other 1,144 6 1 1,151 482 100 -2 580 571

Total 26,344 740 198 27,282 3,307 952 32 55 4,346 22,936

1,144 11 9 -2 1,144 385 106 9 482 662

27,280 332 1,467 199 26,344 2,186 1,059 1,458 1,467 71 3,307 23,037

Other intangible assets were recognised at the acquisition of the Sampo Bank group in 2007 and include contractual rights of DKK 75 million (2009: DKK 145 million) and rights to names of DKK 465 million (2009: DKK 463 million). Contractual rights are amortised over 1-5 years. Rights to names relate to the use of the Sampo Bank brand name. In management’s opinion, the right to use the name has an indefinite useful life, as the name is well-established. Rights to names are therefore not amortised but subject to annual impairment testing. In 2010, the Group expensed DKK 2,128 million (2009: DKK 2,097 million) for development projects, primarily planning costs.

Holcim Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 15 Research and Development Research and development projects are carried out with a view to generate added value for customers through end user oriented products and services. Additionally, process innovation aims at environmental protection and production system improvements. Research and development costs of CHF 15 million (2009: 17) were charged directly to the consolidated statement of income. No significant costs were incurred for licenses obtained from third parties, nor was any major revenue generated from licenses granted.

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Goodwill

Other intangible assets

Total

8,926 31 2 (27) 0 (23) (765) 8,144

1,057 14 31 (4) (119) 0 (62) 917

9,983 45 33 (31) (119) (23) (827) 9,061

At cost of acquisition Accumulated amortization/impairment Net book value as at December 31

8,179 (35) 8,144

1,541 (624) 917

9,720 (659) 9,061

2009 Net book value as at January 1 Change in structure Additions Disposals Amortization Impairment loss (charged to statement of income) Currency translation effects Net book value as at December 31

8,378 1 395 30 (3) 0 (4) 130 8,926

928 174 44 0 (119) 0 30 1,057

9,306 569 74 (3) (119) (4) 160 9,983

At cost of acquisition Accumulated amortization/impairment Net book value as at December 31

8,938 (12) 8,926

1,562 (505) 1,057

10,500 (517) 9,983

Million CHF 2010 Net book value as at January 1 Change in structure Additions Disposals Amortization Impairment loss (charged to statement of income) Currency translation effects Net book value as at December 31

1

Included in this amount is the net goodwill arising on the acquisition of Holcim Australia and Cement Australia (consolidated) in the amount of CHF 303 million.

The other intangible assets included above have finite useful lives, over which the assets are amortized. The amortization expense relating to intangible assets with finite useful lives is recognized mainly in administration expenses.

Chapter 15 INVESTMENT PROPERTY (IAS 40)

1.

OBJECTIVE

1.1 This Standard prescribes the accounting treatment for investment property and related disclosures. 1.2 This Standard does not apply to owner-occupied property, property held for sale in the ordinary course of business, or property that is leased to another entity under a finance lease or being constructed or developed on behalf of third parties. 2.

SYNOPSIS OF THE STANDARD

The summary of this Standard that shall be applied in the recognition, measurement, and disclosure of investment property is presented here. 2.1 This Standard defines investment property as land or a building or a part of a building or both held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. 2.2

An entity shall recognize an investment property when and only when • It is probable that the expected future economic benefits will flow to the entity. • The cost of the asset can be reliably measured.

2.3 Investment property is initially measured at cost. Cost will include the purchase price and any costs needed to prepare the asset for its intended use. 2.3.1 The initial cost of a property under lease that is classified as investment property shall be recognized at the lower of the fair value of the property and the present value of the minimum lease payments in accordance with International Accounting Standard (IAS) 17, Leases. 2.3.2 Subsequent to acquisition, investment properties can be valued either at cost less accumulated depreciation (cost model) and impairment or at fair value (fair value model). However, the property interest held under an operating lease by a lessee that is classified as investment property should be valued under the fair value model. 2.3.3 Under the cost model, all the investment property held by the entity must be measured in accordance with the requirements of IAS 16, Property, Plant and Equipment, unless they are clas179

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sified as held for sale; in that case, they shall be measured in accordance with International Financial Reporting Standard (IFRS) 5, Non-Current Assets Held for Sale and Discontinued Operations. 2.3.4 Under the fair value method, all the investment property held by the entity must be measured at fair value at the end of each reporting period, and the increase or decrease in the fair value should be recorded in the statement of income. 2.3.5 In case the fair value of the investment property that is under construction is not reliably determinable until construction is complete, investment property should be measured at cost until its fair value can be determined or the construction is complete, whichever is earlier. 2.4 Transfers to and from investment property to other type of assets is permitted when there is evidence that there is a change of use of that asset. Examples include the transfer of investment property to owner-occupied property when the entity occupies the property for its own use. 2.4.1 If the entity uses the cost principle in valuing investment property, the transfer will effectively use the carrying value of the asset before the transfer (i.e., cost less accumulated depreciation and impairment). 2.4.2 If the entity uses the fair value method, then a new valuation will be made at the time of the transfer, and the loss or gain will be recorded in the profit and loss statement. The new fair value will be the new basis of the asset recorded going forward. 2.5

Disposals

2.5.1 When investment property is disposed of or derecognized, the gain or loss on disposal or retirement must be recognized in the profit and loss. 3.

DISCLOSURE REQUIREMENTS The next general and specific disclosures shall be made in the financial statements.

3.1

Fair Value and Cost Model

3.1.1 An entity shall disclose • Whether it applies the cost or fair value model • If it applies the fair value model, whether and under what circumstances property interests held under operating leases are classified and accounted for as investment property • When classification is difficult, the criteria used to distinguish investment property, owner-occupied property, and property held for disposal in the ordinary course of business • The methods used and significant assumptions made in determining fair value, including a statement whether the determination of fair value was supported by market evidence or was more heavily based on other factors (which the entity shall disclose) because of the nature of the property and lack of comparable market data • The extent to which fair values are based on assessments by an independent and qualified valuer; if there are no such valuations, that fact shall be stated • The amounts recognized in the profit and loss for • • • •

Rental income from investment property Direct operating expenses that generated rental income Direct operating expenses that did not generate rental income Cumulative change in fair value recognized in the statement of income on sale of investment property from a pool of assets in which the cost model is used into a pool in which the fair value model is used

• Existence and amounts of restrictions on the reliability of investment property; or for the remittance of income and proceeds on disposal • Contractual obligations to purchase, construct, or develop investment property or for repairs, maintenance, or enhancements

Investment Property (IAS 40)

3.2

181

Fair Value Model

3.2.1 An entity shall also disclose • A reconciliation of the opening and closing carrying values of investment property, showing Additions, showing separately acquisitions, subsequent expenditure, and additions through business combinations Assets classified as held for sale under IFRS 5 Net gains or losses from fair value adjustments Net exchange differences arising on translation of financial statements in a different reporting currency Transfers to and from inventories and owner-occupied property Other changes

• • • • • •

• When fair value cannot be measured reliably and the asset is stated in accordance with IAS 16, such assets shall be disclosed separately from those at fair value. 3.3

Cost Model

3.3.1 For investment properties measured under the cost model, an entity shall also disclose • Depreciation methods used • Useful lives or depreciation rates used • A reconciliation of the opening and closing gross carrying amounts and the accumulated depreciation and impairment losses, showing • Additions, showing separately acquisitions, subsequent expenditure, and additions through business combinations • • • • • • • • • •

Assets classified as held for sale under IFRS 5 Depreciation Impairment losses recognized and reversed Net exchange differences Transfers to and from inventories and owner-occupied property Other changes The fair value of investment property and, if fair value cannot be reliably measured Explanation as to why fair value cannot be reliably measured Range of estimates, if possible, within which the fair value is highly likely to fall Disposals of investment property not carried at fair value

EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Aviva plc Annual Report and Accounts 2010 (in £ millions) Notes to the consolidated financial statements Accounting policies (A) Basis of Presentation Since 2005, all European Union listed companies have been required to prepare consolidated financial statements using International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union (EU). The date of transition to IFRS was 1 January 2004. In addition to fulfilling their legal obligation to comply with IFRS as adopted by the European Union, the Group and Company have also complied with IFRS as issued by the International Accounting Standards Board and applicable at 31 December 2010.

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(P) Investment Property Investment property is held for long-term rental yields and is not occupied by the Group. Completed investment property is stated at its fair value, which is supported by market evidence, as assessed by qualified external valuers or by local qualified staff of the Group in overseas operations. Changes in fair values are recorded in the income statement in net investment income. 21 Investment Property This note gives details of the properties we hold for long-term rental yields or capital appreciation

Carrying value At 1 January 2009 Additions Capitalised expenditure on existing properties Fair value losses Disposals Transfers from property and equipment (note 20) Foreign exchange rate movements At 31 December 2009 Less: Amounts classified as held for sale At 1 January 2010 Additions Capitalised expenditure on existing properties Fair value losses Disposals Transfers from property and equipment (note 20) Foreign exchange rate movements At 31 December 2010 Less: Amounts classified as held for sale

Freehold £m

Leasehold £m

Total £m

12,501 319 64 (917) (785) 28 (453) 10,757 — 10,757

1,925 49 9 (167) (143) 35 (35) 1,673 (8) 1,665

14,426 368 73 (1,084) (928) 63 (488) 12,430 (8) 12,422

10,757 800 35 336 (610) (2) (75) 11,241

1,673 278 13 85 (215) 1 (12) 1,823

12,430 1,078 48 421 (825) (1) (87) 13,064

Investment properties are stated at their market values as assessed by qualified external valuers or by local qualified staff of the Group in overseas operations, all with recent relevant experience. Values are calculated using a discounted cash flow approach and are based on current rental income plus anticipated uplifts at the next rent review, assuming no future growth in rental income. This uplift and the discount rate are derived from rates implied by recent market transactions on similar properties. The fair value of investment properties leased to third parties under operating leases at 31 December 2010 was 12,924 million (2009: £11,750 million). Future contractual aggregate minimum lease rentals receivable under the non-cancellable portion of these leases are given in note 53(b)(i).

AXA Annual Report 2010 (in euro millions) Notes to the consolidated financial statements 1.2. General Accounting Principles 1.2.1 Basis for Preparation The consolidated financial statements are prepared in compliance with IFRS standards and IFRIC interpretations that are definitive and effective as of December 31, 2010, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. In addition, the adoption of the new IFRS 9 standard published by the IASB in November 2009 and amended in October 2010 has not been yet formally submitted to the European Union. However, the Group would not have used the earlier adoption option as of today. As a consequence, the consolidated financial statements also comply with IFRSs as issued by the International Accounting Standards Board (IASB). 1.7.1. Investment in Real Estate Properties Investment in real estate properties (excluding investment in real estate properties totally or partially backing liabilities arising from contracts where the financial risk is borne by policyholders and from

Investment Property (IAS 40)

183

“with-profit” contracts) is recognized at cost. The properties components are depreciated over their estimated useful lives, also considering their residual value if it may be reliably estimated. In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains) represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-byline approach until the 10% threshold is reached. If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment). Investment in real estate properties that totally or partially back liabilities arising from contracts where the financial risk is borne by policyholders is recognized at fair value with changes in fair value through profit or loss. Until the sale operation on the UK Life and Savings business, fair value was also applied to real estate assets that were used as the dividend basis of “with profit” contracts. 9.2. Investment in Real Estate Properties Investment in real estate properties include buildings owned directly and through real estate subsidiaries. Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: December 31, 2010 (in Euro million) Investment in real estate properties at amortized cost Insurance Banking and other activities All activities (a)

Gross value

Amortization

16,606 2,833 19,440

(a)

December 31, 2010

Impairment

Carrying value

Fair value

Gross value

(1,569)

(451)

14,586

18,464

15,199

(169) (1,737)

(230) (681)

2,435 17,021

3,003 21,467

2,883 18,082

(a)

Impairment

Carrying value

Fair value

(1,396)

(430)

13,373

16,886

(200) (1,596)

(227) (657)

2,456 15,829

2,896 19,781

Amortization

Assets and liabilities related to the Australian and New Zealand operations, and some UK Life & Savings portfolios for which the disposal process is not finalized as of December 31, 2010 are classified as held for sale. This classification already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3).

Fair value is generally based on valuations performed by qualified property appraisers. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations. Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): Impairment – Investment In real estate properties

Amortisation – Investment In real estate properties

(a) (a) (a) (a) (in Euro million) December 31, 2010 December 31, 2009 December 31, 2010 December 31, 2010 Opening value 657 250 1,596 1,484 Increase for the period 49 483 248 255 Write back following sale (11) (3) (53) (117) Write back following recovery in value (31) (48) (b) 17 (25) (54) Others (26) 681 657 1,737 1,596 Closing Value (a)

(b)

Assets and liabilities related to the Australian and New Zealand operations, and some UK Life & Savings portfolios for which the disposal process is not finalized as of December 31, 2010 are classified as held for sale. This classification already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3). Mainly includes change in scope and the effect of changes in exchange rates.

In 2009, the impairment increase for the period amounted to €483 million, of which €227 million without impact on AXA net income Group Share, as related to some real estate funds operated by AXA Investments Managers in which AXA has no material investment but exercises control under IFRS principles.

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BAE Systems Annual Report 2010 (in £ millions) Notes to the Group accounts 1.

Accounting Policies

Basis of Preparation The consolidated financial statements of BAE Systems plc have been prepared on a going concern basis and in accordance with EU-endorsed International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee interpretations (IFRICs) and the Companies Act 2006 applicable to companies reporting under IFRS. Investment Property Land and buildings that are leased to non-Group entities are classified as investment property. The Group measures investment property at its cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided, on a straight-line basis, to write off the cost of investment property over its estimated useful life of up to 50 years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. 13. Investment Property £m Cost At 1 January 2009 Transfer from property, plant and equipment At 31 December 2009 Additions Transfer from property, plant and equipment Disposals At 31 December 2010

153 2 155 14 15 (7) 177

Depreciation and impairment At 1 January 2009 Depreciation charge for the year At 31 December 2009 Depreciation charge for the year Transfer from property, plant and equipment Disposals At 31 December 2010

41 3 44 3 1 (5) 43

Net book value of investment property At 31 December 2010 At 31 December 2009 At 1 January 2009

134 111 112

Fair value of investment property At 31 December 2010 At 31 December 2009

233 166

The fair values above are based on and reflect current market values as prepared by in-house professionals. The valuations were prepared by persons having the appropriate professional qualification, and with recent experience of valuing properties in the location and of the type being valued.

Rental income from investment property

2010 £m 22

2009 £m 20

Investment Property (IAS 40)

185

CNP Assurances Annual Report 2010 (in € millions) Notes to the consolidated financial statements Note 3 Summary of significant accounting policies 3.1 Statement of Compliance In accordance with EU Directive 1606/2002/EC of 19 July 2002, the consolidated financial statements have been prepared in accordance with the IFRSs adopted by the European Union before 31 December 2010. 3.10.1 Investments Property Investment property is property (land or building) held to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes, or for sale in the ordinary course of business. The Group has elected to measure investment and operating properties using the cost model under IAS 40 and IAS 16, except for properties held in unit-linked portfolios which are measured at fair value. Details of the fair value of properties measured using the cost model are also disclosed in these notes to the financial statements. Fair value corresponds to the probable realizable value of properties and shares in unlisted property companies. It is determined on the basis of five-year valuations performed by a qualified expert recognised by the French prudential control authority (Autorité de Contrôle Prudentielle—ACP). In the period between two five-year valuations, fair value is estimated at each year-end and the amounts obtained are certified by a qualified expert. Under the cost model, properties are measured at cost less accumulated depreciation and any accumulated impairment losses. Borrowing costs directly attributable to acquisition or construction are included in the cost of the asset and expensed once the building is in use. For the purpose of determining depreciation periods, properties are considered as comprising five significant parts with different useful lives: • • • • •

Land; Shell and roof structure; Facades and roofing; Fixtures; Technical installations.

Maintenance costs are added to the cost of the part of the property to which they relate when it is probable that they will generate future economic benefits and they can be measured reliably. Expenses directly attributable to the purchase of a property are included in its cost and depreciated over the useful life of the shell. Depreciation Depreciation is calculated on a straight-line basis to write off the acquisition or construction cost of each significant part of a property over its estimated useful life. Due to the difficulty of reliably determining the residual value of property, investment and operating properties are considered as having no residual value. Depreciation periods are based on the estimated useful lives of the significant parts of each property, with the exception of land which is not depreciated. These periods are as follows: • • • •

Shell: 50 years; Facades and roofing: 30 years, except for warehouses, factories, shopping centres and cinemas: 20 years; Technical installations: 20 years; Fixtures: 10 years.

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Impairment At each period-end, properties are assessed to determine whether there is any indication that they may be impaired. One such indicator is a loss of over 20% of the building’s value measured against cost. If any such indicators are found to exist, the recoverable amount of the building in question is estimated. The recoverable amount of a property is the higher of its value in use and its market price less costs to sell, as determined by annual independent valuations of the Group’s entire property portfolio. Note 8 Investment and Owner-Occupied Property The purpose of this note is to show depreciation and impairment losses recognised/reversed during the period through profit in respect of property and the captions impacted by the movements. It presents: • •

•

The gross carrying amount and accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; A reconciliation of the carrying amount of investment property at the beginning and end of the period, showing (i) additions; (ii) disposals; (iii) depreciation; (iv) impairment losses recognised and reversed during the period; (v) the net exchange differences arising on the translation of the financial statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting entity; (vi) transfers to and from inventories and owner-occupied property and (vii) other changes; The fair value of investment properties held in unit-linked portfolios.

8.1 Investment Property In £ millions Carrying amount of investment property

31.12.2010

31.12.2009

31.12.2008

Investment property measured by the cost model Gross value Accumulated depreciation Accumulated impairment losses Carrying amount

1,159.9 (344.7) (22.5) 792.7

1,182.8 (339.0) (25.9) 817.9

1,482.1 (431.4) (15.5) 1,035.2

Investment property measured by the fair value model Gross value Total investment property

485.3 1,278.0

466.1 1.284.1

520.6 1,555.8

817.9 3.0

1,035.2 0.4

1,053.6 0.0

10.8 0.0 (36.7) (22.4) (2.1) 19.1 0.0 3.1

59.3 0.0 (347.5) (27.1) (11.2) 114.0 0.0 (0.1)

15.2 0.0 (4.4) (29.5) (3.5) 1.9 0.0 1.9

0.0 792.7

(5.2) 817.9

0.0 1,035.2

Investment property (other than property held in linked liabilities) Carrying amount at the beginning of the period Acquisitions Post-acquisition costs included in the carrying amount of property Properties acquired through business combinations Disposals Depreciation for the period Impairment losses recognised during the period Impairment losses reversed during the period Translation adjustments Other movements Non-current assets held for sale and discontinued operations Carrying amount at the end of the period

Investment Property (IAS 40)

187

In € millions Investment property held in linked liabilities Carrying amount at the beginning of the period Acquisitions Post-acquisition costs included in the carrying amount of property Properties acquired through business combinations Disposals Net gains (losses) arising from remeasurement at fair value Translation adjustments Transfers to inventory or owner-occupied property Transfers from inventory or owner-occupied property Other movements CARRYING AMOUNT AT THE END OF THE PERIOD

31.12.2010 466.1 3.0 0.2 0.0 (2.5) 27.6 0.0 0.0 0.0 (9.1) 485.3

31.12.2009 520.6 7.6 0.0 0.0 (30.7) (40.2) 0.0 0.0 0.0 8.8 466.1

31.12.2008 445.7 87.8 0.0 0.0 0.0 (8.3) 0.0 0.0 0.0 (4.6) 520.6

As explained in the description of significant accounting policies, investment properties backing linked liabilities are measured at fair value, while other investment properties are measured using the cost model.

In € millions Owner-occupied property Carrying amount at the beginning of the period Acquisitions Post-acquisition costs included in the carrying amount of property Properties acquired through business combinations Disposals Depreciation for the period Impairment losses recognised during the period Impairment losses reversed during the period Translation adjustments Transfers Non-current assets held for sale and discontinued operations CARRYING AMOUNT AT THE END OF THE PERIOD

31.12.2010 113.0 50.3 1.3 0.0 (0.7) (4.7) (0.2) 7.2 1.4 0.0 0.0 167.6

31.12.2009 144.4 1.5 1.9 0.0 (0.7) (5.2) (7.1) 1.0 0.9 (12.6) (11.1) 113.0

31.12.2008 136.1 13.0 3.0 0.0 (1.8) (5.2) (1.5) 1.7 (0.8) (0.1) 0.0 144.4

Danske Bank Group Annual Report 2010 (in DKK millions) Notes to the consolidated financial statements 1

Critical Accounting Policies

The Danske Bank Group presents its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the EU. 24 Investments Property DKK millions Investment property Fair value at 1 January Additions Disposals Fair value adjustment Fair value at 31 December Required rate of return used for calculating fair value Average required rate of return

2010

2009

4,938 360 530 21 4,799

4,470 554 110 34 4,948

4.8 – 8.0 5.4

4.8 – 7.5 5.4

Rental income from investment property totalled DKK 116 million (2009: DKK 332 million). Expenses directly attributable to investment property generating rental income amounted to DKK 38 million (2009: DKK 23 million), whereas expenses directly attributable to investment property not generating rental income amounted to DKK 5 million (2009: DKK 12 million].

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Investment property under insurance contracts Fair value at 1 January Additions Property improvement expenditure Disposals Fair value adjustment Fair value at 31 December

17,757 448 329 10 (359) 18,165

Required rate of return used for calculating fair value Average required rate of return

4.5 – 8.5 6.1

17,431 285 348 19 (288) 17,757 4.5 – 8.0 6.2

Rental income from investment property under insurance contracts amounted to DKK 1,184 million (2009: DKK 1,165 million). Expenses directly attributable to investment property generating rental income amounted to DKK 360 million (2009: DKK 224 million). The fair value of investment property is calculated on the basis of a standard operating budget and a rate of return fixed for the individual property less expenses for temporary factors. The operating budget factors in a conservative estimate of the market rent that could be earned on currently unoccupied premises and adjustments for existing leases that deviate materially from standard terms and conditions. Repair and maintenance expenses are calculated on the basis of the individual property’s condition, year of construction, materials, etc. The rate of return is calculated on the basis of the property’s location, possible uses and condition as well as the term and credit quality, etc. of leases.

Lufthansa Annual Report 2010 (in € millions) Notes to consolidation and accounting policies Summary of significant accounting policies and valuation methods and estimates used as a basis for measurement Investment Property Property held exclusively for letting to companies outside the Group is classified as investment property and recognised at amortised cost. 20 Investment Property In € millions Cost as of 1.1.2009 Accumulated depreciation Carrying amount 1.1.2009 Currency translation differences Additions due to changes in consolidation Additions Reclassifications Disposals due to changes in consolidation Disposals Reclassifications to assets held for sale Depreciation Reversal of impairment losses Carrying amount 31.12.2009 Cost as of 1.1.2010 Accumulated depreciation Carrying amount 1.1.2010

3 1 0 3 1 0 3 3 1 0 3

Investment Property (IAS 40)

189

In € millions 1

Currency translation differences Additions due to changes in consolidation Additions Reclassifications Disposals due to changes in consolidation Disposals Reclassifications to assets held for sale Depreciation Reversal of impairment losses Carrying amount 31.12.2010 Cost as of 31.12.2010 Accumulated depreciation 1

0 -3 1 0 01 1 0

Rounded below EUR 1m.

A plot of land held exclusively as a financial investment is carried at EUR 0.1m. Its fair value as estimated by surveyors using market data is EUR 1m. In the 2010 financial year a plot of land previously held as a financial investment with a carrying amount and a fair value of EUR 3m was sold for a price of EUR 3m. In the previous year the fair value of the two plots was EUR 4m.

Rabobank Group Annual Report 2010 (in millions of Euros) Notes to consolidation financial statements 2

Accounting Policies

2.1 General The financial statements of Rabobank have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union. 2.20 Investment Properties Investment properties, mainly office buildings, are held for their long-term rental income and are not used by Rabobank or its subsidiaries. Investment properties are recognised as long-term investments and included in the statement of financial position at cost, net of accumulated depreciation and impairment. Investment properties are depreciated over a term of 40 years. 17 Investment Property In millions of Euros Opening balance Purchases Sales Depreciation Transferred from other assets Other Closing balance

2010 1,363 36 (603) (29) 49 816

2009 1,038 80 (108) (28) 446 (65) 1,363

1,180 (364) 816

1,676 (313) 1,363

The carrying amount exceeds the fair value by 93 (2009: 41). Cost Accumulated depreciation Net carrying value

In 2010, 52% (2009: 34%) of the fair value of total investment properties was measured using cash flow models, 2% (2009: 4%) was measured by independent property valuers holding recognised and relevant professional qualifications, and 46% (2009: 62%) was measured by qualified and expert property valuers employed by Rabobank.

Section V INVESTMENTS IN ASSOCIATES, JOINT VENTURES, SUBSIDIARIES, IMPAIRMENT OF ASSETS AND BUSINESS COMBINATIONS

Chapter 16: Consolidated Financial Statements and Separate Financial Statements (IAS 27) SIC 12, Consolidation—Special Purpose

Entities Chapter 17: Investments in Associates (IAS 28) Chapter 18: Interests in Joint Ventures (IAS 31) SIC 13, Jointly Controlled Entities—Non-

Monetary Contributions by Venturers Chapter 19: Impairment of Assets (IAS 36) Chapter 20: Business Combinations (IFRS 3) Chapter 21: Non-Current Assets Held for Sale and Discontinued Operations (IFRS 5)

191

Chapter 16 CONSOLIDATED FINANCIAL STATEMENTS AND SEPARATE FINANCIAL STATEMENTS (IAS 27)

1.

OBJECTIVE

1.1 This Standard is to be applied in the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent. 1.2 The Standard is also to be applied in accounting for investments in subsidiaries, jointly controlled entities, and associates when an entity elects to or is required by local laws to present separate financial statements. 1.3 However, this Standard does not deal with accounting for business combinations which is dealt with in International Financial Reporting Standard (IFRS) 3, Business Combinations. 1.4 This Standard has been amended (see Appendix B), and the amended Standard is applicable to annual reporting periods beginning on or after January 1, 2013, with an option of earlier adoption. 2.

SYNOPSIS OF THE STANDARD

This Standard, which deals with the preparation and presentation of consolidated and separate financial statements by entities, is summarized next. 2.1 Consolidated financial statements are the financial statements of a group of entities that are presented as those of a single economic activity. 2.1.1 A parent (an entity that has one or more subsidiaries), unless exempted in accordance with this Standard, shall present consolidated financial statements of the group in which it consolidates its investments in subsidiaries in accordance with this Standard and the interpretation on “consolidation of special purpose entities” issued by the Standards Interpretation Committee (SIC) 12 (see para 4 below). 2.1.2 A parent is exempted from consolidation in these cases: 193

194

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• The parent is itself a wholly owned subsidiary or is a partially owned subsidiary of another entity and the other owners (shareholders) of the parent do not object to the parent not presenting consolidated financial statements. • The parent’s debt or equity instruments are not traded in a public market (such as a stock market). • The parent does not file (nor is in the process of filing) its financial statements with a securities commission or a regulatory body for the purposes of issuing any class of instruments in a public market. • The ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that are prepared in accordance with IFRS. 2.1.3 All subsidiaries of the parent shall be included in the consolidated financial statements of the group. A subsidiary is an entity (including an unincorporated entity) that is “controlled” by the parent. 2.1.4 Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Control is presumed when the parent owns (directly or indirectly through subsidiaries) more than half of the voting rights of an entity. 2.1.5 Control can also exist when the parent owns less than half of the voting power of an entity when there is • Power over more than half of the voting rights through an agreement with other investors; • Power to govern the financial and operating polices of the entity is assumed under a statute or an agreement; • Power to appoint or remove the majority of the members of the board of directors (or an equivalent governing body); or • Power to exercise the majority of the votes at meetings of the board of directors (or an equivalent governing body). 2.1.6 The existence and effect of potential voting rights (convertible debentures) that are currently exercisable or convertible should also be considered in assessing whether an entity has power to govern the financial and operating policies of an entity. 2.1.7 Exclusion from consolidation of subsidiaries is not allowed because their business activities are dissimilar from those of other entities within the group. 2.1.8 In consolidating financial statements of a group, an entity combines the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses, and by separately identifying “noncontrolling interest” in the net assets and profit or loss of consolidated subsidiaries. 2.1.9 Noncontrolling interest is that part of the equity in a subsidiary that is not directly or indirectly owned by a parent. 2.1.10 The next principles should be used in preparing consolidated financial statements of a group: • Intragroup balances, transactions, income and expenses are eliminated in full in preparing consolidated financial statements. • Uniform accounting policies for like transactions and other events in similar circumstances shall be used in preparing consolidated financial statements of the group. • The financial statements of the parent and its subsidiaries shall be prepared as of the same date. If they are prepared at different reporting dates, adjustments shall be made for the effects of significant transactions or events that occur between those dates. In any case, the difference in reporting dates cannot be more than three months. 2.1.11 Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control should be accounted for as equity transactions.

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195

2.1.12 Upon loss of control of a subsidiary: • The parent derecognizes the assets (including goodwill) and liabilities of the subsidiary at their carrying amounts at the date of loss of control and also the carrying amount of the noncontrolling interests in the former subsidiary at the date of loss of control. • The parent recognizes any investments retained in the former subsidiary at its fair value at that date when it lost control of the subsidiary. Henceforth such interests retained in the former subsidiary (and any amounts due to or due from the former subsidiary) shall be accounted for in accordance with other Standards. 2.2 Separate financial statements are those presented by a parent, or an investor in an associate or a venture in a jointly controlled entity in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees. 2.2.1 When an entity prepares separate financial statements, the statements shall reflect investments in subsidiaries, jointly controlled entities, and associates either at cost or in accordance with International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, and IFRS 9, Financial Instruments. 2.2.2 When an entity prepares separate financial statements, it shall recognize dividends from a subsidiary, jointly controlled entity, or an associate in profit or loss in its separate financial statements when its right to receive the dividend is established. 3.

DISCLOSURE REQUIREMENTS

The disclosures that are required to be made in the consolidated and separate financial statements are presented next. 3.1

In the consolidated financial statements, these disclosures are required: • In case of a subsidiary which is consolidated and where over one half of the voting rights of the subsidiary are not owned by the parent, the nature of the relationship between the parent and such a subsidiary • In case of a subsidiary that is not consolidated despite the parent owning (directly or indirectly through other subsidiaries) more than one half the voting rights, the reasons why such ownership does not constitute “control” • Where the reporting period of the financial statements of a subsidiary are different from that of the parent preparing consolidated financial statements, the end of the reporting period of the financial statements of the subsidiary and the reasons for using a different date or period • In case of significant restrictions on the ability of the subsidiaries to transfer funds to the parent in the form of cash dividends or as repayment of loans and advances, the nature and extent of such restrictions • A schedule showing the effects of any changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control on equity attributable to owners of the parent In case of loss of control of a subsidiary, the parent shall disclose: • The gain or loss, if any, recognized in accordance with IAS 27 • The portion of that gain or loss attributable to recognizing any investment retained in the former subsidiary at its fair value at the date of the loss of control • The line item(s) in the statement of comprehensive income in which the gain or loss is recognized (in case it is not presented separately in the statement of comprehensive income)

3.2 If a parent seeking exemption from consolidation (as permitted by IAS 27) prepares separate financial statements, these disclosures shall be made:

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• The fact that the financial statements are separate financial statements; that the exemption from consolidation has been used; the name and country of incorporation or residence of the entity whose consolidated financial statements that comply with IFRS have been produced for public use; and the address where those consolidated financial statements are obtainable • A list of significant investments in subsidiaries, jointly controlled entities, and associates, including details such as: name, country of incorporation or residence, proportion of ownership interest, and, if different, proportion of voting rights held and a description of the method used to account for such investments. 3.3 If a parent (other than a parent seeking exemption from consolidation as permitted under IAS 27), a venture with an interest in a jointly controlled entity, or an investor in an associate prepares separate financial statements, it shall disclose • The fact that these are separate financial statements and the reasons why those statements are prepared as such although not required by law • A list of significant investments in subsidiaries, jointly controlled entities, and associates, including details such as: name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting rights held and a description of the method used to account for such investments It shall also identify the financial statements prepared in accordance with paragraph 9 of IAS 27, Consolidated Financial Statements and Separate Financial Statements, or IAS 28, Investments in Associates, or IAS 31, Interests in Joint Ventures, to which it relates. 4.

SIC INTERPRETATION 12, CONSOLIDATION—SPECIAL PURPOSE ENTITIES

4.1 A special-purpose entity (SPE) may be created by an entity to accomplish an objective (such as “ring fencing” itself from liabilities and contingencies). 4.2 The SPE may operate in such a manner that no other party needs to make decisions with respect to the SPE after its creation—it is put on autopilot. The substance over form of this relationship of the entity with the SPE is that it “controls” the SPE by having specified its purposes and operations. 4.3 In such circumstances, the entity that created the SPE may be deemed to “control” the SPE as it is exposed to the majority of the risks and rewards incidental to its activities or its assets and liabilities. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Anheuser-Busch InBev NV Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 2.

Statement of compliance

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and in conformity with IFRS as adopted by the European Union up to 31 December 2010 (collectively “IFRS”). AB InBev did not apply any European carve-outs from IFRS. AB InBev has not applied early any new IFRS requirements that are not yet effective in 2010. 3.

Summary of Significant Accounting Policies

(A) Basis of Preparation and Measurement Depending on the applicable IFRS requirements, the measurement basis used in preparing the financial statements is cost, net realizable value, fair value or recoverable amount. Whenever IFRS provides an option between cost and another measurement basis (e.g., systematic remeasurement), the cost approach is applied.

Consolidated financial Statements and Separate Financial Statements (IAS 27)

197

(B) Functional and Presentation Currency Effective 1 January 2009, the company changed the presentation currency of the consolidated financial statements from the euro to the US dollar, reflecting the post-Anheuser-Busch acquisition profile of the company’s revenue and cash flows, which are now primarily generated in US dollar and US dollarlinked currencies. AB InBev believes that this change provides greater alignment of the presentation currency with AB InBev’s most significant operating currency and underlying financial performance. Unless otherwise specified, all financial information included in these financial statements has been stated in US dollar and has been rounded to the nearest million. The functional currency of the parent company is the euro. (C) Use of Estimates and Judgments The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. (D) Principles of Consolidation Subsidiaries are those companies in which AB InBev, directly or indirectly, has an interest of more than half of the voting rights or, otherwise, has control, directly or indirectly, over the operations so as to govern the financial and operating policies in order to obtain benefits from the companies’ activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Control is presumed to exist where AB InBev owns, directly or indirectly, more than one half of the voting rights (which does not always equate to economic ownership), unless it can be demonstrated that such ownership does not constitute control. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Total comprehensive income of subsidiaries is attributed to the owners of the company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Jointly controlled entities are those entities over whose activities AB InBev has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Jointly controlled entities are consolidated using the proportionate method of consolidation. Associates are undertakings in which AB InBev has significant influence over the financial and operating policies, but which it does not control. This is generally evidenced by ownership of between 20% and 50% of the voting rights. In certain instances, the company may hold directly and indirectly an ownership interest of 50% or more in an entity, yet not have effective control. In these instances, such investments are accounted for as associates. Associates are accounted for by the equity method of accounting, from the date that significant influence commences until the date that significant influence ceases. When AB InBev’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that AB InBev has incurred obligations in respect of the associate. The financial statements of the company’s subsidiaries, jointly controlled entities and associates are prepared for the same reporting year as the parent company, using consistent accounting policies. In exceptional cases when the financial statements of a subsidiary, jointly controlled entity or associate are prepared as of a different date from that of AB InBev (e.g. Modelo), adjustments are made for the effects of significant transactions or events that occur between that date and the date of AB InBev’s financial statements. In such cases, the difference between the end of the reporting period of these subsidiaries, jointly controlled entities or associates from AB InBev’s reporting period is no more than three months. Upon acquisition of Anheuser Busch, their operations in China were reported with one month time lag. During 2009, their reporting has been aligned to AB InBev’s reporting period. All intercompany transactions, balances and unrealized gains and losses on transactions between group companies have been eliminated. Unrealized gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of AB InBev’s interest in the entity. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

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A listing of the company’s most important subsidiaries and associates is set out in Note 35 AB InBev companies. 6.

Goodwill

Million US dollar Acquisition cost Balance at end of previous year Effect of movements in foreign exchange Purchases of non-controlling interests Acquisitions through business combinations Disposals Disposals through the sale of subsidiaries Transfer to other asset categories Balance at end of year Impairment losses Balance at end of previous year Impairment losses Balance at end of year Carrying amount at 31 December 2009 at 31 December 2010

2010

2009

52,132 386 (13) – – – – 52,505

50,251 2,988 145 17 (304) (166) (799) 52,132

(7) – (7)

(7) – (7)

52,125 52,498

52,125 –

Goodwill increased from 52 125m US dollar per end of December 2009 to 52 498m US dollar per end of December 2010. 2010 movements represent a 386m US dollar effect of movements in foreign currency exchange rates, and a subsequent fair value adjustment of (13)m US dollar related to a contingent consideration from the purchase of non-controlling interests in prior years. Effective 01 January 2010, AB InBev adopted the amendments to IAS 27 Consolidated and Separate Financial Statements, whereby changes in ownership interests while maintaining control are to be recognized as equity transactions. The effects are described in Note 23 Changes in equity and earnings per share. The business combinations that took place in 2009 are the acquisition of several local businesses throughout the world. These transactions resulted in recognition of goodwill of 17m US dollar. As a result of the asset and business disposals completed in 2009, goodwill was derecognized for a total amount of 1269m US dollar (including disposals, disposals through the sale of subsidiaries and transfer to other assets categories), mainly represented by the sale of the Korean subsidiary Oriental Brewery to an affiliate of Kohlberg Kravis Roberts & Co. L.P. (279 US dollar), the sale of the Central European operations to CVC Capital Partners (166m US dollar), the sale of four metal can lid manufacturing plants from AB InBev’s US metal packaging subsidiary, Metal Container Corporation, to Ball Corporation (156m US dollar) and the sale of Tennent’s Lager brand and associated trading assets in Scotland, Northern Ireland and the Republic of Ireland to C&C Group plc (148m US dollar). In 2009, changes in ownership interests while maintaining control increased goodwill by 145m US dollar. These mainly included the buy-out of the businesses in Dominican Republic and Peru. In addition, under the exchange of share-ownership program, a number of AmBev shareholders who are part of the senior management of AB InBev exchanged AmBev shares for AB InBev shares which increased AB InBev’s economic interest percentage in AmBev. As the related subsidiaries were already fully consolidated, the purchases did not impact AB InBev’s profit, but reduced non-controlling interests and thus impacted the profit attributable to equity holders of AB InBev. Million US dollar Business unit USA Brazil Canada China Germany/Italy/Switzerland/Austria Hispanic Latin America Russia/Ukraine Global Export/Spain UK/Ireland Belgium/Netherlands/France/Luxemburg

2010 32,617 10,700 2,075 1,696 1,488 1,440 1,090 707 585 100 52,498

2009 32,617 10,240 1,970 1,640 1,604 1,468 1,104 763 611 108 52,125

Consolidated financial Statements and Separate Financial Statements (IAS 27)

199

AB InBev completed its annual impairment test for goodwill and concluded, based on the assumptions described below, that no impairment charge was warranted. The company cannot predict whether an event that triggers impairment will occur, when it will occur or how it will affect the asset values reported. AB InBev believes that all of its estimates are reasonable: they are consistent with the internal reporting and reflect management’s best estimates. However, inherent uncertainties exist that management may not be able to control. While a change in the estimates used could have a material impact on the calculation of the fair values and trigger an impairment charge, the company is not aware of any reasonably possible change in a key assumption used that would cause a business unit’s carrying amount to exceed its recoverable amount. Goodwill impairment testing relies on a number of critical judgments, estimates and assumptions. Goodwill, which accounted for approximately 46% of AB InBev’s total assets as at 31 December 2010, is tested for impairment at the business unit level (that is, one level below the segments) based on a fairvalue-less-cost-to-sell approach using a discounted free cash flow approach based on current acquisition valuation models. The key judgments, estimates and assumptions used in the fair-value-less-cost-to-sell calculations are as follows: • •

• • • •

The first year of the model is based on management's best estimate of the free cash flow outlook for the current year; In the second to fourth years of the model, free cash flows are based on AB InBev’s strategic plan as approved by key management. AB InBev's strategic plan is prepared per country and is based on external sources in respect of macro-economic assumptions, industry, inflation and foreign exchange rates, past experience and identified initiatives in terms of market share, revenue, variable and fixed cost, capital expenditure and working capital assumptions; For the subsequent six years of the model, data from the strategic plan is extrapolated generally using simplified assumptions such as constant volumes and variable cost per hectoliter and fixed cost linked to inflation, as obtained from external sources; Cash flows after the first ten-year period are extrapolated generally using expected annual longterm consumer price indices, based on external sources, in order to calculate the terminal value; Projections are made in the functional currency of the business unit and discounted at the unit’s weighted average cost of capital. The latter ranged primarily between 6.3% and 21.6% in US dollar nominal terms for goodwill impairment testing conducted for 2010; Cost to sell is assumed to reach 2% of the entity value based on historical precedents.

The above calculations are corroborated by valuation multiples, quoted share prices for publicly-traded subsidiaries or other available fair value indicators. Although AB InBev believes that its judgments, assumptions and estimates are appropriate, actual results may differ from these estimates under different assumptions or conditions.

Bae Systems Annual Report 2010 Notes to the Group accounts for the year ended 31 December 1.

Accounting Policies

Basis of Consolidation The financial statements of the Group consolidate the results of the Company and its subsidiary entities, and include its share of its joint ventures’ results accounted for under the equity method, all of which are prepared to 31 December. Subsidiaries A subsidiary is an entity controlled by the Group. Control is the power to govern the operating and financial policies of an entity so as to obtain benefits from its activities. Subsidiaries include the special purpose entities that the Group transacted through for the provision of guarantees in respect of residual values, and head lease and finance payments on certain regional aircraft sold. The results of subsidiaries are included in the consolidated income statement from the date of acquisition, up to the date of loss of control. Business Combinations on or after 1 January 2010 (IFRS 3, Business Combinations) Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group measures goodwill as the acquisition-

200

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date fair value of the consideration transferred, including the amount of any non-controlling interest in the acquiree, less the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed, including contingent liabilities as required by IFRS 3. Consideration transferred includes the fair values of assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, equity interests issued by the Group, contingent consideration, and share-based payment awards of the acquiree that are replaced in the business combination. Any contingent consideration payable is recognised at fair value at the acquisition date. Subsequent changes to the fair value of contingent consideration that is not classified as equity are recognised in the consolidated income statement. If a business combination results in the termination of preexisting relationships between the Group and the acquiree, then the lower of the termination amount, as contained in the agreement, and the value of the off-market element, is deducted from the consideration transferred and recognized in other expenses. Transaction costs that the Group incurs in connection with a business combination, such as finder’s fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed as incurred. Non-controlling interests are measured at either the non-controlling interest’s proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities recognised or at fair value. The method used is determined on an acquisition-by-acquisition basis. Business Combinations Between 1 January 2004 and 1 January 2010 (IFRS 3, Business Combinations [2004]) The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of the acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. Previously held identifiable assets, liabilities and contingent liabilities of the acquired entity are revalued to their fair value at the date of acquisition, being the date at which the Group achieves control of the acquiree. The movement in fair value is taken to the asset revaluation reserve. Upon initial acquisition of a non-controlling interest, the interest of minority shareholders is measured at the minority’s proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Business Combinations Prior to 1 January 2004 (Date of Transition to IFRS) On transition to IFRS, IFRS 3 (2004) was not retrospectively applied and, therefore, the goodwill arising on acquisition under UK Generally Accepted Accounting Practice (GAAP) is the difference between the consideration paid for an acquisition and the fair value of the net tangible assets acquired. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts, as any amounts related to intangible assets that would have been recorded in the acquired entities if the Group had applied IAS 38, Intangible Assets, at the dates they were acquired were considered immaterial, after being tested for impairment at those dates. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Accounting for Acquisition of Non-Controlling Interests That Do Not Result in a Change in Control Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders and, therefore, no goodwill or profit or loss in the consolidated income statement is recognised as a result of such transactions. Prior to 1 January 2010, goodwill was recognised on the acquisition of non-controlling interests in a subsidiary, which represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction. Equity Accounted Investments An entity is regarded as a joint venture if the Group has joint control over its operating and financial policies. Joint ventures are accounted for under the equity method where the Group’s income statement includes its share of their profits and losses, and the Group’s balance sheet includes its share of their net assets.

Consolidated financial Statements and Separate Financial Statements (IAS 27)

201

Compass Group Annual Report 2010 Accounting Policies for the year ended 30 September 2010 9

Goodwill

During the year, the Group made a number of acquisitions. See note 25 for more details. Goodwill Cost At 1 October 2008 Additions Business disposals – other activities Currency adjustment At 30 September 2009

£m 3,397 104 (1) 187 3,687

At 1 October 2009 Additions Business disposals – other activities Currency adjustment At 30 September 2010

3,687 217 -36 3,940

Impairment At 1 October 2008 Impairment charge recognised in the year At 30 September 2009

107 -107

At 1 October 2009 Impairment charge recognised in the year At 30 September 2010

107 -107

Net book value At 30 September 2009 At 30 September 2010

3,580 3,833

Goodwill acquired in a business combination is allocated at acquisition to the cash-generating units (‘CGUs’) that are expected to benefit from that business combination. A summary of goodwill allocation by business segment is shown below. Goodwill by business segment USA Rest of North America Total North America Continental Europe UK & Ireland Rest of the World Total

2010 £m 1,191 131 1,322 272 1,792 447 3,833

2009 £m 1,124 102 1,226 214 1,739 401 3,580

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amount of a CGU is determined from value in use calculations. The key assumptions for these calculations are long-term growth rates and pre-tax discount rates and use cash flow forecasts derived from the most recent financial budgets and forecasts approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates based on local expected economic conditions and do not exceed the long-term average growth rate for that country. The pre-tax discount rates are based on the Group’s weighted average cost of capital adjusted for specific risks relating to the country in which the CGU operates.

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Growth and discount rates USA Rest of North America Continental Europe UK & Ireland Rest of the World

2010 Residual Pre-tax growth discount rates rates 2.5% 7.4% 2.5% 7.4% 2.5-6.0% 6.6-13.8% 3.0% 10.3% 2.5-6.5% 6.0-14.0%

2009 Residual growth rates 2.5% 2.5% 2.5-7.3% 2.5% 2.5-7.1%

Pre-tax discount rates 7.9% 8.4% 6.8-10.6% 10.1% 7.7-23.3%

Given the current economic climate, a sensitivity analysis has been performed in assessing recoverable amounts of goodwill. This has been based on changes in key assumptions considered to be possible by management. For the UK, to which goodwill of £1,787 million is allocated, an increase in the discount rate of 0.4% or a decrease in the long-term growth rate of 0.6% would eliminate the headroom of approximately £100 million under each scenario. There are no other CGUs that are sensitive to possible changes in key assumptions

Crédit Agricole S.A. Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Consolidation Principles and Methods (IAS 27, 28 and 31) Scope of Consolidation The consolidated financial statements include the financial statements of Crédit Agricole S.A. and those of all companies over which, in compliance with IAS 27, IAS 28 and IAS 31, Crédit Agricole S.A. exercises control. This control is presumed when Crédit Agricole S.A. holds, directly or indirectly, at least 20% of existing or potential voting rights. Definitions of Control In compliance with international standards, all entities under exclusive control, under joint control or under significant influence are consolidated, provided that their contribution is deemed material and that they are not covered under the exclusions below. Materiality is assessed in the light of three main criteria representing a percentage of the consolidated balance sheet, the consolidated net assets and the consolidated results. Exclusive control is presumed to exist when Crédit Agricole S.A. holds over half of the voting rights in an entity, whether directly or indirectly through subsidiaries, except in exceptional circumstances when it can be clearly demonstrated that such ownership does not give it control. Exclusive control also exists when Crédit Agricole S.A. owns half or less than half of the voting rights or potential voting rights in an entity, but holds majority power within management bodies. Joint control is exercised in joint ventures in which each of the two or more co-owners are bound by a contractual contribution that provides for joint control. Significant influence is defined as the power to influence but not control a company’s financial and operational policies. Crédit Agricole S.A. is presumed to have significant influence if it owns 20% or more of the voting rights in an entity, whether directly or indirectly through subsidiaries. Consolidation of Special Purpose Entities The consolidation of Special Purpose Entities (entities created to manage a given transaction or a set of similar transactions), and more specifically of funds held under exclusive control, is specified by SIC 12. In accordance with SIC 12, Special Purpose Entities are consolidated when the Crédit Agricole S.A. Group exercises control in substance over the entity, even if there is no equity relationship. This applies primarily to dedicated mutual funds. Whether or not a Special Purpose Entity is controlled in substance is determined by considering the following criteria: •

Activities of Special Purpose Entities are organised on behalf of a company in Crédit Agricole S.A. Group depending on its specific business needs, such that this company obtains benefits from the SPE’s activities;

Consolidated financial Statements and Separate Financial Statements (IAS 27)

• • •

203

The company, in substance, has the decision-making powers to obtain a majority of the benefits of the SPE’s activities or has delegated such decision-making powers by establishing an “autopilot” mechanism; The company, in substance, has rights to obtain a majority of the benefits of the SPE’s activities and as a result may be exposed to the risks related to the SPE’s activities; or The company, in substance, retains the majority of the residual risks or risks arising from ownership relating to the SPE or its assets, in order to obtain benefits from its activities.

Exclusions from the Scope of Consolidation In accordance with IAS 28 § 1 and IAS 31 § 1, minority interests held by venture capital entities are also excluded from the scope of consolidation insofar as they are classified under financial assets designated as at fair value through profit or loss (including financial assets at fair value through profit or loss and financial assets designated at fair value through profit or loss upon initial recognition). Consolidation Methods The methods of consolidation are respectively defined by IAS 27, 28 and 31. They result in the type of control exercised by Crédit Agricole S.A. over the entities that can be consolidated, regardless of activity or whether or not they have legal entity status: • • •

Full consolidation, for entities under exclusive control, including entities with different financial statement structures, even if their business is not an extension of that of Crédit Agricole S.A.; Proportional integration, for entities under joint control, including entities with different financial statement structures, even if their business is not an extension of that of Crédit Agricole S.A.; The equity method, for the entities over which Crédit Agricole S.A. exercises significant influence.

Full consolidation consists in substituting for the value of the securities each of the assets and liabilities items carried by each subsidiary. The share of the minority interests in equity and income is separately identified in the consolidated balance sheet and income statement. Minority interests correspond to the holdings that do not allow control as defined by IAS 27 and incorporate the instruments that are shares of current interests and that give right to a proportional share of net assets in the event of liquidation and the other equity instruments issued by the subsidiary and not held by the Group. Proportional consolidation consists of eliminating the carrying amount of the shares held in the consolidating company’s financial statements and of adding a proportion of the assets, liabilities and profit of the consolidated company representing the consolidating company’s interest. The equity method consists of substituting for the value of shares the Group’s proportional share of the equity and income of the companies concerned. Adjustments and Eliminations Adjustments are made to harmonise the methods of valuating the consolidated companies, unless they are deemed to be nonmaterial. Group internal transactions affecting the consolidated balance sheet and income statement are eliminated. Capital gains or losses arising from intra-Group asset transfers are eliminated; any potential lasting impairment measured at the time of disposal in an internal transaction is recognised. Translation of Foreign Subsidiaries’ Financial Statements (IAS 21) Financial statements of subsidiaries denominated in foreign currencies are translated into euros in two stages: •

•

If applicable, the local currency, in which the financial statements are prepared, is translated into the functional currency (currency of the main business environment of the entity) using the historical cost method, and all translation adjustments are fully and immediately recognised in the income statement; The functional currency is translated into euros, the currency in which the Group’s consolidated financial statements are presented. Assets and liabilities are translated at the closing rate. Income and expenses included in the income statement are translated at the average exchange rate for the period. Translation adjustments for assets, liabilities and income statement items are recorded under a specific item in equity.

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Business Combinations—Goodwill Business combinations are accounted for using the acquisition method in accordance with IFRS 3, except for business combinations under common control (in particular mergers of Regional Banks) which are excluded from the field of application of IFRS 3. These transactions are entered at net carrying amount in accordance with French GAAP, as allowed by IAS 8. On the date of acquisition the identifiable assets, liabilities and contingent liabilities of the acquired entity which satisfy the conditions for recognition set out in IFRS 3 are recognised at their fair value. Notably, restructuring liabilities are only recognised as a liability to the acquired entity if, at the date of acquisition, the acquiree is under an obligation to complete the restructuring. Price adjustment clauses are, for the transactions conducted after 1 January 2010, recognised at their fair value (if it can be reliably determined) even if their application is not probable. Subsequent changes in the fair value of clauses if they are financial debts are recognised in the income statement. For the transactions conducted prior to 31 December 2009, these clauses were only incorporated in the acquisition cost of the entity acquired when their application became probable even after the 12 month allocation period. The initial assessment of assets, liabilities and contingent liabilities may be revised within a period of twelve months after the date of acquisition. Since 1 January 2010, the portion of holdings not allowing control that are shares of current interests giving rights to a share of the net asset in the event of liquidation may be measured, at acquirer’s choice, in two ways: • •

At fair value on the date of acquisition; At the share of identifiable assets and liabilities of the acquired entity revalued at fair value.

The option may be exercised by acquisition. The balance of interests not allowing control (equity instruments issued by the subsidiary and not held by the Group) should be recognised for its fair value on the date of acquisition. The initial assessment of assets, liabilities and contingent liabilities may be revised within a maximum period of twelve months after the date of acquisition. Some transactions relating to the acquired entity are recognized separately from the consolidation. This applies primarily to: • • •

Transactions that end an existing relationship between the acquired company and the acquiring company; Transactions that compensate employees or shareholders of the acquired company for future services; Transactions whose aim is to have the acquired company or its former shareholders repay expenses borne by the acquirer.

These separate transactions are generally recognised in the income statement at the acquisition date. The transferred counterparty at the time of a business combination (the acquisition cost) is measured as the total of fair values transferred by the acquirer, on the date of acquisition in exchange for control of the acquired entity (for example: cash, equity instruments, etc.). For transactions conducted prior to 31 December 2009, the acquisition cost also contained the costs directly attributable to the business combination. For transactions conducted starting 1 January 2010, the costs directly attributable to the business combination shall be recognized as expenses, separately from the business combination. If the transaction has very strong possibilities of occurring, they are recognised under the heading “Net gains (losses) on disposal of other assets,” otherwise they are recognised under the heading “Operating expenses.” The spread between the cost of acquisition and interests that do not allow control and the net balance on the date of acquisition of acquired identifiable assets and liabilities taken over, valued at their fair value is recognised, when it is positive, in the assets side of the consolidated balance sheet, under the heading “Goodwill” when the acquired entity is fully or proportionately consolidated and in the heading “Investments in equity-accounted companies” when the acquired company is consolidated using the equity method. Any negative goodwill is recognised immediately through profit or loss.

Consolidated financial Statements and Separate Financial Statements (IAS 27)

205

Goodwill is carried in the balance sheet at its initial amount in the currency of the acquired entity and translated at the closing rate. When control is taken by stages, the interest held before taking control is revaluated at fair value through profit or loss at the date of acquisition and the goodwill is calculated once, using the fair value at the date of acquisition of acquired assets and liabilities taken over. It is tested for impairment whenever there is objective evidence of a loss of value and at least once a year. The choices and assumptions used in assessing the holdings that do not allow control at the date of acquisition may influence the amount of initial goodwill and any impairment resulting from a loss of value. For the purpose of impairment testing, goodwill is allocated to the Cash Generating Units (CGUs) that are expected to benefit from the business combination. The CGUs have been defined within the Group’s business lines as the smallest identifiable group of assets and liabilities functioning in a single business model. Impairment testing consists of comparing the carrying amount of each CGU, including any goodwill allocated to it, with its recoverable amount. The recoverable amount of the CGU is defined as the higher of market value and value in use. The value in use is the present value of the future cash flows of the CGU, as set out in medium-term business plans prepared by the Group for management purposes. When the recoverable amount is lower than the carrying amount, a corresponding impairment loss is recognised for the goodwill allocated to the CGU. This impairment is irreversible. In the case of an increase in the percentage of interest of the Group in an entity that is already exclusively controlled, the difference between the acquisition cost and the share of net assets resulting from this increase is recognised under the item “Consolidated reserves, Group share”. In the event that the Group’s percentage of ownership interest in an entity that remains under its exclusive control declines, the difference between the selling price and the carrying amount of the minority interests sold is also recognized directly under “Consolidated reserves, Group share”. The expenses arising from these transactions are recognised in equity. When there is a change in the percentage of interest in an entity already exclusively controlled, the value of goodwill as an asset is unchanged but is reallocated between the equity, Group share and the interests that do not allow control. Crédit Agricole S.A. Group has granted, to shareholders of certain subsidiaries consolidated by full integration, commitments to buyback their interests in these subsidiaries, whose price is established using a predefined formula that incorporates the future changes in the activity of the subsidiaries concerned. These commitments are effectively sale options granted to minority shareholders, that lead, in compliance with IAS 32, to giving the minority interests concerned the status of liabilities and not equity. The accounting treatment of sale options granted to minority shareholders is as follows: •

•

When a sale option is granted to the minority shareholders of a fully consolidated subsidiary, a liability is recognised in the balance sheet; on initial recognition, the liability is measured at the estimated present value of the exercise price of the options granted. Against this liability, the share of net assets belonging to the minority shareholders concerned is reduced to zero and the remainder is deducted from equity; Subsequent changes in the estimated value of the exercise price will affect the amount of the liability, offset by an equity adjustment. Symmetrically, subsequent changes in the share of net assets due to minority shareholders are cancelled, offset in equity.

When there is a loss of control, the proceeds from the disposal are calculated on the entirety of the entity sold and any investment share kept is recognised in the balance sheet at its fair value on the date control was lost.

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2.6 Goodwill

In millions of euros Retail Banking in France o/w LCL Group Specialised Financial Services o/w Consumer finance o/w Leasing & Factoring Asset management, insurance and private banking o/w asset management o/w investor services o/w insurance o/w international private banking Corporate and investment banking International retail banking o/w Greece o/w Italy o/w Poland Corporate centre TOTAL (1)

(2)

31/12/2009 31/12/2009 Increase Gross Net (acquisitions)

Decreases (disposals)

Impairment Losses during the Translation Other period (2) adjustments movements(1)

5,263 5,263

5,263 5,263

3,462 3,013

3,326 3,013

8 5

449

313

3

4,615 2,094 682 1,226

4,615 2,094 682 1,226

5

613

613

2

2,421

2,407

6

4,540 1,516 2,446 264 77 20,378

3,745 777 2,446 264 76 19,432

3 3

10 8

5

13

(1) (1)

(445) (418)

8

(445)

27

31/12/2010 31/12/2010 Gross Net 5,263 5,263

5,263 5,263

3,499 3,047

3,363 3,047

452

316

4,549 2,043 665 1,226

4,549 2,043 665 1,226

615

615

(8)

2,419

2,405

(66)

4,553 1,516 2,446 264 72 20,355

3,308 359 2,446 264 72 18,960

26 26

(81) (59) (22)

Goodwill adjustments occurring during the period allowed for allocating goodwill: essentially, the identification of an intangible asset at Amundi corresponding to the fair value of the distribution contract in Société Générale Group networks, which reduces goodwill by €78 million after tax. Goodwill impairment on Emporiki Bank for €418 million and Crédit Agricole Banca Srbija a.d. Novi Sad for €27 million.

Goodwill at 1 January 2010 was subject to impairment testing based on the assessment of the value in use of the cash generating units (CGU) to which it is associated. The determination of value in use was calculated by discounting the CGU’s estimated future cash flows calculated from the medium-term plans developed for Group management purposes. The following assumptions were used: • • •

Estimated future flows: projected data over three years based on the Group’s development project. Five-year projected data can be used for some CGUs within which new strategic directions are implemented; Perpetuity growth rates: rates varying depending on the CGU, as shown in the table below; Discount rate: rates varying depending on the CGU, as shown in the table below.

In 2010 Retail banking (French & International) Specialised financial service Asset management, insurance and private banking Corporate and investment banking Corporate Centre

Perpetuity growth rates 2% to 3% 2% to 2.5% 2% 1% 2%

Discount rates 9.25 to 15.6% 9.2% to 12.2% 9.7% to 10.1% 12.6% 11.8%

After testing, a total impairment loss of €445 million was recognized for 2010, for Emporiki and Crédit Agricole Banca Srbija a.d. Novi Sad for €418 million and €27 million respectively. The sensitivity tests show that: • •

A 5% increase in the discount rate would lead to additional impairment amounting to approximately 0.6% of the net value of our goodwill; A 5% decrease in the discount rate would lead to a situation of unrealised gains on all of our CGUs.

Consolidated financial Statements and Separate Financial Statements (IAS 27)

207

Holcim Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Principles of Consolidation Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has the power to exercise control over the operations, are consolidated. Business combinations occurring on or after January 1, 2010, are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the consideration given at the date of exchange. For each business combination, the acquirer measures the noncontrolling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed in the statement of income. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at fair value at the date of acquisition, irrespective of the extent of any non-controlling interest assumed. When Group Holcim acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of Group Holcim’s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit or loss. Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognized in profit or loss. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercompany transactions and balances between Group companies are eliminated in full. It is common practice for the Group to write put options and acquire call options in connection with the remaining shares held by the non-controlling shareholders mainly as part of a business combination. If the Group has acquired a present ownership interest as part of a business combination, the fair value of the put option is recognized as a financial liability with any excess over the carrying amount of the noncontrolling interest recognized directly as goodwill. In such a case, the non-controlling interest is deemed to have been acquired at the acquisition date and therefore any excess arising should follow the accounting treatment as in a business combination. All subsequent fair value changes of the financial liability are recognized in profit or loss and no earnings are attributed to the non-controlling interest. However, where the Group has not acquired a present ownership interest as part of a business combination, non-controlling interest continues to receive an allocation of profit or loss and is reclassified as a financial liability at each reporting date as if the acquisition took place at that date. Any excess over the reclassified carrying amount of the non-controlling interest and all subsequent fair value changes of the financial liability are recognized directly in retained earnings. Goodwill Goodwill represents the excess of the aggregate of the consideration transferred and the amount recognized for the non-controlling interest over the fair value of the net identifiable assets acquired and liabilities assumed. Goodwill on acquisitions of subsidiaries and interests in joint ventures is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment or whenever there are impairment indicators and carried at cost less accumulated impairment losses. If the consideration transferred is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income. On disposal of a subsidiary, associate or joint venture, the related goodwill is included in the determination of profit or loss on disposal. Goodwill on acquisitions of subsidiaries and interests in joint ventures is allocated to cash generating units for the purpose of impairment testing (note 25). Impairment losses relating to goodwill cannot be reversed in future periods.

Wiley International Trends in Financial Reporting under IFRS

208

Non-Controlling Interest Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent and is presented separately in the consolidated statement of income, in the consolidated statement of comprehensive earnings and within equity in the consolidated statement of financial position. Changes in the ownership interest of a subsidiary that do not result in loss of control are accounted for as an equity transaction. Consequently, if Holcim acquires or partially disposes of a non-controlling interest in a subsidiary, without losing control, any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognized directly in retained earnings. 1

Changes in the Scope of Consolidation

During 2010 there were no business combinations that were either individually material or that were considered material on an aggregated basis. During 2009 the scope of consolidation has been affected mainly by the following additions and deconsolidations: Newly included in 2009 Holcim Australia Cement Australia (50 percent)

Effective as at October 1, 2009 October 1, 2009

Deconsolidated in 2009 United Cement Company of Nigeria Ltd

Effective as at April 1, 2009

On October 1, 2009, Holcim acquired 100 percent of the share capital of Holcim Australia (formerly Cemex Australia), including its 25 percent interest in Cement Australia. As a result of the acquisition of Holcim Australia, Holcim’s interest in Cement Australia increased from 50 percent to 75 percent. Until September 30, 2009, Holcim accounted for Cement Australia as a joint venture and proportionately consolidated its 50 percent interest. As from October 1, 2009, Cement Australia has been fully consolidated. The identifiable assets and liabilities arising from the acquisition are as follows: Assets and liabilities arising from the acquisition of Holcim Australia and Cement Australia (consolidated) Million CHF Current assets Property, plant and equipment Other assets Short-term liabilities Long-term provisions Other long-term liabilities Net assets

Fair value 648 1,852 227 (492) (238) (372) 1,625

Previously held net assets of Cement Australia (50 percent) Non-controlling interest in Cement Australia (25 percent) Net assets acquired Total purchase consideration (cash) Fair value of net assets acquired Goodwill 1

Carrying amount1 648 1,635 304 (479) (148) (383) 1,577

(201) (100) 1,324 1,725 (1,324) 401

Excluding goodwill previously included in the accounts of Cement Australia.

The total goodwill arising from this transaction is CHF 401 million of which CHF 98 million had been previously recognized in the accounts of the former joint venture Cement Australia. The goodwill is attributable to the favorable presence that both Holcim Australia and Cement Australia enjoy in Australia, including the good location and strategic importance of mineral reserves. Holcim Australia and Cement Australia (50 percent) contributed net income of CHF 40 million to the Group for the period from October 1, 2009 to December 31, 2009. If the acquisition had occurred on January 1, 2009, Group net sales and net income would have been CHF 1,268 million and CHF 123 million higher respectively.

Consolidated financial Statements and Separate Financial Statements (IAS 27)

209

On April 1, 2009, United Cement Company of Nigeria Ltd was deconsolidated as joint control ceased and recognized as an investment in associate as a result of retaining significant influence. The impact of the above resulted in Group Holcim derecognizing its proportionate interest of total assets and liabilities amounting to CHF 476 million and CHF 533 million respectively and the recognition of an investment in an associate at zero cost. Business combinations individually not material are included in aggregate in note 40. If the acquisitions had occurred on January 1, 2010, Group net sales and net income would have remained substantially unchanged. An overview of the subsidiaries, joint ventures and associated companies is included in the section “Principal companies of the Holcim Group” on pages 196 to 198.

Daimler Annual Report 2010 Notes to the financial statements Principles of consolidation. The consolidated financial statements include the financial statements of Daimler AG and, in general, the financial statements of Daimler AG’s subsidiaries, including special purpose entities which are directly or indirectly controlled by Daimler AG. Control means the power, directly or indirectly, to govern the financial and operating policies of an entity so that the Group obtains benefits from its activities. The financial statements of consolidated subsidiaries are generally prepared as of the reporting date of the consolidated financial statements, except for Mitsubishi Fuso Truck and Bus Corporation (MFTBC), a significant subgroup which is consolidated with a one-month time lag. Adjustments are made for significant events or transactions that occur during the time lag. The financial statements of Daimler AG and its subsidiaries included in the consolidated financial statements have been prepared using uniform recognition and valuation principles. All significant intercompany accounts and transactions relating to consolidated subsidiaries and consolidated special purpose entities have been eliminated. Business combinations are accounted for using the purchase method. Changes in equity interests in Group subsidiaries that reduce or increase Daimler’s percentage ownership without loss of control are accounted for as an equity transaction between owners. As an additional funding source, Daimler transfers finance receivables, in particular receivables from the leasing and automotive business, to special purpose entities. Daimler thereby principally retains significant risks of the transferred receivables. According to IAS 27 Consolidated and Separate Financial Statements and the Standing Interpretations Committee (SIC) Interpretation 12 Consolidation – Special Purpose Entities, these special purpose entities have to be consolidated by the transferor. The transferred financial assets remain on Daimler’s consolidated statement of financial position.

J Sainsbury plc Annual Report and Financial Statements 2010 NOTES TO THE FINANCIAL STATEMENTS 13. Investment in Subsidiaries

Shares in subsidiaries — Company Beginning of year Additions Disposal of subsidiaries Provision for diminution in value of investment End of year

2010 £m

2009 £m

7,262 339 (165) (160) 7,276

7,169 93 7,262

Wiley International Trends in Financial Reporting under IFRS

210

The Company’s principal operating subsidiaries, all of which are directly owned by the Company, are: Share of ordinary allotted capital and voting rights 100% 100% 100%

JS Insurance Ltd JS Information Systems Ltd Sainsbury’s Supermarkets Ltd

Country of registration or incorporation Isle of Man England England

All principal operating subsidiaries operate in the countries of their registration or incorporation, and have been consolidated up to and as at 20 March 2010. The Company has taken advantage of the exemption in s408 of the Companies Act 2006 to disclose a list comprising solely of the principal subsidiaries. A full list of subsidiaries will be sent to Companies House with the next annual return.

Lufthansa Annual Report 2010 Consolidated Financial Statement Notes to consolidated financial statements 1.

Group of Consolidated Companies

All significant subsidiaries under legal and/or actual control of Deutsche Lufthansa AG are included in the consolidated financial statements. Significant joint ventures or associated companies are accounted for using the equity method when the Group holds between 20 and 50 per cent of the shares and/or can, together with other shareholders, exercise control or significant influence. A list of significant subsidiaries, joint ventures and associated companies can be found in chapter “Subsidiaries, joint ventures and associated companies.” The list of shareholdings is published in annexe to these notes. LSG Sky Chefs/GCC Ltd. is classified as a fully consolidated subsidiary in spite of a 50 per cent share of voting rights because the Lufthansa Group exercises economic and financial control over the company. Special purpose entities in which the Group does not hold a voting majority are, nonetheless, classified as subsidiaries if the Group derives majority benefit from their activities or bears most of the risk. The companies affected are identified as such in the list of significant subsidiaries. In addition to Deutsche Lufthansa AG as the parent company, the group of consolidated companies includes 67 domestic and 155 foreign companies, including special purpose entities (previous year: 70 domestic and 135 foreign companies). Changes in the group of consolidated companies during the 2010 financial year are shown in the following table: Changes in the group of consolidated companies Name, registered office Passenger Airline Group segment AirNavigator Ltd., Tokyo, Japan Edelweiss Air AG, Kloten, Switzerland Ellen Finance 2010 S.N.C., Paris, France FI Beauty Leasing Ltd., Tokyo, Japan First Valley Highway Kumiai, Tokyo, Japan Second Valley Highway Kumiai, Tokyo, Japan Third Valley Highway Kumiai, Tokyo, Japan Global Brand Management AG, Basel, Switzerland Ingrid Finance 2010 S.N.C., Paris, France 1 Jour Leasing Co., Ltd., Tokyo, Japan Lufthansa Leasing Austria GmbH & Co. OG Nr. 2, Salzburg, Austria Lufthansa Leasing Austria GmbH & Co. OG Nr. 3, Salzburg, Austria Lufthansa Leasing Austria GmbH & Co. OG Nr. 4, Salzburg, Austria Lufthansa Leasing Austria GmbH & Co. OG Nr. 5, Salzburg, Austria

Additions 29.6.10 1.1.10 25.6.10 28.6.10 29.6.10 29.6.10 29.6.10 15.11.10 5.5.10 16.7.10 6.7.10

Disposals

Reason Established Consolidated for the first time Established Established Established Established Established Established Established Established Established

6.7.10

Established

6.7.10

Established

6.7.10

Established

Consolidated financial Statements and Separate Financial Statements (IAS 27)

Changes in the group of consolidated companies Name, registered office Lufthansa Leasing Austria GmbH & Co. OG Nr. 6, Salzburg, Austria Lufthansa Leasing Austria GmbH & Co. OG Nr. 7, Salzburg, Austria Lufthansa Leasing Austria GmbH & Co. OG Nr. 8, Salzburg, Austria Lufthansa Leasing Austria GmbH & Co. OG Nr. 9, Salzburg, Austria Lufthansa Leasing Austria GmbH & Co. OG Nr. 10, Salzburg, Austria Soir Leasing Co., Ltd., Tokyo, Japan GOAL Verwaltungsgesellschaft mbH & Co. Projekt Nr. 5 KG, Grünwald, Germany Lufthansa Leasing GmbH & Co. Fox-Bravo oHG, Grünwald, Germany Lufthansa Leasing GmbH & Co. Fox-Charlie oHG, Grünwald, Germany Suriba Beteiligungsverwaltungs GmbH, Vienna, Austria UIA Beteiligungsgesellschaft mbH, Vienna, Austria MRO segment Lufthansa Technik Budapest Repülögép Nagyjavító Kft., Budapest, Hungary Lufthansa Technik Malta Limited, Malta Lufthansa Technik Aircraft Services Ireland Limited, Shannon, Ireland Catering segment Starfood Antalya Gida Sanayi ve Ticaret A.S., Istanbul, Turkey

Additions 6.7.10

Disposals

211

Reason Established

6.7.10

Established

6.7.10

Established

6.7.10

Established

6.7.10

Established

25.6.10

Established 31.12.10 15.7.10

Liquidation Liquidation

15.7.10

Liquidation

10.6.10

Merger

1.4.10 1.1.10 1.1.10 26.2.10 10.8.10

Divestment Consolidated for the first time Consolidated for the first time Liquidation Established

The following fully consolidated German Group companies made use of the exemption provisions in Section 264 Paragraph 3 and Section 264b German Commercial Code (HGB) in 2010. Company name German wings Hamburger Gesellschaft für Flughafenanlagen mbH In-Flight Management Solutions GmbH LSG Asia GmbH LSG-Food & Nonfood Handel GmbH LSG Lufthansa Service Catering- und Dienstleistungsgesellschaft mbH LSG Lufthansa Service Europa / Afrika GmbH LSG Lufthansa Service Holding AG LSG Sky Chefs Catering Logistics GmbH LSG Sky Chefs Deutschland GmbH LSG Sky Chefs Lounge GmbH LSG-Sky Food GmbH LSG South America GmbH Lufthansa Technik AERO Alzey GmbH Lufthansa Cargo AG Lufthansa Cargo Charter Agency GmbH Lufthansa CityLine GmbH Lufthansa Commercial Holding GmbH Lufthansa Flight Training Berlin GmbH Lufthansa Flight Training GmbH Lufthansa Leasing GmbH & Co Echo-Zulu oHG Lufthansa Systems Aeronautics GmbH Lufthansa Systems Airline Services GmbH Lufthansa Systems Aktiengesellschaft Lufthansa Systems AS GmbH Lufthansa Systems Berlin Lufthansa Systems Business Solutions GmbH Lufthansa Systems Infratec GmbH Kelsterbach Lufthansa Systems Passenger Services GmbH Lufthansa Process Management GmbH

Registered office GmbH Cologne Hamburg Neu-Isenburg Neu-Isenburg Frankfurt / M. Neu-Isenburg Neu-Isenburg Neu-Isenburg Neu-Isenburg Neu-Isenburg Neu-Isenburg Alzey Neu-Isenburg Alzey Kelsterbach Kelsterbach Cologne Cologne Berlin Frankfurt / M. Grünwald Raunheim Kelsterbach Kelsterbach Norderstedt Berlin Raunheim Kelsterbach Kelsterbach Neu-Isenburg

Wiley International Trends in Financial Reporting under IFRS

212

Company name Lufthansa Technik AG Lufthansa Technik Immobilien und Verwaltungsgesellschaft mbH Lufthansa Technik Logistik GmbH Lufthansa Technik Maintenance International GmbH Lufthansa Technik Objekt- und Verwaltungsgesellschaft mbH Lufthansa Training & Conference Center GmbH Lufthansa WorldShop GmbH MARDU Grundstücks-Verwaltungsgesellschaft mbH & Co. oHG Miles & More International GmbH

Registered office Hamburg Hamburg Hamburg Frankfurt / M. Hamburg Seeheim Jugenheim Frankfurt / M. Grünwald Neu-Isenburg

The consolidated financial statements include equity stakes in 60 joint ventures and 41 associated companies (previous year: 65 joint ventures and 40 associated companies), of which 11 joint ventures (previous year: 9) and 17 associated companies (previous year: 17) were accounted for using the equity method. The other joint ventures and associated companies were valued at amortized cost due to their minor overall significance. The following assets and liabilities and income and expenses are attributed to the Group based on the equity stake 2010

in €m Non-current assets Current assets Shareholders’ equity Non-current liabilities Current liabilities Income Expenses

Joint Associated Ventures companies 146 252 205 117 128 131 51 171 172 67 512 201 491 187

2009 Associated Associated companies not companies not accounted for using Joint Associated accounted for using the equity method Ventures companies the equity method 351 79 246 357 28 132 117 20 28 95 122 27 219 22 148 230 132 94 93 120 57 324 308 57 50 313 289 52

Equity investments accounted for using the equity method Equity investments accounted for using the equity method are capitalized at cost at the time of acquisition. In subsequent periods, the carrying amounts are either increased or reduced annually by changes in the shareholders’ equity of the associated company or joint venture that is held by the Lufthansa Group. The principles of purchase price allocation that apply to full consolidation are applied accordingly to the initial measurement of any difference between the acquisition cost of the investment and the pro rata share of shareholders’ equity of the company in question. An impairment test for goodwill included in the recognized value of the investment is only carried out in subsequent periods if there are indications of a potential impairment in the entire investment value. Intra-Group profits and losses from sales between Group companies and companies accounted for using the equity method are eliminated pro rata in relation to the equity stake.

Repsol YPF, S.A. Consolidated Financial Statements – 31 December 2010 Notes to the Consolidated Financial Statements 3.

Accounting Policies (in part)

3.3.1 Basis of Consolidation Repsol YPF’s consolidated Financial Statements include the investments in all their subsidiaries, associates and joint ventures. All the subsidiaries over which Repsol YPF exercises direct or indirect control were fully consolidated. Control is the power to govern the financial and operating policies of a company so as to obtain benefits from its activities. Control is, in general but not exclusively, presumed to exist when the parent owns directly or indirectly more than half of the voting power of the investee. The share of the minority interests in the equity and profit of the Repsol YPF Group’s consolidated subsidiaries is presented under “Minority interests” within Equity in the consolidated balance sheet and “Net income attributable to minority interests” in the consolidated income statement, respectively.

Consolidated financial Statements and Separate Financial Statements (IAS 27)

213

Joint ventures are proportionately consolidated and, accordingly, the consolidated Financial Statements include the assets, liabilities, expenses and income of these companies only in proportion to Repsol YPF Group’s ownership interest in their capital. Joint ventures are those over which there is shared control and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. The assets, liabilities, income and expenses corresponding to the joint ventures are presented in the consolidated Balance Sheet and consolidated Income Statement in accordance with their specific nature. In the case of either non-monetary contribution to a joint controlled entity in exchange for an equity interest, either in the case of sales of assets to a joint controlled entity, the Group only recognizes that portion of the gain or loss that is attributable to the interests of the other ventures. Associates are accounted for using the equity method. These are companies over which the investor has significant influence but does not exercise effective or joint control. Significant influence is the power to affect financial and operating decisions of a company and is presumed to exist when the investor holds an interest of 20% or more. The equity method involves recognizing under “Investments accounted for using the equity method” in the Consolidated Balance Sheet, the net assets and goodwill, if applicable, of these companies only in proportion to the ownership interest in their capital. The net profit or loss obtained each year through these companies is reflected, only in proportion to the ownership interest in their capital, in the Consolidated Income Statement as “Share of results of companies accounted for using the equity method.” Losses incurred by an associate attributable to the investor that exceed the latter’s interest in the associate are not recognized, unless the Group is obliged to cover them.

Telstra Annual Report—Year Ended 30 June 2011 Notes to the Financial Statements 25. Investments in Controlled Entities Below is a list of our investments in controlled entities. Telstra Entity’s recorded amount of investment As at 30 June 2010 2009 $m $m

Parent entity Telstra Corporation Limited (a) Controlled entities Telstra Finance Limited (a) Telstra Corporate Services Pty Limited (b) Transport Communications Australia Pty Ltd (b) Telstra ESOP Trustee Pty Limited Telstra Growthshare Pty Ltd Telstra Media Pty Limited Telstra Multimedia Pty Limited (a) Telstra International Limited (a) Telstra Pay TV Pty Ltd (a) Hypermax Holdings Pty Ltd (b) Chief Entertainment Pty Ltd Telstra 3G Spectrum Holdings Pty Ltd Telstra OnAir Holdings Pty Ltd Converged Networks Pty Ltd (b) Telstra Business Systems Pty Ltd (a) Telstra Plus Pty Ltd Clayton 770 Pty Ltd Research Resources Pty Ltd (previously held by Sensis)

% of equity held by immediate parent As at 30 June 2010 2009 $m $m

Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia

393 2,678 2 302 478 69 -

5 4 393 2,678 2 8 302 478 1 69 -

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

-

-

100.0

100.0

Wiley International Trends in Financial Reporting under IFRS

214

Telstra Entity’s recorded amount of investment As at 30 June 2010 2009 $m $m

1300 Australia Pty Ltd • Alpha Phone Words Pty Ltd Telstra Communications Limited (a) • Telecom Australia (Saudi) Company Limited (b)(c)(d)(e) Telstra Rewards Pty Ltd (b) Communications Network Holdings Pty Ltd (b) • Advanced Digital Communications (WA) Pty Ltd (b) • Western Communication Solutions Pty Ltd (b) Adstream (Aust) Pty Ltd • Adstream Limited • Quickcut (Aust) Pty Ltd Telstra Holdings Pty Ltd (a) • Telstra International Holdings Limited • SouFun Holdings Ltd (c)(d)(h) • SouFun.com (Shenzhen) Ltd (c)(h) • SouFun.com (Tianjin) Ltd (c)(h) • SouFun.com (Chongqing) Ltd (b)(c)(h) • SouFun.com (Guangzhou) Ltd (c)(h) • SouFun.com (Shanghai) Ltd(c)(h) • Beijing SouFun Information Consultancy Co Ltd (c)(h) • China Index Academy Limited (c)(h) . • Selovo Investments Limited (c)(h) • Max Impact Investments Limited (c)(h) • Zhongzhishizheng Data Technology (Beijing) Co. Ltd (c)(h)

Australia Australia Australia

% of equity held by immediate parent As at 30 June 2010 2009 $m $m

20 29

20 29

85.0 100.0 100.0

85.0 100.0 100.0

-

10 4

50.0 -

50.0 100.0 100.0

23 7,307 -

23 7,307 -

64.4 100.0 100.0 100.0 100.0 55.0 100.0 100.0 100.0 100.0 100.0

100.0 100.0 64.4 100.0 100.0 100.0 100.0 55.0 100.0 100.0 100.0 100.0 100.0

China Hong Kong British Virgin Islands Hong Kong

-

-

90.0 100.0

90.0 100.0

-

-

100.0 100.0

100.0 100.0

China

-

-

100.0

100.0

Saudi Arabia Australia Australia Australia Australia New Zealand Australia Australia Bermuda Cayman Islands China China China China China

Chapter 17 INVESTMENTS IN ASSOCIATES (IAS 28)

1.

OBJECTIVE

1.1 This Standard prescribes the accounting treatment that is to be adopted for investments in associates. However, it excludes investments in associates that are held by venture capital entities or mutual funds, unit trusts and other similar entities if they are held for trading financial assets in accordance with International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement. 1.2 This Standard has been amended (see Appendix B) and the amended Standard is applicable to annual reporting periods beginning on or after January 1, 2013, with an option of earlier adoption. 2.

SYNOPSIS OF THE STANDARD

Next is a summary of the Standard that prescribes the accounting for investment in associates over which the investor has significant influence. 2.1 The Standard applies in cases of investments in entities where the investor has “significant influence” unless the investor is a venture capital firm, mutual fund, or unit trust, and it elects to measure such investments at fair value through profit or loss under IAS 39. 2.2 Significant influence is the power to participate in financial and operating policy decisions of an investee but is not control or joint control over those policies and is presumed in case an investor, directly or indirectly, owns 20% or more of the voting power of the investee (unless it can be clearly demonstrated that the investor does not have significant influence despite owning the required voting power). 2.2.1 In case an investor owns less than 20% of the voting power of an investee, it is generally presumed that the investor does not have significant influence. Existence of significant influence may also evidenced in one or more these ways: representation on the board of directors or equivalent governing body, participation in policy-making processes, material transactions between investor and investee, interchange of managerial personnel, or provision of essential technical information. 215

216

Wiley International Trends in Financial Reporting under IFRS

2.2.2 Existence of potential voting rights that are currently exercisable or convertible is also considered while assessing whether an entity has significant influence. 2.3 Investments in associates where the investor has significant influence should be accounted for using the equity method. 2.3.1 Under the equity method, the investment in an associate is initially recorded at cost and adjusted thereafter for the postacquisition changes in the investor’s share of net assets of the investee, which includes items such as the share of profit or loss of an investee and distributions of profits by the investee. 2.3.2 An investment in an associate shall be accounted for using the equity method except in these cases: • When it is classified as “held for sale”; in that case, it is accounted for under International Financial Reporting Standard (IFRS) 5, Assets Held for Sale and Discontinued Business. • When the exception under IAS 27, paragraph 10, Consolidated and Separate Financial Statements, applies allowing a parent that also has an investment in an associate not to present consolidated financial statements; or • When all the following apply: • The investor is a wholly owned subsidiary or a partially owned subsidiary of another entity and the owners do not have any objection in the investor not applying the equity method; • The investor’s debt or equity instruments are not traded in a public market; • The investor did not file and is not in the process of filing its financial statements with a securities commission or any other regulatory organization; and • The ultimate parent or an intermediate parent of the investor produces consolidated financial statements prepared under IFRS that are available for public use. 2.3.3 An investor should discontinue the use of the equity method from the date when it ceases to have significant influence over an associate and shall account for it in accordance with IFRS 9, Financial Instruments, or IAS 39 from that date (provided the associate does not become a subsidiary or a joint venture). On the loss of significant influence, the investor should measure at fair value any interest that the investor still retains in the former associate and shall recognize in profit or loss any difference between the fair value of any retained investment and proceeds from the disposal of the part interest in the associate and the carrying amount of the investment at the date when the significant influence was lost. 2.3.4 In applying the equity method, the most recent available financial statements of the associate should be used. When the reporting date of the investor and investee are not the same, the investee should prepare its financial statements as of the same date as the financial statements of the investor, unless it is impracticable to do so. However, if the reporting dates are not the same, the financial statements of the investee prepared as of a different reporting date should be adjusted for the effects of significant transactions that occur between the dates. The difference between the ends of the reporting dates should not be a period of more than three months, and the length of reporting periods and difference between the ends of the reporting periods shall be the same from period to period. The investor’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances. 2.4 Since goodwill that forms part of the carrying amount of an investment in an associate is not separately stated, it is not tested for impairment separately under IAS 36, Impairment of Assets. Instead, the entire carrying amount of investment is tested for impairment as a single asset. 2.5 An investment in an associate should be accounted for in the investor’s separate financial statements in accordance with IAS 27, paragraphs 38 to 43.

Investments in Associates (IAS 28)

3.

217

DISCLOSURE REQUIREMENTS Required disclosures regarding investments in associates are detailed next.

3.1

The Standard prescribes these disclosures: • The fair value of investments in associates for which there are published price quotations • Summarized financial information of associates • The reasons why the presumption that an investor does not have significant influence is overcome in case the investor holds, directly or indirectly, less than 20% of the voting power of the investee • The reasons why the presumption that an investor has significant influence is overcome in case the investor holds, directly or indirectly, more than 20% of the voting power of the investee • The end of the reporting period of the associate’s financial statements (which are used in applying the equity method) when they are prepared as of a different date from that of the investor, and the reason for using a different date or different period • The nature and extent of any significant restrictions on the ability of the associates to transfer of funds to the investor in the form of cash dividends, or repayment of loans or advances • The unrecognized share of losses of an associate, both for the current period and on a cumulative basis, in case an investor has discontinued recognition of its share of losses of an associate • The fact that an associate is not accounted using the equity method under the exceptions provided by IAS 27, paragraph 13 • Summarized information, either individually or collectively, of associates that are not accounted using the equity method

3.2 Investments in associates using the equity method shall be classified as noncurrent assets. The investor’s share of the profit or loss of such associates, and the carrying amount of those investments, shall be separately disclosed. The investor’s share of discontinued operations of such associates shall also be disclosed separately. 3.3 The investor’s share of changes recognized in other comprehensive income by the associate shall be recognized by the investor in other comprehensive income. 3.4 In accordance with IAS 37, the investor shall disclose its share of contingent liabilities of an associate incurred jointly with other associates and those contingent liabilities that arise because the investor is severally liable for all or part of the liabilities of the associate. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS See Chapter 18.

Chapter 18 INTERESTS IN JOINT VENTURES (IAS 31)

1.

OBJECTIVE

1.1 This Standard sets out the requirements for accounting for interests in joint ventures regardless of the structure and legal form in which the joint venture activities are carried out. 1.2 by

This Standard is not applicable to venturers’ shares in jointly controlled entities that are held • Venture capital organizations or • Mutual funds, unit trusts, and similar entities including investment-linked insurance funds that upon initial recognition are designated at fair value through profit and loss account or are classified as held for trading in accordance with International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement.

1.3 This Standard is replaced by International Financial Reporting Standard (IFRS) 11, Joint Arrangement (see Appendix B). The new Standard is applicable to annual reporting periods beginning on or after January 1, 2013, with an option of earlier adoption. 2.

SYNOPSIS OF THE STANDARD

The summary of this Standard, which is widely used by venturers in conducting business, is listed next. 2.1 This Standard identifies the three types of joint ventures that are commonly described as, and meet the definition of, a joint venture: 1. Jointly controlled operations 2. Jointly controlled assets 3. Jointly controlled entities 2.1.1 A joint venture is a contractual arrangement whereby two or more parties (the “venturers”) undertake an economic activity that is subject to “joint control.”

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2.1.2 Joint control is the contractually agreed sharing of control over an economic activity and exists only when strategic financial and operating decisions relating to activities require unanimous consent of the parties sharing control. 2.2 In a jointly controlled operation, the assets and resources of the venturers are used as opposed to the formation of a corporation, a partnership, or other entity, or a financial structure that is separate from the venturers themselves. 2.2.1 The joint venture arrangement in such cases provides a means of sharing the revenues derived from the joint venture activities. 2.3 In jointly controlled assets, the venturers jointly control one or more assets contributed to or acquired for the purpose of the joint venture and dedicated to the purposes of the joint venture. 2.3.1 The venturers share in the revenues derived from the joint venture in their agreed-on shares in accordance with the joint venture arrangement. 2.4 Jointly controlled entities involve the establishment of a corporation, partnership, or other entity wherein each venturer has an interest. In this form of a joint venture, a “contractual arrangement” between the venturers establishes the “joint control” over the economic activity of the joint venture. 2.4.1 The jointly controlled entity controls the assets of the joint venture, incurs liabilities and expenses, and recognizes the revenues from the activities of the joint venture arrangement. Each venturer is entitled to share in the profits (in some cases the output) of the jointly controlled entity. Such joint ventures maintain their own accounting records and prepare, and usually present, their own financial statements. 2.4.2 In jointly controlled entities, the interest in the joint venture should be determined either under the proportionate consolidation method or under the equity method. 2.4.3 The proportionate consolidation method is a method by which a venturer’s financial statements reflect its share of • • • •

Assets that it controls jointly; Liabilities for which it is jointly responsible; Income; and Expenses of the jointly controlled entity.

2.4.4 For reporting under this method, the venturer may either • Combine, line by line, its share of each of the assets, liabilities, income and expenses; or • Include separate line items for its share of the assets, liabilities, income and expenses. 2.4.5 The exceptions to the proportionate consolidation and equity methods are • Interests in jointly controlled entities that are classified as held for sale in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, to be accounted in accordance with that Standard. • If an investor ceases to have joint control over an entity, then any remaining investment to be accounted in accordance with IAS 39, Financial Instruments: Recognition and Measurement. • In case a jointly controlled entity becomes a subsidiary of an investor, the investor should from that date account for it in accordance with IAS 27, Consolidated and Separate Financial Statements, and IFRS 3, Business Combinations. • In case the jointly controlled entity becomes an associate, the investor should from that date account for its interest in accordance with IAS 28, Investments in Associates. 2.5 Under the equity method, an interest in a jointly controlled entity is initially recorded at cost and adjusted thereafter for the postacquisition change in the venturer’s share of net assets of the

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jointly controlled entity. The profit or loss of the venturer includes the venturer’s share of the profit or loss of the jointly controlled entity. 2.6 When a venturer enters into a transaction with the joint venture (e.g., it contributes or sells assets to the joint venture), the recognition of any portion of a gain or loss from the transaction should reflect the substance of the transaction. In such cases, the venturer should recognize only that portion of the gain or loss that is attributable to the interests of the other venturers. However, the venturer shall recognize the full amount of loss when the contribution or sale provides evidence of a reduction in the net realizable value of the current assets. (See para 4 below.) 3.

DISCLOSURE REQUIREMENTS

3.1

A venturer shall disclose a listing and description of the: • Interests in significant joint ventures. • Proportion of ownership interest held in jointly controlled entities. • A venturer that uses a line-by-line reporting format for proportionate consolidation or the equity method while recognizing its interest held in jointly controlled entities has to disclose the aggregate amount of each of the following: • • • • •

Current assets Current liabilities Long-term assets Long-term liabilities Income and expenses related to its interest in joint ventures

• A venturer shall disclose the method it has used to recognize its interest in the jointly controlled entities. • A venturer shall disclose its share of contingent liabilities and commitments. 4. SIC 13, JOINTLY CONTROLLED ENTITIES—NON-MONETARY CONTRIBUTIONS BY VENTURERS 4.1 This Interpretation deals with circumstances where the appropriate portion of gains or losses resulting from a contribution of a nonmonetary asset to a jointly controlled entity in exchange for an equity interest in that entity should be recognized by the venturer in profit or loss. 4.2 The Interpretation indicates that recognition of gains or losses on contributions of nonmonetary assets under IAS 31.39 is appropriate unless: • The significant risks and rewards related to the nonmonetary asset are not transferred to the jointly controlled entity; • The gain or loss cannot be measured reliably; or • Similar assets are contributed by the other venturers. 4.3 The nonmonetary assets that are contributed by venturers can be considered similar in case they have a similar nature, a similar use in the same line of business, and a similar fair value. A contribution meets the similarity test only if all significant component assets included in the contribution are similar to each of the significant component assets contributed by the other venturers. A gain should also be recognized if, in addition to the equity interest in the jointly controlled entity, the venturer receives consideration in the form of either cash or other assets that are dissimilar to the nonmonetary assets contributed. 4.4 Consequent to this Standard being replaced by IFRS 11, Joint Arrangements, for annual reporting periods beginning on or after January 1, 2013, SIC 13 is incorporated in IAS 28, Investment in Associates (as revised), and therefore applies to nonmonetary contributions to associates and to joint ventures.

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EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 (in £ millions) Notes to the consolidated financial statements 2.

Accounting Policies

Basis of Accounting The consolidated financial statements have been prepared in accordance with the requirements of Swiss law and International Financial Reporting Standards (IFRSs), as they apply to the consolidated financial statements for the year ended 31 March 2011. Had the consolidated financial statements been prepared under IFRSs as adopted by the European Union, there would be no material changes to the information presented in these consolidated financial statements. Consolidation The consolidated financial statements as at and for the year ended 31 March 2011 comprise the Company and its subsidiaries and their interests in associates and joint ventures. Associates and Joint Ventures An associate is an entity over which the Group, either directly or indirectly, is in a position to exercise significant influence by participating in, but without control, or joint control, of the financial and operating policies of the entity. A joint venture is an entity over which the Group, either directly or indirectly, is in a position to jointly control the financial and operating policies of the entity. Associates and joint ventures are accounted for using the equity method. Unrealised profits and losses recognised by the Group on transactions with associates or joint ventures are eliminated to the extent of the Group’s interest in the associate or joint venture concerned. Financial statements of some associates and joint ventures are prepared for different reporting years from that of the Group. Adjustments are made for the effects of transactions and events that occur between the reporting date of an associate or joint venture and the reporting date of the consolidated financial statements. All intra-group transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. 17 Investments in Associates and Joint Ventures

At 1 April Acquisitions of businesses Net gain on acquisitions of controlling interests in associates Derecognised on acquisitions of controlling interests in associates Disposals of businesses Share of post tax earnings Share of other comprehensive income Dividends Impairment Reclassified to assets held for sale Currency translation differences At 31 March

2011 £million 1,143 83 19 (471) (22) 73 6 (17) (4) – 28 838

2010 Re-presented £million 1,079 – – – – 99 (10) (39) – (2) 16 1,143

The acquisitions of businesses during the year mainly relate to Alliance Healthcare Italia S.p.a., where the Group disposed of 51% of its interest in this formerly wholly owned subsidiary to a fellow wholly owned subsidiary of the Group’s parent and ultimate controlling entity (note 12). From this date the Group no longer had the ability to control Alliance Healthcare Italia S.p.a., and the remaining interest is accounted for as an associate. The disposals of businesses relate to the associate interests Alliance Healthcare Italia S.p.a. itself had at the date the Group made its 51% disposal. The amounts derecognised on acquisitions of controlling interests in associates during the year related to Hedef Alliance A.S. and Andreae-Noris Zahn AG, both of which became subsidiaries during the year as

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a result of the acquisition of controlling interests (note 33). The associate interests of these companies at the date of acquisition of the respective controlling interests, is included within acquisitions of businesses. Included within the total carrying value of investments in associates and joint ventures was £585 million (2010: £581 million) in respect of listed companies. The market value of listed companies, based on closing share prices at 31 March 2011, was £637 million (2010: £509 million). Details of the Group’s principal associates and joint ventures are provided in note 37. The aggregate assets and liabilities reported by associates and joint ventures at 31 March 2011 were: 2011 £million 3,895 (2,877) 1,018 348

Total assets Total liabilities Net assets Group’s share

2010 Re-presented £million 5,115 (3,645) 1,470 580

The Group’s share of contingent liabilities of associates and joint ventures was £39 million (2010: £40 million). The aggregate revenues reported by associates and joint ventures for the year ended 31 March 2011 were: 2011 £million 8,631 3,126

Total revenue Group’s share

2010 Re-presented £million 9,494 3,593

The aggregate post tax earnings reported by associates and joint ventures for the year ended 31 March 2011 were: 2011 £million 229 73

Total post tax earnings Group’s share

2010 Re-presented £million 267 98

ArcelorMittal and Subsidiaries Annual Report 2010 (millions of U.S. dollars, except share and per share data) Notes to Consolidated Financial Statements Note 1: Nature of Business, Basis of Presentation and Consolidation Basis of Presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollars with all amounts rounded to the nearest million, except for share and per share data. Note 2: Summary of Significant Accounting Policies Investment in Associates, Joint Ventures and Other Entities Investments in associates and joint ventures, in which ArcelorMittal has the ability to exercise significant influence, are accounted for under the equity method. The investment is carried at the cost at the date of acquisition, adjusted for ArcelorMittal’s equity in undistributed earnings or losses since acquisition, less dividends received and any impairment incurred. Any excess of the cost of the acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities, or joint venture recognized at the date of acquisition is recognized as goodwill. The goodwill is included in the carrying amount of the investment and is evaluated for impairment as part of the investment. ArcelorMittal reviews all of its investments in associates and joint ventures at each reporting date to determine whether there is an indicator that the investment may be impaired. If objective evidence indicates that the investment is impaired, ArcelorMittal calculates the amount of the impairment of the investments as being the difference between the higher of the fair value less costs to sell or its value in use

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and its carrying value. The amount of any impairment is included in the overall income from investments in associated companies in the statement of operations. Note 11:

Investments in Associates and Joint Ventures

The Company had the following investments in associates and joint ventures: Investee Eregli Demir Ve Celik 1 Fab.T.AS China Oriental Group 2 Company Ltd DHS Group 3 Macarthur Coal 4 Hunan Valin 5 Enovos International S.A. Kalagadi Manganese (Propriety) Limited Gestamp Gonvarri Industrial Consolidated Other Total 1 2

3

4 5

Location

Ownership % at Net asset value at December 31, 2010 December 31, 2009

Net asset value at December 31, 2010

Turkey

25.76%

1,524

1,596

China Germany Australia China Luxembourg

47.03% 33.43% 16.21% 33.02% 25.29%

1,241 1,320 716 803 643

1,337 1,191 908 686 614

South Africa Spain

50% 35%

440 445

496 468

Spain

35%

359

385

2,137 9,628

2,471 10,152

As of December 31, 2009 and 2010, the investment had a market value of 1,203 and 1,317, respectively. On November 8, 2007, ArcelorMittal purchased approximately 820,000,000 China Oriental shares for a total consideration of 644 (HK$ 5.02 billion), or a 28.02% equity interest. On December 13 2007, the Company entered into a shareholder’s agreement which enabled it to become the majority shareholder of China Oriental and to raise eventually its equity stake in China Oriental to 73.13%. At the time of the close of its tender offer on February 4, 2008 ArcelorMittal had reached a 47% shareholding in China Oriental. Given the 45.4% shareholding by the founding shareholders, this left a free float of 7.6% against a minimum Hong Kong Stock Exchange (“HKSE”) listing requirement of 25%. The measures to restore the minimum free float have been achieved by means of sale of 17.4% stake to ING Bank N.V. (“ING”) and Deutsche Bank Aktiengesellschaft (“Deutsche Bank”) together with put option agreements. The Company has not derecognized the 17.4% stake as it retained the significant risk and rewards of the investment. As of December 31, 2010, the investment had a market value of 562 (563 in 2009). On May 21, 2008, ArcelorMittal acquired a 14.9% stake in Macarthur Coal Limited. On July 10, 2008, the Company has increased its stake from 14.9% to 19.9%, following the acquisition of 10,607,830 shares from Talbot Group Holdings. The total acquisition price in Macarthur Coal is 812. In the second quarter of 2009, ArcelorMittal did not subscribe to a capital increase in Macarthur Coal Limited and the stake decreased to 16.6%. End of August 2010, ArcelorMittal participated in the institutional placement and purchased an additional 6,332,878 shares. The Company’s stake therefore remained at 16.6%. Macarthur Coal Limited established a Share Purchase Plan limited to shareholders with registered address in Australia and New Zealand and a Dividend Reinvestment Plan, which provides the opportunity to shareholders to use their dividends to acquire additional shares in Macarthur Coal Limited without incurring brokerage or transaction fees. ArcelorMittal decided not to participate. These plans resulted in the issuance of new shares bringing the total number of shares to 299.476.903. ArcelorMittal’s shareholding decreased from 16.6% to 16.2% corresponding to 48.552.062 shares. As of December 31, 2010, the investment had a market value of 632 (427 in 2009). Through review of its ownership interest, the Company concluded it has significant influence over Macarthur Coal Limited due to the existence of significant coal supply contracts between the Company and this associate and therefore accounts for its investment in Macarthur Coal Limited under the equity method. As of December 31, 2009 and 2010, the investment had a market value of 1,017 and 502, respectively. On January 23, 2009, the Company contributed its 76.9% stake in Saar Ferngas AG to an associated company, Soteg. Following this transaction, ArcelorMittal’s stake in Soteg increased from 20% to 26.15%. On February 16, 2009, the Company sold 2.48% of Soteg to the Luxembourg state and SNCI for proceeds of 58 and a gain of 3. In September 2009, the internal restructuring of Enovos (previously called Soteg) was completed with the cancellation of 58,000 treasury shares held by Saar Ferngas and Cegedel in Soteg. The resulting stake held by ArcelorMittal was 25.29%, after internal reorganization. On January 6, 2011, the City of Luxembourg contributed its gas and electricity networks as well as its energy sales activities to two subsidiaries of Enovos International S.A., Creos Luxembourg S.A. and Enovos Luxembourg S.A., respectively. Consequently, the stake held by the Company in Enovos International S.A. decreased from 25.29% to 23.48%.

Summarized financial information, in the aggregate, for associates and joint ventures is as follows: December 31, 2009 Condensed statement of operations Gross revenue Net income Condensed statement of financial position Total assets Total liabilities

December 31, 2010

33,274 448

43,688 1,535

44,507 24,268

53,436 31,401

The Company assessed the recoverability of its investments accounted for using the equity method. In determining the value in use of its investments, the Company estimated its share in the present value of

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the projected future cash flows expected to be generated by operations of associates and joint ventures. Based on this analysis, the Company concluded that no impairment was required. There are no contingent liabilities related to associates and joint ventures for which the Company is severally liable for all or part of the liabilities of the associates nor are there any contingent liabilities incurred jointly with other investors. See note 22 for disclosure of commitments related to associates and joint ventures.

BHP Billiton Annual Report 2010 (in US $ millions) Notes to the financial statements Accounting Policies Basis of Preparation This general purpose financial report for the year ended 30 June 2010 has been prepared in accordance with the requirements of the Australian Corporations Act 2001 and the UK Companies Act 2006 and with: • • •

Australian Accounting Standards, being Australian equivalents to International Financial Reporting Standards as issued by the Australian Accounting Standards Board (AASB) and interpretations effective as of 30 June 2010; International Financial Reporting Standards and interpretations as adopted by the European Union (EU) effective as of 30 June 2010; International Financial Reporting Standards and interpretations as issued by the International Accounting Standards Board effective as of 30 June 2010.

Joint Ventures The Group undertakes a number of business activities through joint ventures. Joint ventures are established through contractual arrangements that require the unanimous consent of each of the venturers regarding the strategic financial and operating policies of the venture (joint control). The Group’s joint ventures are of two types: Jointly Controlled Entities A jointly controlled entity is a corporation, partnership or other entity in which each participant holds an interest. A jointly controlled entity operates in the same way as other entities, controlling the assets of the joint venture, earning its own income and incurring its own liabilities and expenses. Interests in jointly controlled entities are accounted for using the proportionate consolidation method, whereby the Group’s proportionate interest in the assets, liabilities, revenues and expenses of jointly controlled entities are recognised within each applicable line item of the financial statements. The share of jointly controlled entities’ results is recognised in the Group’s financial statements from the date that joint control commences until the date at which it ceases. Jointly Controlled Assets The Group has certain contractual arrangements with other participants to engage in joint activities that do not give rise to a jointly controlled entity. These arrangements involve the joint ownership of assets dedicated to the purposes of each venture but do not create a jointly controlled entity as the venturers directly derive the benefits of operation of their jointly owned assets, rather than deriving returns from an interest in a separate entity. The financial statements of the Group include its share of the assets in such joint ventures, together with the liabilities, revenues and expenses arising jointly or otherwise from those operations. All such amounts are measured in accordance with the terms of each arrangement, which are usually in proportion to the Group’s interest in the jointly controlled assets. 26 Interests in Jointly Controlled Entities All entities included below are subject to joint control as a result of governing contractual arrangements.

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Major shareholdings in Country of jointly controlled entities incorporation Caesar Oil Pipeline Company LLC US Cleopatra Gas Gathering Company LLC US Guinea Alumina Corporation Ltd British Virgin Islands Mozal SARL Mozambique Compañia Minera Antamina SA Peru (b) Minera Escondida Limitada Chile Phola Coal Processing Plant (Pty) Ltd South Africa (c) Richards Bay Minerals South Africa Samarco Mineracao SA Brazil Carbones del Cerrejón LLC Anguilla Newcastle Coal Infrastructure Group Pty Limited Australia

Principal activity Hydrocarbons transportation Hydrocarbons transportation Bauxite mine and alumina refinery development Aluminium smelting

Reporting (a) date

(a)

Ownership interest 2010% 2009%

31 May

25

25

31 May

22

22

31 Dec 30 June

33.3 47.1

33.3 47.1

Copper and zinc mining 30 June Copper mining 30 June Coal handling and processing plant 30 June Mineral sands mining and processing 31 Dec Iron ore mining 31 Dec Coal mining in Colombia 31 Dec

33.75 57.5

33.75 57.5

50

50

37.76 50 33.33

50 50 33.33

35.5

35.5

Coal export terminal

30 June

Group share 2010 2009 US$M US$M Net assets of jointly controlled entities Current assets Non-current assets Current liabilities Non-current liabilities Net assets

3,352 7,212 (2,162) (2,388) 6,014

2010 US$M Share of jointly controlled entities’ profit Revenue Net operating costs Operating profit Net finance costs Income tax expense Profit after taxation

8,642 (4,597) 4,045 (68) (903) 3,074

Group share 2009 US$M 6,130 (4,103) 2,027 (129) (465) 1,433

2,813 7,275 (2,092) (2,029) 5,967

2008 US$M 10,728 (3,912) 6,816 (94) (1,418) 5,304

Group share 2010 2009 US$M US$M Share of contingent liabilities and expenditure commitments of jointly controlled entities Contingent liabilities Capital expenditure commitments Other expenditure commitments (a)

(b)

(c)

885 274 1,455

724 152 1,537

The ownership interest at the Group’s and the jointly controlled entity’s reporting date are the same. While the annual financial reporting date may be different to the Group’s, financial information is obtained as at 30 June in order to report on a consistent annual basis with the Group’s reporting date. While the Group holds a 57.5 per cent interest in Minera Escondida Limitada, the entity is subject to effective joint control due to participant and management agreements which results in the operation of an Owners’ Council, whereby significant commercial and operational decisions are determined on aggregate voting interests of at least 75 per cent of the total ownership interest. Accordingly the Group does not have the ability to unilaterally control, and therefore consolidate, the investment in accordance with IAS 27/AASB 127 ‘Consolidated and Separate Financial Statements’. Richards Bay Minerals comprises two legal entities, Richards Bay Mining (Proprietary) Limited and Richards Bay Titanium (Proprietary) Limited, in each of which the Group has a 50 per cent interest and which function as a single economic entity. After deducting non-controlling interests in subsidiaries of Richards Bay Minerals, the Group’s economic interest in the operations of Richards Bay Minerals is 37.76 per cent.

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27 Interests in Jointly Controlled Assets The principal jointly controlled assets in which the Group has an interest and which are proportionately included in the financial statements are as follows:

Atlantis Bass Strait Liverpool Bay Mad Dog Minerva Neptune North West Shelf Ohanet Pyrenees ROD Integrated Development Shenzi Stybarrow Greater Angostura Zamzama Alumar

US Australia UK US Australia US Australia Algeria Australia Algeria US Australia Trinidad and Tobago Pakistan Brazil

(a)

Billiton Suriname Worsley Central Queensland Coal Associates Gregory Mt Goldsworthy Mt Newman Yandi EKATI (b) Douglas/Middelburg Mine

Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons exploration and development Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons exploration and production Hydrocarbons production Hydrocarbons exploration and production Alumina refining Aluminium smelting Bauxite mining and alumina refining Bauxite mining and alumina refining Coal mining Coal mining Iron ore mining Iron ore mining Iron ore mining Diamond mining Coal mining

Share of contingent liabilities and capital expenditure commitments relating to jointly controlled assets (c) Contingent liabilities – unsecured (c) Contracts for capital expenditure commitments not completed (a) (b)

(c)

The Group’s effective interest 2010 2009 US$M US$M 44 44 50 50 46.1 46.1 23.9 23.9 90 30 35 35 8.17 8.17 45 45 71.43 71.43 45 45 44 44 50 50 45 45 38.5 36 40 -86 50

38.5 36 40 45 86 50

50 85 85 85 80 --

50 85 85 85 80 84

2010 US$M

2009 US$M

120 4,103

94 4,282

Billiton Suriname was sold effective 31 July 2009. The Douglas/Middelburg Mine joint venture was dissolved on 1 December 2009. The mining leases, previously held jointly by Xstrata Plc, (through Tavistock Collieries Plc) and BHP Billiton Energy Coal South Africa Limited, have been divided into discrete areas which are now wholly owned and operated by Tavistock Collieries Plc and BHP Billiton Energy Coal South Africa Limited. Included in contingent liabilities and capital expenditure commitments for the Group. Refer to notes 21 and 22 respectively.

Ericsson Annual Report 2010 (SEK million) C1 Significant Accounting Policies The consolidated financial statements for the year ended December 31, 2010, have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU and RFR 1 “Additional rules for Group Accounting”, related interpretations issued by the Swedish Financial Reporting Board and the Swedish Annual Accounts Act. Joint Ventures and Associated Companies Investments in joint ventures and associated companies, i.e. where voting stock interest, including effective potential voting rights, is at least 20 percent but not more than 50 percent, or where a corresponding

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influence is obtained through agreement, are accounted for in accordance with the equity method. Under the equity method, the investment in an associate is initially recognized at cost and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. Ericsson’s share of income before taxes is reported in item “Share in earnings of joint ventures and associated companies”, included in Operating Income. This is due to that these interests are held for operating rather than investing or financial purposes. Ericsson’s share of income taxes related to joint ventures and associated companies is reported under the line item Taxes in the income statement. Unrealized gains on transactions between the Company and its associated companies and joint ventures are eliminated to the extent of the Company’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Shares in earnings of joint ventures and associated companies included in consolidated equity which are undistributed are reported in Retained earnings in the balance sheet. Impairment testing as well as recognition or reversal of impairment of investments in each joint venture is performed in the same manner as for intangible assets other than goodwill. The entire carrying amount of each investment, including goodwill, is tested as a single asset. See also description under “Intangible assets other than goodwill” below. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate. C12 Financial Assets, Non-Current EQUITY IN JOINT VENTURES AND ASSOCIATED COMPANIES

Opening balance Share in earnings Taxes Translation difference Change in hedge reserve Pensions Dividends Contributions to joint ventures and associated companies Reclassification Closing balance 1) 2) 3)

Joint ventures 2010 2009 10,317 6,694 –1,099 –7,455 –181 1,388 –391 –277 22 6 –20 21 – – – – 2) 8,648

1)

9,941 –1 2) 10,317

Associated companies 2010 2009 1,261 1,294 –73 55 –4 –1 –47 –17 – – – – –119 –70

Total 2010 11,578 –1,172 –185 –438 22 –20 –119

Total 2009 7,988 –7,400 1,387 –294 6 21 –70

2 –2 1,261

138 –1 9,803

9,943 –3 11,578

138 –1 3) 1,155

Including contribution of SEK 5.0 billion paid to STMicroelectronics. Including goodwill for ST-Ericsson of SEK 1,381 million (SEK 1,341 million in 2009). Goodwill, net, amounts to SEK 16 million (SEK 16 million in 2009)

ERICSSON’S SHARE OF ASSETS, LIABILITIES AND INCOME IN JOINT VENTURE SONY ERICSSON MOBILE COMMUNICATIONS Non-current assets Current assets Non-current liabilities Current liabilities Net assets Net sales Income after financial items Income taxes Net income Net income attributable to: Stockholders of the Parent Company Non-controlling interest Assets pledged as collateral Contingent liabilities

2010 3,622 9,904 592 10,533 2,401 30,089 705 –231 474

2009 4,003 12,790 130 14,675 1,988 36,074 –5,540 1,252 –4,288

2008 3,228 21,190 157 17,593 6,668 54,377 –400 151 –249

433 41 – 16

–4,441 153 182 17

–353 104 – 20

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ERICSSON’S SHARE OF ASSETS, LIABILITIES AND INCOME IN JOINT VENTURE ST-ERICSSON Non-current assets Current assets Non-current liabilities Current liabilities Net assets Net sales Income after financial items Income taxes Net income Net income attributable to: Stockholders of the Parent Company Non-controlling interest Assets pledged as collateral Contingent liabilities

2010 6,673 2,249 214 2,519 6,189 8,260 –1,762 50 –1,712

2009 7,238 3,856 129 2,691 8,274 9,633 –1,762 136 –1,626

–1,713 1 3 –

–1,626 – – 6

ERICSSON’S SHARE OF ASSETS, LIABILITIES AND INCOME 1) IN ASSOCIATED COMPANY ERICSSON NIKOLA TESLA D.D. Non-current assets Current assets Non-current liabilities Current liabilities Net assets Net sales Income after financial items Income taxes Net income Net income attributable to: Stockholders of the Parent Company Non-controlling interest Assets pledged as collateral Contingent Liabilities 1)

2010 92 749 2 209 630 784 17 –1 16

2009 311 754 3 240 822 994 90 1 91

16 – 4 43

91 – 5 151

2008 394 695 6 253 830 1,182 139 –5 134 134 – 5 172

Ericsson’s share is 49.07 percent

All three companies apply IFRS in the reporting to Ericsson.

Imperial Tobacco Group Annual Report 2010 (£ million) Notes to the Financial Statements Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations as adopted by the European Union (collectively IFRS) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Joint Ventures Joint ventures are those businesses which the Group and third parties jointly control. The financial statements of joint ventures are consolidated using the proportionate method, with the Group’s share of assets and liabilities recognised in the balance sheet classified according to their nature. In the same way, the Group’s share of income and expenses is presented in the consolidated income statement in accordance with their function. If necessary, adjustments are made to the financial statements of these companies to align their accounting policies with those used by the Group.

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11 Investments in Associates and Joint Ventures Investments in associates £ million At 1 October Share of profit of associates Disposals Exchange movements At 30 September

2010 22 – (3) (1) 18

2009 16 1 5 22

Investments in Joint Ventures The principal joint ventures are Corporación Habanos, S.A. Cuba and Altabana S.L., Spain. Summarised financial information for the Group’s share of joint ventures, which are accounted for under the proportional consolidation method, is shown below: 2010 £ million Revenue Profit after taxation Non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets

Corporación Habanos 39 5 201 42 243 (26) (33) (59) 184

Altabana 81 7 11 60 71 (21) (2) (23) 48

Others 10 2 7 10 17 (2) – (2) 15

Total 130 14 219 112 331 (49) (35) (84) 247

2009 £ million Revenue Profit after taxation Non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets

Corporación Habanos 34 7 202 49 251 (21) (30) (51) 200

Altabana 72 6 11 52 63 (14) (4) (18) 45

Others 9 – 7 10 17 (2) – (2) 15

Total 115 13 220 111 331 (37) (34) (71) 260

Wesfarmers Limited and Its Controlled Entities Annual Report 2010 (in $ millions) Notes to the financial statements 2

Summary of Significant Accounting Policies

(b) Statement of Compliance The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board. (q) Interest in Jointly Controlled Assets The Group has interests in joint ventures that are jointly controlled assets. The Group recognises its share of the asset, classified as plant and equipment. In addition, the Group recognises its share of liabilities, expenses and income from the use and output of the jointly controlled asset. 30 Interest in Jointly Controlled Assets The Group has the following interests in joint ventures in Australia:

Interests in Joint Ventures (IAS 31)

Joint venture Sodium Cyanide JV Bengalla JV Kwinana Industrial Gases JV HAl property trust

231

Principal activity Sodium cyanide manufacture Coal mining Oxygen and nitrogen manufacture Property ownership

INTEREST 2010 2009 75 75 40 40 40 40 50 50

The share of the assets, revenue and expenses of the jointly controlled assets, which are included in the consolidated financial statements, are as follows: CONSOLIDATED 2010 $m 2009 $m Current assets Cash and cash equivalents Inventories Others Total current assets Non-current assets Property, plant and equipment Total non-current assets Total assets Revenue Costs of sales Administrative expenses Profit before income tax Income tax expense Net profit

5 13 7 25

7 10 3 20

269 269 294

270 270 290

289 (178) (5) 106 (31) 75

320 (181) (5) 134 (40) 94

There were no impairment losses in the jointly controlled assets.

Anglo American plc Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 17 Investments in Associates US$ million At 1 January Net income from associates Dividends received (1) Transfer from subsidiary/joint venture Share of expense recognised directly in equity, net of tax Other equity movements (2) Investment in equity and capitalised loans Interest receivable on capitalised loans Repayment of capitalised loans Transferred to available for sale investments Transferred to assets held for sale and disposals Other movements Currency movements (3) At 31 December (1)

(2)

(3)

2010 3,312 822 (255) 643 (41) (140) 632 16 (33) (100) (126) 19 151 4,900

2009 3,612 84 (616) 235 (7) 2 203 – – – (510) 105 204 3,312

Year ended 31 December 2010 represents the transfer to investments in associates of Anglo Platinum Limited’s retained 33% holding in Bafokeng-Rasimone Platinum mine (see note 32). Year ended 31 December 2009 relates to disposals in the Platinum segment. Includes $450 million, in the year ended 31 December 2010, to subscribe to the Group’s share of De Beers’ rights issue. Refer to note 36. The fair value of the Group’s investment in Anooraq Resources Corporation at 31 December 2010 was $179 million (2009: $105 million).

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The Group’s total investments in associates comprise: 2010 4,194 706 4,900

US$ million Equity (1) Loans (1)

2009 2,799 513 3,312

The Group’s total investments in associates include long term debt which in substance forms part of the Group’s investment. These loans are not repayable in the foreseeable future.

US$ million Total non-current assets Total current assets Total current liabilities Total non-current liabilities Group’s share of net assets

2010 6,923 1,805 (738) (3,090) 4,900

2009 5,710 2,494 (854) (4,038) 3,312

Segment information is provided as follows: US$ million By segment Platinum Diamonds Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial

2010 (44) 270 287 84 220 5 822

Net income 2009 (17) (333) 170 34 214 16 84

Aggregate investment 2010 2009 1,112 1,936 880 223 749 – 4,900

447 1,353 658 146 689 19 3,312

Aggregate investment 2010 2009

US$ million By geography South Africa Other Africa South America North America Australia and Asia Europe

2,334 1,220 729 376 698 (457) 4,900

1,934 914 675 320 426 (957) 3,312

The Group’s share of associates’ contingent liabilities incurred jointly by investors is $75 million (2009: $102 million). Details of principal associates are set out in note 37.

Anheuser-Busch InBev NV Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 15. Investment in Associates Million US dollar Balance at end of previous year Effect of movements in foreign exchange Disposals Share of results of associates Dividends Transfer to other asset categories Balance at end of year

2010 6,744 420 (12) 521 (378) -7,295

2009 6,871 324 (927) 513 (14) (23) 6,744

AB InBev holds a 35.1% direct interest in Grupo Modelo, Mexico’s largest brewer, and a 23.25% direct interest in Diblo S.A. de C.V., Grupo Modelo’s operating subsidiary, providing AB InBev with, directly and indirectly, a 50.2% interest in Modelo without however having voting or other control of either Grupo Modelo or Diblo. On a stand alone basis (100%) under IFRS, aggregate amounts of Modelo’s assets and liabilities for 2010 represented 17 392m US dollar and 2 995m US dollar respectively, while the 2010 net revenue amounted to 6 646m US dollar and the profit to 1023m US dollar.

Interests in Joint Ventures (IAS 31)

233

Disposals in 2009 mainly comprised the divestiture, as part of AB InBev’s deleveraging program, of the 27% stake in Tsingtao Brewery Company Limited for a consideration of 901m US dollar. There was no capital gain recorded on this transaction as the selling price equaled the net carrying value at the date of the disposal.

BAE Systems Annual Report 2010 Notes to the Group accounts for the year ended 31 December 14. Equity Accounted Investments Carrying value of equity accounted investments

At 1 January 2009 Share of results after tax – continuing operations Share of results after tax – discontinued operations (note 9) Disposal Reclassification to intangible assets (note 11) Dividends – continuing operations Dividends – discontinued operations Market value adjustments in respect of derivative financial instruments, net of tax Actuarial losses on defined benefit pension schemes, net of tax Foreign exchange adjustment At 31 December 2009 Share of results after tax – continuing operations Share of results after tax – discontinued operations (note 9) Acquisitions Equity accounted investment funding Disposal Dividends – continuing operations Dividends – discontinued operations Market value adjustments in respect of derivative financial instruments, net of tax Actuarial gains on defined benefit pension schemes, net of tax Foreign exchange adjustment At 31 December 2010

Share of net assets £m 374 187 16 28 – (74) (3)

Purchased goodwill £m 660 – – – (253) – –

5 (38) (31) 464 131 2 2 7 (125) (67) (4)

– – (25) 382 – – – – (30) – –

5 (38) (56) 846 131 2 2 7 (155) (67) (4)

3 28 4 445

– – (10) 342

3 28 (6) 787

Carrying value £m 1,034 187 16 28 (253) (74) (3)

On 30 October 2009, the BVT Surface Fleet Limited (BVT) joint venture became a wholly-owned subsidiary of the Group after VT Group plc (VT) exercised its option to sell its 45% shareholding in BVT to BAE Systems (see note 29). As part of the transaction, the Group’s shareholding in Fleet Support Limited also increased from 55% to 100%. On the date of the transaction, the Group gained full control of BVT, which was previously jointly controlled with VT. Goodwill arising on the formation of the BVT joint venture in 2008 (£225m) and goodwill associated with the Group’s initial 50% shareholding in Fleet Support Limited (£28m) was reclassified to intangible assets (see note 11) in 2009 in accordance with IFRS 3 (2004). On 3 June 2010, the Group sold half of its 20.5% shareholding in Saab AB to Investor AB for a cash consideration of SEK1,041m (£92m) (see note 9). Following the loss of significant influence over the company, the Group has discontinued the use of the equity method and the remaining shareholding in Saab is shown within other financial assets as a financial asset at fair value through profit or loss at 31 December 2010 (see note 17). The Group’s share of the results of Saab to the date of disposal is shown within discontinued operations for the current and prior periods. Included within purchased goodwill is £59m (2009 £89m) relating to the goodwill arising on acquisitions made by the Group’s equity accounted investments subsequent to their acquisition by the Group.

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Share of results of equity accounted investments by operating group—continuing operations 1

2010 £m

Restated 2009 £m

1 8 24 143 1 177 (2) (44) 131

1 (3) 77 135 – 210 2 (25) 187

2010 £m

2009 £m

803 3,014 3,817

990 3,313 4,303

(466) (2,564) (3,030) 787

(678) (2,779) (3,457) 846

Share of results excluding finance costs and taxation expense: Electronics, Intelligence & Support Land & Armaments Programmes & Support International HQ & Other Businesses Financial (expense)/income Taxation expense Share of the assets and liabilities of equity accounted investments Assets: Non-current assets Current assets Liabilities: Non-current liabilities Current liabilities Carrying value 1

Restated following the sale of half of the Group’s 20.5% shareholding in Saab AB and subsequent classification as a discontinued operation (see note 9).

Contingent Liabilities The Group is not aware of any material contingent liabilities in respect of equity accounted investments. Principal equity accounted investments Joint ventures

Principal activities

Eurofighter Jagdflugzeug GmbH Management and control of (Held by BAE Systems plc) the Typhoon programme MBDA SAS Development and manufacture of guided weapons (Held via BAE Systems Electronics Limited and BAE Systems (Overseas Holdings) Limited)

Group interest in Principally Country of allotted capital operates in incorporation 33% ordinary

Germany

Germany

37.5% ordinary

Europe

France

The Group comprises a large number of equity accounted investments and it is not practical to include all of them in the above list. The list therefore only includes those equity accounted investments which principally affected the Group accounts. A full list of subsidiary, equity accounted investments and other associated undertakings as at 31 December 2010 will be annexed to the Company’s next annual return filed with the Registrar of Companies.

Interests in Joint Ventures (IAS 31)

235

CNP Assurances Annual Financial Report 2010 Note to the consolidated financial statements for the year ended 31 December 2010 5.3 Financial Information Concerning Associates Summary financial information, on a 100% basis 31.12.2010 The CNP Group’s consolidated financial statements do not include any equity-accounted companies at 31 December 2010. 31.12.2009 * Natixis Global Asset management *

Total assets 0

Equity 0

Revenue 0

Profit 280

Equity 3,552

Revenue 1,364

Profit 257

Natixis Global Asset Management was sold on 17 December 2009.

31.12.2008 Natixis Global Asset management

Total assets 4,970

Investments in associates At 1 January Increase in interest Change in consolidation method Newly-consolidated companies Share issue Share of profit Share of amounts recognised in net assets Dividends received Deconsolidations At 31 December

31.12.2010 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0.0

31.12.2009 426.3 0.0 0.0 0.0 14.3 31.7 (2.3) (29.2) (440.8) 0.0

31.12.2008 422.8 0.0 (7.9) 0.0 21.7 29.1 4.1 (43.5) 0 426.3

Compass Group Annual Report 2010 Accounting Policies for the year ended 30 September 2010 12 Interests in Associates

Twickenham Experience Ltd Oval Events Limited Thompson Hospitality Services LLC

Interests in associates Net book value At 1 October Additions Share of profits less losses (net of tax) Dividends received Currency and other adjustments At 30 September

Country of incorporation England & Wales England & Wales USA

2010 % ownership 40% 25% 49%

2009 % ownership 40% 25% 49%

2010 £m

2009 £m

32 – 6 (6) – 32

28 – 7 (4) 1 32

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The Group’s share of revenues and profits is included below: Associates Share of revenue and profits Revenue Expenses/taxation1 Profit after tax for the year Share of net assets Goodwill Other Net assets Share of contingent liabilities Contingent liabilities 1

2010 £m

2009 £m

28 (22) 6

27 (20) 7

23 9 32

25 7 32

--

--

Expenses include the relevant portion of income tax recorded by associates.

Crédit Agricole S.A. Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 2.3 Investments in Equity-Accounted Entities

In millions of euros Financial institutions: Bank Saudi Fransi B.E.S. Regional Banks and affiliates (1) Bankinter (2) Intesa Sanpaolo S.p.A. Other Non-finance companies: (3) Eurazeo Other NET CARRYING AMOUNT OF INVESTMENTS IN EQUITYACCOUNTED ENTITIES (1)

(2)

(3)

Equityaccounted value 17,429 1,068 1,273 13,769 1,084 235 682 634 48 18,111

Market value

31/12/2010 Net Total banking assets income

Net income

2,007 801

24,589 83,655

887 2,367

566 511

486

54,025

1,102

151

599

15,032

2,959

10

Share of net income 72 141 118 968 (19) (1,153) 17 (7) (5) (2) 65

Including impairment of the equity-accounted value of €209 million of which €57 million corresponds to the current financial year. The investment in Intesa Sanpaolo S.p.A., consolidated using the equity method since 30 June 2009, has been reclassified as a non-consolidated company (“Available-for-sale financial assets”) December 2010. The equity-accounted income for 2010 of €1,153 million incorporates income revaluation of that investment at its fair value on 17 December 2010 (date of loss of significant influence). Total assets data are those published by the company at 30 June 2010. NBI and net income are those published by the company in the second half-year of 2009 and first half-year of 2010.

The change in the line item “Investments in equity-accounted entities” in the 2010 financial year is mainly due to deconsolidation of the investment in Intesa Sanpaolo, following the Group’s decision, on 16 December 2010, to bring an end to the mechanism which enabled its representation on the Supervisory Board of that company. The market value shown in the above table is the quoted price of the shares on the market at 31 December 2010. This value may not be representative of the selling value since the value in use of equityaccounted entities may be different from the equity accounted value. This value may bot be representative of the value of equity accounted securities determined in compliance with IAS 28.

Interests in Joint Ventures (IAS 31)

In millions of euros Financial institutions: Bank Saudi Fransi B.E.S. Regional Banks and affiliates Bankinter (1) Intesa Sanpaolo S.p.A. (2) Other Non-finance companies: Eurazeo (3) Other NET CARRYING AMOUNT OF INVESTMENTS IN EQUITYACCOUNTED ENTITIES

237

Equityaccounted value 19,308 861 1,277 12,929 1,134 2,946 161 718 635 83

Market value

31/12/2009 Net Total banking assets income

Net income

1,703 1,273

22,314 82,297

820 2,419

471 522

793 2,220

54,468 631,608

1,245 13,416

254 2,262

506

15,297

1,792

(178)

20,026

Share of net income 890 118 133 841 4 (212) 6 (43) (35) (8) 847

Danske Bank Group Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 Holdings in associated undertakings BAB Bankernas Automatbolag AB, Stockholm Bankernes Kontantservice A/S, Copenhagen Bankpension AB, Stockholm BDB Bankernas Depå AB, Stockholm DKA II A/S, Copenhagen DKA I P/S, Copenhagen DKA I Komplementar A/S, Copenhagen Ejendomsaktieselskabet af 22. juni 1966, Copenhagen LR Realkredit A/S, Copenhagen Danmarks Skibskredit A/S, Copenhagen Multidata Holding A/S, Ballerup E-nettet Holding A/S, Copenhagen Interessentskabet af 23. dec. 1991, Copenhagen Automatia Pankkiautomaatit Oy, Helsinki MB Equity Fund Ky, Helsinki Tapio Technologies, Helsinki Irish Clearing House Limited, Dublin

Ownership (%) 20

Total assets -

Total liabilities -

Income -

Net profit -

25

-

-

-

-

20 20 29 32 32

20 2,115 941 59 1

3 2,084 678 9 -

15 46 584 1 -

11 15 4 -

50 31 24 44 25 30

26 12,420 84,947 782 171 811

7 8,914 75,904 520 109 36

2 537 3,588 815 91 69

1 282 263 -4 -14 50

33 21 20 22

2,537 11 1

2,361 10 1

440 6 5

42 1 -

DKK millions Holdings in associated undertakings under insurance contracts Cost at 1 January Disposals Cost at 31 December Revaluations at 1 January Share of profit Dividends Revaluations at 31 December Carrying amount at 31 December

2010

2009

673 673 323 8 30 301 974

675 2 673 384 -46 15 323 996

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Ownership (%) Ejendomsselskabet af Januar 2002 A/S, Copenhagen Dantop Ejendomme ApS, Copenhagen DNP Ejendomme Komplementarselskab ApS, Copenhagen DNP Ejendomme P/S, Copenhagen DAN-SEB 1 A/S, Copenhagen Hovedbanegårdens Komplementarselskab ApS, Copenhagen Privathospitalet Hamlet af 1994 A/S, Frederiksberg

Total assets

Total liabilities

Income

Net profit

50 50

845 281

315 6

30 9

32 12

50 50 50

1,130 73

21 49

91 2

22 -1

50

-

-

-

-

35

487

297

419

-6

The information disclosed is extracted from the companies’ most recent annual reports. The Group has holdings in two investment companies in which Danica and the Danske Bank Group together hold more than 20% of the capital. Danica’s holdings are recognised at fair value under Assets under insurance contracts. The Group’s other holdings are carried under Trading portfolio assets. Because the investment companies invest solely in securities recognised at fair value, the carrying amount deviates only slightly from the fair value. The table below shows the Group’s holdings in these companies at the end of 2010:

P-N 2001 A/S Copenhagen Nordic Venture Partners K/S Copenhagen

Ownership (%) 27 26

Total assets 6 224

Total liabilities 2 1

Income 17

Net profit -2 17

Holcim Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Investments in associated companies are accounted for using the equity method of accounting. These are companies over which the Group generally holds between 20 and 50 percent of the voting rights and has significant influence but does not exercise control. Goodwill arising on the acquisition is included in the carrying amount of the investment in associated companies. Equity accounting is discontinued when the carrying amount of the investment together with any long-term interest in an associated company reaches zero, unless the Group has in addition either incurred or guaranteed additional obligations in respect of the associated company. 22 Investments in Associates Million CHF January 1 Share of profit of associates Dividends earned Acquisitions net Reclassifications net and impairments Currency translation effects December 31

2010 1,529 245 (202) 49 30 (219) 1,432

2009 1,341 302 (89) 24 (43) (6) 1,529

Sales to and purchases from associates amounted to CHF 168 million (2009: 210) and CHF 32 million (2009: 19) respectively. The following amounts represent the Group’s share of assets, liabilities, net sales and net income of associates: Aggregated financial information – associates Million CHF Assets Liabilities Net assets

2010 3,514 (2,146) 1,368

2009 3,715 (2,330) 1,385

Net sales Net income

1,951 229

1,853 138

Interests in Joint Ventures (IAS 31)

239

Net income and net assets also reflect the unrecognized share of losses of associates where equity accounting is discontinued as the carrying amount of the investment reached zero. The unrecognized share of losses of associates amounts to CHF 16 million (2009: 102). The accumulated unrecognized share of losses of associates amounts to CHF 64 million (2009: 107).

Daimler Annual Report 2010 Notes to the consolidated financial statements 13. Investments Accounted for Using the Equity Method Key financial figures of investments accounted for using the equity method are as follows: Amounts in millions of Euros December 31, 2010 Equity interest (in %) Market value (based on listed share prices) 2 Equity investment 2 Equity result (2010) December 31, 2009 Equity interest (in %) Market value (based on listed share prices) 2 Equity investment 2 Equity result (2009) 1 2

1

EADS

Tognum

BBAC

Kamaz

Others

Total

22.5 3,197 2,415 -261

28.4 737 672 9

50.0 – 175 86

15.0 188 177 -4

– – 521 22

– – 3,960 -148

22.5 2,583 3,112 88

28.4 433 671 -9

50.0 – 79 10

10.0 105 87 -7

– – 346 -10

– – 4,295 72

Also including joint ventures accounted for using the equity method. Including investor-level adjustments.

The following table presents summarized IFRS financial information on investments accounted for using the equity method, which was the basis for applying the equity method in the Group’s consolidated financial statements: In millions of Euros 2 Income statement information 2010 Sales Net profit/loss 2009 Sales Net profit/loss 3 Balance sheet information 2010 Total assets Equity Liabilities 2009 Total assets Equity Liabilities

1

EADS

Tognum

BBAC

Kamaz

Others

Total

44,567 -1,021

2,462 97

1,804 123

1,731 -27

3,502 44

54,066 -784

43,478 711

2,594 101

685 7

960 -51

1,759 4

49,476 772

78,441 10,552 67,889

2,611 720 1,891

1,416 288 1,128

1,651 736 915

3,586 1,558 2,028

87,705 13,854 73,851

73,889 13,706 60,183

2,407 632 1,775

647 146 501

1,738 723 1,015

2,538 1,132 1,406

81,219 16,339 64,880

1

Also including joint ventures accounted for using the equity method. Figures of EADS, Tognum and Kamaz principally relate to the period from October 1 to September 30. Figures of Kamaz for 2009 relate to the period from January 1 to September 30. Figures of BBAC relate to the period from January 1 to December 31. 3 Figures of EADS, Tognum and Kamaz as of September 30. Figures of BBAC as of December 31. 2

EADS. The Group reports its investment in and its proportionate share in the results of the European Aeronautic Defence and Space Company EADS N.V. (EADS) in the reconciliation of total segments’ assets to Group assets and total segments’ EBIT to Group EBIT, respectively, in the segment reporting. As a result of the recognition of the proportionate share in EADS’ results with a three-month time lag, Daimler recognized its share in the loss provisions regarding the A400M military transporter program established at EADS for the purpose of their 2009 consolidated financial statements in its equity result for 2010. The Group’s proportionate share in those expenses was €237 million.

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On March 13, 2007, a subsidiary of Daimler which holds Daimler’s 22.5% interest in EADS issued equity interests to investors in exchange for €1,554 million of cash. As a result of this transaction, the Group reports a minority interest in its consolidated statement of financial position representing the investor’s ownership in the consolidated subsidiary that issued the equity interest. The amount reported as minority interest reflects the investor’s 33% share in the net assets of that subsidiary. In connection with this transaction, between July 1, 2010 and September 30, 2010, Daimler had the option to exchange the newly issued equity interests for a 7.5% equity interest in EADS or for cash equivalent to the fair value of the 7.5% equity interest in EADS at that time. In March 2010, Daimler decided not to make use of this option. Therefore, Daimler will continue to base its equity method accounting of EADS on a 22.5% equity interest. Tognum. The Group reports its investment and its proportionate share in the results of Tognum AG in the reconciliation of total segments’ assets to Group assets and total segments’ EBIT to Group EBIT, respectively, in the segment reporting. BBAC. The investment and the proportionate share in the results of Beijing Benz Automotive Co., Ltd. (BBAC) are allocated to the Mercedes-Benz Cars segment. Kamaz. Resulting from its representation on the board of directors of Kamaz OAO (Kamaz) and its significant contractual rights under the terms of a shareholder agreement, the Group can exercise significant influence on Kamaz. Therefore, the Group accounts for its equity interest in Kamaz using the equity method; the investment and the proportionate share in the results of Kamaz are allocated to the Daimler Trucks segment. In 2010, the Group and the European Bank for Reconstruction and Development (EBRD) completed an increase in their strategic investments in Kamaz. Daimler has thus increased its equity interest in Kamaz by one percentage point to 11%, while the remaining 4% are legally held by EBRD. Due to the contractual situation Daimler is deemed to be the economic owner of the shares held by EBRD pursuant to IFRS. Others. Included in other investments is the Group’s investment in Tesla Motors, Inc. (Tesla). Daimler’s equity interest amounted to 7.9% as of December 31, 2010 (2009: 9.09%). The fair value and the carrying amount of its investment were €149 million and €36 million as of December 31, 2010, respectively. Resulting from its representation on the board of directors of Tesla and its significant contractual rights under the terms of a shareholder agreement, the Group can exercise significant influence on Tesla. Therefore, the Group accounts for its equity interest in Tesla using the equity method; the investment and the proportionate share in the results of Tesla are allocated to the Mercedes-Benz Cars segment.

Lufthansa Annual Report 2010 Notes to the consolidated financial statement 22. Investments Accounted for Using the Equity Method in €m Cost as of 1.1.2009 Accumulated impairment losses Carrying amount 1.1.2009 Currency translation differences Additions due to changes in consolidation Additions Reclassifications Disposals due to changes in consolidation Disposals Reclassifications to assets held for sale Impairment losses Reversal of impairment losses

Investments in joint ventures 165 – 165 –2 – 17 5 –4 – 33 –1 –2 –

Investments in associated companies 140 –7 133 –2 4 79 0* – 14 – 25 – – –

Total 305 –7 298 –4 4 96 5 – 18 – 58 –1 –2 –

Interests in Joint Ventures (IAS 31)

in €m Carrying amount 31.12.2009 Cost as of 1.1.2010 Accumulated impairment losses Carrying amount 1.1.2010 Currency translation differences Additions due to changes in consolidation Additions Reclassifications Disposals due to changes in consolidation Disposals Reclassifications to assets held for sale Impairment losses Reversal of impairment losses Carrying amount 31.12.2010 Cost as of 31.12.2010 Accumulated impairment losses *

241

Investments in joint ventures 145 145 – 145 11 – 39 31 – – 28 –2 – – 196 196 –

Investments in associated companies 175 183 –8 175 7 – 18 – – –7 –4 – – 189 194 –5

Total 320 328 –8 320 18 – 57 31 – – 35 –6 – – 385 390 –5

Rounded below EUR 1m.

In one case (previous year: two cases) the carrying amounts for associated companies were not reduced below EUR 0m. Losses at associated companies of EUR 16m (previous year: EUR 21m) were not taken into account.

Repsol YPF, S.A. Consolidated Financial Statements – 31 December 2010 Notes to the Consolidated Financial Statements 10. Investments Accounted for Using the Equity Method The most significant investments in associates, which were accounted for using the equity method, at December 31, 2010 and 2009, were as follows:

Peru LNG Company lLC Compañía Logística de Hidrocarburos CLH, s.a. Atlantic lng Company of Trinidad & Tobago Transportadora de Gas del Perú, s.a. Transierra, s.a. Dynasol Elastómeros, s.a. de c.v. Atlantic 4 Company of Trinidad & Tobago Oleoducto de Crudos Pesados (ocp), Ltd Guará, b.v. Other entities accounted for using the equity method

Millions of Euros 2010 2009 193 217 19 29 45 44 50 41 24 20 37 25 44 41 30 23 18 – 125 91

Appendix I lists the Group companies consolidated using the equity method of consolidation. The changes in 2010 and 2009 in this heading in the accompanying consolidated balance sheet were as follows: Balance at beginning of year (1) Additions Disposals (2) Changes in the scope of consolidation Result of companies accounted for using the equity method Dividends distributed Translation differences (3) Reclassifications and other changes BALANCE AT END OF YEAR (1) (2)

531 2 (23) (13) 76 (72) 43 41 585

525 11 (1) 128 86 (86) 1 (133) 531

In 2009 and 2010, additions include equity contributions to Enirepsa. In 2009, changes relate primarily to €131 million corresponding to the Group’s proportional interest in Gas Natural Fenosa (Note 30).

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242

(3)

Reclassifications in 2009 include the reclassification of a 13% shareholding by Gas Natural Fenosa in Indra Sistemas S.A., which was sold on July 2, 2009, to non-current assets held for sale (€99 million) and the reclassification of Gas Natural Fenosa’s remaining 5% stake in this company (€38 million) to available for sale financial assets (Note 12). Both figures represent the Group’s proportionate interest in Gas Natural Fenosa. In 2010, “Disposals” related to the sale of a 5% interest in CLH to BBK and the sale by Gas Natural Fenosa of its investment in Gas de Aragón (Note 31). The breakdown in 2010 and 2009 of the Group’s share in the profits or losses of the most significant companies accounted for using the equity method is as follows:

Millions of Euros 2010 2009 29 34 24 26 19 16 – 14 4 (4) 76 86

Atlantic LNG Company of Trinidad & Tobago Compañía Logística de Hidrocarburos CLH, s.a. Atlantic 4 Company of Trinidad & Tobago (1) Unión Fenosa Other entities accounted for using the equity method (1)

During March and April 2009, Unión Fenosa was consolidated by the Gas Natural Fenosa Group using the equity method (Note 30).

The following companies over which the Group has significant management influence, given that the Group has sufficient representation on the Board of Directors, despite holding an interest of less than 20%, were accounted for using the equity method: Company (1) Ensafeca Holding Empresarial, s.l. (1) Sistemas Energético Mas Garullo Gasoducto Oriental, s.a. Guará, b.v. (1) Regasifi cadora del Noroeste, s.a. CLH Transportadora de Gas del Perú Gasoducto del Pacífi co (Argentina) (1)

% of ownership 18.52% 18.00% 16.66% 15.00% 10.50% 10.00% 10.00% 10.00%

Investees held through the Gas Natural Fenosa Group

The following table provides the key balances of the Repsol YPF Group associates, calculated in accordance with the group’s respective shareholding percentage at December 31, 2010 and 2009 (Appendix I):

Total Assets Total Equity Revenues Net income for the period

Millions of Euros 2010 2009 1,953 1,903 585 531 667 670 76 86

Interests in Joint Ventures (IAS 31)

243

J Sainsbury plc Annual Report and Financial Statements 2010 NOTES TO THE FINANCIAL STATEMENTS 14. Investments in Joint Ventures

At 22 March 2009 Additions in year Provision for diminution in value of investment Share of retained profit Underlying profit after tax Investment property fair value movements Financing fair value movements Dividends received Movements in other comprehensive income (note 24) At 20 March 2010 At 23 March 2008 Additions in year Share of retained loss Underlying profit after tax Investment property fair value movements Financing fair value movements Dividends received Unrealised profit on disposal of property, plant and equipment Movements in other comprehensive income (note 24) At 21 March 2009

Company shares at cost £m 91 -

Group share of post acquisition reserves £m (141) (1)

Group Total £m 288 2 (1)

-

18 123 (3) 138 (2)

18 123 (3) 138 (2)

431 138 291

24 18 10 -

24 449 148 291

-

16 (124) (3) (111) (3)

16 (124) (3) (111) (3)

-

-

(5)

(5)

-

429

(32) (141)

(32) 288

91

Group Shares at cost £m 429 2 -

91 91 -

The Group’s principal joint ventures were:

The Harvest Limited Partnership (property investment — UK) BL Sainsbury Superstores Limited (property investment — UK) Sainsbury’s Bank plc (financial services — UK)

Year-end 31 March 31 March 31 December

Country of Share of registration or ordinary allotted capital incorporation 50% England 50% England 50%

England

Where relevant, management accounts for the joint ventures have been used to include the results up to 20 March 2010. The Group’s share of the assets, liabilities, income and expenses of its principal joint ventures are detailed below:

Non-current assets Current assets Current liabilities Non-current liabilities Net assets Income Expenses Investment property fair value movements Profit/(loss) after tax

2010 £m 1,611 1,824 (2,092) (899) 444

2009 £m 1,398 1,494 (1,800) (809) 283

186 (171) 123 138

239 (226) (124) (111)

Investments in joint ventures at 20 March 2010 include £5 million of goodwill (2009: £5 million).

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Telstra Annual Report—Year Ended 30 June 2010 Notes to the Financial Statements 26. Investment in Jointly Controlled Entities and Associated Entities Telstra Group As at 30 June 2010 2009 $m $m Investments in jointly controlled entities Investments in jointly controlled entities Allowance for impairment in value Carrying amount of investments in jointly controlled entities Investments in associated entities Investments in associated entities Allowance for impairment in value Carrying amount of investments in associated entities

2 2

5 (2) 3

39 (24) 15

38 (25) 13

Our investments in jointly controlled and associated entities are listed below:

Name of Entity

Jointly controlled entities FOXTEL Partnership (h) FOXTEL Television Partnership (h) Customer Services Pty Limited (h) FOXTEL Management Pty Ltd (h) FOXTEL Cable Television Pty Ltd (a)(h) Reach Ltd (incorporated in Bermuda) (e)(h) TNAS Limited (incorporated in New Zealand) (e)(h) 3GIS Pty Ltd (e) 3GIS Partnership (e) Bridge Mobile Pte Ltd (incorporated in Singapore) (e) Mnet Group Limited (formerly m.Net Corporation Limited) (b) Associated entities Australia-Japan Cable Holdings Limited (incorporated in Bermuda) (e)(h) Telstra Super Pty Ltd (a)(h) Keycorp Limited (c)(d)(f) Telstra Foundation Ltd (a) Beijing Huaxin Target Information Co Ltd (incorporated in China) (b)(e)

Principal activities

Pay television Pay television Customer service Management services Pay television International connectivity services Toll free number portability in New Zealand Management services 3G network services Regional roaming provider Mobile phone content provider

Network cable provider Superannuation trustee Electronic transactions solutions Charitable trustee organization Wireless music services

Ownership interest As at 30 June 2010 2009 % %

Telstra Group’s carrying amount investment As at 30 June 2010 2009 $m $m

50.0 50.0 50.0 50.0

50.0 50.0 50.0 50.0

-

-

80.0

80.0

-

-

50.0

50.0

-

-

33.3 50.0 50.0

33.3 50.0 50.0

-

-

10.0

10.0

2

2

(b)

25.2

2

1 3

46.9 100.0

46.9 100.0

-

-

48.2

48.2

15

13

100.0

100.0

-

-

30.0

-

-

-

15

13

Unless otherwise noted, all investments have a balance date of 30 June, are incorporated in Australia and our voting power is the same as our ownership interest. (*)

The Telstra Group carrying amounts are calculated using the equity method of accounting.

Interests in Joint Ventures (IAS 31)

245

(a) Jointly controlled and associated entities in which we own more than 50% equity •

•

•

We own 80% of the equity of FOXTEL Cable Television Pty Ltd. This entity is disclosed as a jointly controlled entity as the other equity shareholders have participating rights that prevent us from dominating the decision making of the Board of Directors. Effective voting power is restricted to 50% and we have joint control. We own 100% of the equity of Telstra Super Pty Ltd, the trustee for the Telstra Superannuation Scheme (Telstra Super). We do not consolidate Telstra Super Pty Ltd as we do not control the Board of Directors. We have equal representation with employee representatives on the Board. Our voting power is limited to 44%, which is equivalent to our representation on the Board. The entity is therefore classified as an associated entity as we have significant influence over it. We own 100% of the equity of Telstra Foundation Ltd (TFL). TFL is limited by guarantee (guaranteed to $100) with Telstra Corporation Limited being the sole member. We did not contribute any equity to TFL on incorporation. TFL is the trustee of the Telstra Community Development Fund and manager of the Telstra Kids Fund. We do not consolidate TFL as we do not control the Board. Our voting power on the Board is limited to 38%, which is equivalent to our representation on the Board.

(b) Other changes in jointly controlled and associated entities • •

During the period, m.Net Corporation Limited merged with Mercury Mobility Ltd and was renamed Mnet Group Limited. As a result of the merger, our investment in Mnet Group Limited is 12.7% at 30 June 2010 and this investment is no longer classified as a jointly controlled entity. During the period, Beijing Huaxin Target Information Co Ltd was acquired as part of the acquisition of Dotad Media Holdings Limited (Dotad).

(c) Fair value of investments in listed jointly controlled and associated entities •

The fair value of our investment in Keycorp Limited at 30 June 2010 is $15 million (2009: $13 million).

(d) Dividends received •

A $1 million dividend was received from Keycorp Limited during the year (2009: $2 million).

(e) Jointly controlled and associated entities with different balance dates The following jointly controlled and associated entities have different balance dates to our balance date of 30 June for fiscal 2010: • • • • • • •

Reach Ltd - 31 December; TNAS Limited - 31 March; 3GIS Pty Ltd - 31 December; 3GIS Partnership - 31 December; Bridge Mobile Pte Ltd - 31 March; Australia-Japan Cable Holdings Limited - 31 December; and Beijing Huaxin Target Information Co Ltd - 31 December.

Financial reports prepared as at 30 June are used for equity accounting purposes. Our ownership interest in jointly controlled and associated entities with different balance dates is the same at that balance date as 30 June unless otherwise noted. (f) Share of net profits/(losses) Telstra Group Year ended 30 June 2010 2009 $m $m Net profit/(loss) from jointly controlled and associated entities has been contributed by the following entities: Associated entities - Keycorp Limited - LinkMe Pty Ltd (sold in February 2009)

2 2

4 (1) 3

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(g) Other disclosures for jointly controlled and associated entities The movements in the consolidated equity accounted amount of our jointly controlled and associated entities are summarized as follows:

Carrying amount of investments at beginning of year Additional investments made during the year Share of net profits for the year Share of foreign currency translation reserve and movements due to exchange rate translations Dividends received Sale, transfers and reductions of investments during the year Carrying amount of investments before reduction to recoverable amount Impairment losses reversed during the year Carrying amount of investments at end of year Our share of contingent liabilities of jointly controlled and associated entities Our share of capital commitments contracted for by our jointly controlled and associated entities Our share of other expenditure commitments contracted for by our jointly controlled and associated entities (i) (ii) (other than the supply of inventories) (i)

(ii)

Jointly Controlled entities Telstra Group Year ended/ As at 30 June 2010 2009 % % 3 2 3 2 -

Associated entities Telstra Group Year ended/ As at 30 June 2010 2009 $m $m 13 12 1 13 13 2 3

(1) -

1 -

(1)

(2)

-

-

-

(3)

2 2

3 3

14 1 15

11 2 13

11

15

-

-

8

23

-

1

2,081

2,043

-

1

Our jointly controlled entity, FOXTEL, has other commitments amounting to approximately $3,835 million (2009: $3,812 million). The majority of our 50% share of these commitments relate to minimum subscriber guarantees (MSG) for pay television programming agreements. These agreements are for periods of between 1 and 25 years and are based on current prices and costs under agreements entered into between the FOXTEL Partnership and various other parties. These minimum subscriber payments fluctuate in accordance with price escalation, as well as foreign currency movements. In addition to our MSG, FOXTEL has other commitments including obligations for satellite transponder costs and digital set top box units. Our jointly controlled entity, 3GIS Partnership, has other commitments amounting to $295 million (2009: $232 million). The majority of our 50% share of these commitments relate to property leases. These leases are for periods of between 5 and 30 years and are based on future property payments under agreements entered into between the 3GIS Partnership and various other parties. Under the Telstra Network Access Contract dated 6 December 2004, we are charged a 3G Network Access Charge that includes our 50% share of the partnership’s operational expenditure. As we are obligated through this agreement to fund our share of the partnership’s operating expenditure we are also responsible for our share of its expenditure commitments.

Interests in Joint Ventures (IAS 31)

247

Summarized presentation of all of our jointly controlled and associated entities’ assets, liabilities, revenue and expense items (including jointly controlled and associated entities where equity accounting has been suspended):

Current assets Non current assets. Total assets Current liabilities Non current liabilities Total liabilities Net liabilities Total income. Total expenses Profit/(loss) before income tax expense Income tax (benefit)/expense Profit/(loss) for the year Summarized presentation of our share of all our jointly controlled and associated entities’ revenue and expense items (including jointly controlled and associated entities where equity accounting has been suspended): Total income Total expenses Profit/(loss) before income tax expense Income tax (benefit)/expense Profit/(loss) for the year

Jointly Controlled entities Telstra Group Year ended/ As at 30 June 2010 2009 % % 393 500 1,204 1,103 1,597 1,603 675 613 1,488 1,532 2,163 2,145 (566) (542) 4,698 4,484 4,550 4,354 148 130 (2) 148 132

2,829 2,756 73 73

Associated enitities Telstra Group Year ended/ As at 30 June 2010 2009 $m $m 79 59 247 282 326 341 74 197 439 355 513 552 (187) (211) 89 80 72 82 17 (2) 1 17 (3)

2,598 2,544 54 (1) 55

42 34 8 8

38 39 (1) 1 (2)

(h) Suspension of equity accounting Our unrecognized share of (profits)/losses for the period and cumulatively, for our entities where equity accounting has ceased and the investment is recorded at zero due to losses made by these entities and/or reductions in the equity accounted carrying amount, is shown below:

Period 2010 $m Jointly controlled entities (*) FOXTEL Reach Ltd Associated entities Australia-Japan Cable Holdings Limited

Telstra Group Year ended 30 June Cumulative 2010 Period 2009 $m $m

Cumulative 2009 $m

(12) 6

152 596

(68) -

164 590

(6) (12)

156 904

5 (63)

162 916

Equity accounting has also been suspended for the following jointly controlled and associated entities: • TNAS Limited; • Telstra Super Pty Ltd. There are no significant unrecognized profits/losses in these entities. (*)

FOXTEL includes FOXTEL Partnership, FOXTEL Television Partnership, Customer Services Pty Limited, FOXTEL Management Pty Limited and FOXTEL Cable Television Pty Ltd. A $60 million distribution was received from FOXTEL during the year (2009: $100 million). This has been recorded as revenue in the income statement and has decreased our cumulative share of unrecognized losses in FOXTEL to $152 million after taking into account our share of FOXTEL’s profit for the year of $80 million and other adjustments of $8 million.

Chapter 19 IMPAIRMENT OF ASSETS (IAS 36)

1.

OBJECTIVE

1.1 This Standard ensures that assets are carried at an amount not in excess of their recoverable amount. It also provides guidelines on the calculation of the recoverable amount. 2.

SYNOPSIS OF THE STANDARD

This section summarizes this Standard, which prescribes the procedures that an entity should apply to ensure that assets are carried at no more than their recoverable amount. 2.1 Under this Standard, at each reporting date, an entity should review all assets covered by the Standard to identify whether there are indicators that an asset may be impaired (i.e., its carrying amount may be in excess of the recoverable amount). 2.1.1 In case there is an indication that an asset may be impaired, the recoverable amount of the asset should be calculated. 2.2 The recoverable amounts of an intangible asset with an indefinite useful life, an intangible asset not yet available for use, and goodwill acquired in a business combination should be measured annually, whether there is any indication that they may be impaired or not. 2.3 In case either the fair value less costs to sell or value in use is more than the carrying amount, it is not necessary to calculate the other amount. The asset is not impaired. 2.4 In case fair value less costs to sell cannot be determined, the recoverable amount should be the value in use. For assets to be disposed of, the recoverable amount is fair value less costs to sell. 2.4.1 In the case of a binding sale agreement, the fair value less costs to sell is the price mentioned in that agreement less costs of disposal. 2.4.2 If there is an active market for an asset, market price less costs of disposal (only direct costs) is the fair value less costs to sell. 2.4.3 If there is no active market, the best estimate of the asset’s selling price less costs of disposal is the fair value less costs to sell.

249

250

Wiley International Trends Financial Reporting under IFRS

2.5 The value in use is reflective of the estimate of the future cash flows that the entity expects to derive from the asset in an arm’s-length transaction; the expectations about possible variations in the amount or timing of those future cash flows; and the time value of money, represented by the current market risk-free rate of interest and other factors, such as illiquidity, that market participants would reflect in pricing the future cash flows the entity expects to derive from the asset. 2.6 Cash flow projections should be based on reasonable and supportable assumptions, the most recent budgets and forecasts, and extrapolation for periods beyond budgeted projections and should relate to the asset in its current condition. 2.6.1 Estimates of future cash flows should not include cash inflows or outflows from financing activities or income tax receipts or payments. 2.7 The discount rate used to measure value in use should be the pretax rate that reflects current market assessments of the time value of money and the risks specific to the asset. 2.7.1 If a market-determined asset-specific rate is not available, the rate used must be the enterprise’s own weighted-average cost of capital or its incremental borrowing rate or other market borrowing rates. 2.8 The impairment loss should be charged as an expense in the income statement (unless it relates to a revalued asset where the value changes are recognized directly in equity). The adjustment to depreciation for future periods is required. 2.9 In the case of cash-generating units, the recoverable amount should be determined for the individual asset, if possible. In case this is not possible, the entity should determine recoverable amount for the asset’s cash-generating unit. 2.9.1 The cash-generating unit (CGU) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. 2.10 Goodwill should be tested for impairment annually by allocating it to each of the acquirer’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. 2.10.1 Each unit or group of units to which the goodwill is so allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal management purposes and should not be larger than a segment based in accordance with International Financial Reporting Standards (IFRS) 8, Operating Segments. 2.11 The impairment loss should be allocated to reduce the carrying amount of the assets of the unit or group of units in this order: 1. Reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units). 2. Then reduce the carrying amounts of the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units). 2.12

The carrying amount of an asset should not be reduced below the highest of • Its fair value less costs to sell (if determinable); • Its value in use (if determinable); and • Zero.

2.13 In case there is an indication that an impairment loss may have decreased at a reporting date, the recoverable amount should be calculated. 2.14 The reversal of an impairment loss is recognized as income in the income statement. The increased carrying amount due to reversal should not be more than what the depreciated historical cost would have been if the impairment had not been recognized. No reversal should be made for unwinding of discount, and adjustment in depreciation for future periods is required.

Impairment of Assets (IAS 36)

251

2.15

The reversal of an impairment loss for goodwill is not allowed.

3.

DISCLOSURE REQUIREMENTS These disclosures are required to be made in the entity’s financial statements.

3.1

An entity shall disclose, for each class of assets: • Impairment losses recognized in the income statement and the line items of the statement of comprehensive income in which the impairment losses are included. • Impairment losses reversed in the income statement and the line items of the statement of comprehensive income in which the impairment losses are reversed. • If an individual impairment loss (reversal) is material, disclose Events and circumstances resulting in the impairment loss. Amount of the loss. Individual asset: nature and segment to which it relates. CGU: description, amount of impairment loss (reversal) by class of assets and segment. • If recoverable amount is fair value less costs to sell, disclose the basis for determining fair value. • If recoverable amount is value in use, disclose the discount rate. • If fair value less costs to sell is determined by discounted cash-flow projections, disclosures about the period over which the management has projected the cashflows, the growth rate used to extrapolate the cash-flow projection, and the discount rate applied to the cash-flow projections are required.

• • • •

• Detailed information about the estimates used to measure recoverable amounts of cash generating units containing goodwill or intangible assets with indefinite useful lives. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 Notes to the consolidated financial statements for the year ended 31 March 2011 15. Impairment Testing of Goodwill and Other Intangible Fixed Assets Goodwill, pharmacy licences and brands which have an indefinite useful life are subject to annual impairment testing, or are assessed more frequently if there are indications of impairment. Goodwill, pharmacy licences, brands and customer relationships have been allocated to the appropriate cash generating units (“CGUs”) identified according to the country of operation and business. Those with significant amounts allocated at the year end are shown in the table below: 2011

Health & Beauty Division–Boots UK Pharmaceutical Wholesale – UK Other

2010 Customer relationships £million

Goodwill £million

Pharmacy licences £million

Brands £million

2,491

1,284

2,915

508

2,491

1,044 1,280 4,815

--1,284

-52 2,967

112 568 1,188

1,044 1,114 4,649

Goodwill £million

Brands £million

Customer relationships £million

1,275

2,922

539

-8 1,283

-55 2,977

125 378 1,042

Pharmacy licences £million

Other comprises individually non-significant CGUs in comparison with the Group’s total carrying amount of goodwill and other intangible assets. The recoverable amounts of the CGUs are determined from value-in-use calculations which use discounted pre tax cash flows for a period of five years taken from approved budgets and three year fore-

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casts, and extrapolated cash flows for the periods beyond these using estimated long term growth rates. The key assumptions are: • • •

Long term average growth rates are used to extrapolate cash flows. These are determined with reference to both internal approved budgets and forecasts and available external long term growth data for both the country and sector of each CGU. Discount rates are calculated separately for each CGU and reflect the individual nature and specific risks relating to the market in which it operates. Gross margins are based on past performance and management’s expectations of market development. No improvements to margins beyond periods covered by approved budgets and forecasts have been assumed.

The CGUs with significant amounts of intangible assets are Boots UK and the Pharmaceutical Wholesale business in the UK. For these UK CGUs, the pre tax discount rate used in the impairment tests was 13.0% (2010: 13.5%), and the long term growth rates were 2.1% and 3.6% respectively (2010: 3.4% and 4.2% respectively). For other CGUs pre tax discount rates used ranged from 12.5% to 15.0% (2010: 12.5% to 15.5%), and the long term growth rates used ranged from 1.1% to 10.9% (2010: 1.2% to 6.5%). In the prior year, the Group determined that part of the goodwill allocated to the Pharmaceutical Wholesale business in France was impaired by £121 million. The pre tax discount rate and long term growth rate applied in the supporting value-in-use calculation were 15% and 2.7% respectively.

Anglo American plc Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 1

Accounting Policies

Impairment of Property, Plant and Equipment and Intangible Assets Excluding Goodwill At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets are impaired. If such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit (CGU) to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value (less costs to sell) and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognised in the income statement as a special item. Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognised for the asset or CGU. A reversal of an impairment loss is recognised in the income statement as a special item. Impairment of Goodwill Goodwill arising on business combinations is allocated to the group of CGUs that is expected to benefit from synergies of the combination and represents the lowest level at which goodwill is monitored by the Group’s board of directors for internal management purposes. The recoverable amount of the CGU or group of CGUs to which goodwill has been allocated is tested for impairment annually on a consistent date during each financial year, or when events or changes in circumstances indicate that it may be impaired. Any impairment loss is recognised immediately in the income statement. Impairment of goodwill is not subsequently reversed.

Impairment of Assets (IAS 36)

253

Danske Bank Group Annual Report 2010 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010 Impairment Testing The Group’s goodwill and rights to names with indefinite useful lives are tested for impairment once a year by testing at the level of identifiable cash-generating units to which goodwill and rights to names have been allocated. The impairment test conducted in 2010 did not result in impairment charges against goodwill and rights to names. In 2009, the Group’s goodwill impairment charges against its banking units in Latvia and Lithuania, ZAO Danske Bank and the Group’s Swedish real-estate agency chain totalled DKK 1,458 million. 1 Jan. 2009 Goodwill and rights to names Banking Activities Finland Banking Activities Baltics Banking Activities Northern Ireland Danske Markets Danske Capital Others Total

Impairment charges

Foreign currency translation

31 Dec. 2009 Goodwill and rights to names

Additions

Foreign currency translation

31 Dec. 2010 Goodwill and rights to names

11,709

-

-56

11,653

-

20

11,673

3,475

1,417

3

2,061

-

-

2,061

1,756 1,125 1,816 157 20,038

41 1,458

134 39 -1 14 133

1,890 1,164 1,815 130 18,713

388 388

100 1 4 10 135

1,990 1,165 1,819 528 19,236

Impairment tests compare the carrying amount and the estimated present value of expected future cash flows. The special debt structure of financial institutions requires the use of a simplified equity model to calculate the present value of future cash flows. The model is based on approved strategies and earnings estimates for cash-generating units for the next five years (the budget period). The estimated earnings at the end of the budget period are discounted by the expected development in a number of macroeconomic variables until earnings normalise. This is expected no later than in year ten (the terminal period). For the terminal period, growth estimates are determined on the basis of forecasts of real GDP growth for the relevant markets. The estimated cash flows are discounted at the Group’s risk-adjusted required rate of return of 12% (pre-tax rate) and 9% (post-tax rate). Cash flow estimates factor in entity-specific uncertainties. With the exception of the unit in Northern Ireland, the Group’s banking units recovered in 2010 on the basis of a considerable decline in loan impairment charges. Low money market rates reduced earnings, though. The Group expects a period of modest growth before economies will normalise. Normalised interest rate levels are expected to increase the net profit. If the economies do not normalise as expected, or future regulations increase costs more than expected, capitalised intangible assets may be impaired. Owing to the low earnings estimates for the budget period, around 70% of the net present value of future cash flows is expected to be generated in the terminal period (2009: 90%). In comparison with 2009, sensitivity analyses show that goodwill on Banking Activities Finland and Banking Activities Baltics (Estonia) has become more robust against changes in impairment test assumptions, whereas goodwill on Banking Activities Northern Ireland has become less robust against changes in assumptions. Small changes in assumptions may require impairment charges against the goodwill on Banking Activities Finland, though. If the Group’s risk-adjusted required rate of return is lifted from 12% to 13%, total goodwill will decline around DKK 0.4 billion (2009: DKK 2.0 billion). Total goodwill is robust against a one percentage point lowering of growth estimates for the terminal period (2009: a decline of DKK 0.5 billion) or a 10% lowering of the normalised required return for the terminal period (2009: a decline of DKK 0.7 billion). If the normalised required return for the terminal period is lowered 20%, however, goodwill will decrease by DKK 0.8 billion (2009: DKK 3.0 billion). Moreover, total goodwill is robust against a one percentage point increase in the assumed tier I capital requirement. For Danske Capital, the required rate of return may increase by up to 1.1 percentage point before impairment occurs (2009: 4.3 percentage points), and the goodwill recognised is robust against changes in

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growth estimates for the terminal period. The goodwill on Danske Markets is robust against changes to both the required rate of return and growth estimates for the terminal period. Impairment test assumptions

(%) Banking Activities Finland Banking Activities Baltics Banking Activities Northern Ireland Danske Markets Danske Capital

2010 Required rate of Annual return before growth tax >10 yrs 1.8 12.0 4.0 12.0 2.5 12.0 1.8 12.0 1.8 12.0

2009 Annual growth 5 yrs 2.0 3.5 3.0 1.0 2.0

Required rate of return before tax 12.0 12.0 12.0 12.0 12.0

Banking Activities Finland In 2007, Danske Bank acquired the shares of the Sampo Bank group. The activities of the Sampo Bank group were incorporated in the business structure of the Danske Bank Group at the beginning of 2007 and are reported under Banking Activities Finland. With the acquisition, the Group strengthened its competitive position in the entire northern European market. In 2008, Banking Activities Finland migrated to the Group’s platform. Banking Activities Baltics In 2007, Danske Bank acquired the Baltic activities of the Sampo Bank group. The activities were incorporated in the business structure of the Danske Bank Group at the beginning of 2007 and are reported under Banking Activities Baltics. With the acquisition, the Group established a presence in the Baltic markets, primarily in Estonia and, although to a lesser extent, in Lithuania. The Group’s operations in Latvia are very modest. The Group recognised goodwill impairment charges against the banking units in Latvia and Lithuania in 2009, reflecting the economic crisis in the Baltic countries. Only the goodwill on the Estonian operations remains capitalised. Banking Activities Northern Ireland (Northern Bank) In 2005, Danske Bank acquired Northern Bank, which forms part of Banking Activities Northern Ireland. The acquisition is consistent with the Group’s strategy of strengthening its competitive position in the northern European market. The launch of new product packages and other services supports Northern Bank’s position as a leading retail bank in the highly competitive Northern Ireland market. Danske Markets The trading activities of Sampo Bank were incorporated in the business structure of Danske Markets in 2007. With the acquisition, the Group strengthened its competitive position within corporate finance and institutional banking and trading activities in general. The integration process and the budgets and business plans presented confirm the financial assumptions on which the Group based its acquisition. Danske Capital The wealth management activities of Sampo Bank were incorporated in the business structure of Danske Capital in 2007. In addition to the acquisition of Sampo Bank, goodwill recognised by Danske Capital is attributable to a number of minor acquisitions. With the acquisition of Sampo Bank, the Group strengthened its competitive position within asset management in Finland.

Holcim Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Impairment of Non-Financial Assets At each reporting date, the Group assesses whether there is any indication that a non-financial asset may be impaired. If any such indication exists, the recoverable amount of the nonfinancial asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual non-financial asset, the Group estimates the recoverable amount of the smallest cash generating unit to which the non-financial asset belongs. The recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use. If the recoverable amount of a non-financial asset or cash generating unit is estimated to be less than its carrying

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amount, the carrying amount of the non-financial asset or cash generating unit is reduced to its recoverable amount. Impairment losses are recognized immediately in the statement of income. Where an impairment loss subsequently reverses, the carrying amount of the non-financial asset or cash generating unit is increased to the revised estimate of its recoverable amount. However, this increased amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognized for that non-financial asset or cash generating unit in prior periods. A reversal of an impairment loss is recognized immediately in the statement of income. Impairment Tests for Goodwill For the purpose of impairment testing, goodwill is allocated to a cash generating unit or to a group of cash generating units that are expected to benefit from the synergies of the respective business combination. The Group’s cash generating units are defined on the basis of geographical market, normally country-related. The carrying amount of goodwill allocated to the countries or regions stated below is significant in comparison with the total carrying amount of goodwill, while the carrying amount of goodwill allocated to the other cash generating units is individually not significant. For the impairment test, the recoverable amount of a cash generating unit, which has been determined based on value-in-use, is compared to its carrying amount. An impairment loss is only recognized if the carrying amount of the cash generating unit exceeds its recoverable amount. Future cash flows are discounted using the weighted average cost of capital (WACC). The cash flow projections are based on a four-year financial planning period approved by management. Cash flows beyond the four-year budget period are extrapolated based either on steady or increasing sustainable cash flows. In any event, the growth rate used to extrapolate cash flow projections beyond the four-year budget period does not exceed the long-term average growth rate for the relevant market in which the cash generating unit operates. In respect of the goodwill allocated to “Others”, the same impairment model and parameters are used as is the case with individually significant goodwill positions, except that different key assumptions are used depending on the risks associated with the respective cash generating units. Key assumptions used for value-in-use calculations in respect of goodwill 2010

Cash generating unit Million CHF India North America United Kingdom Central Europe Mexico Others1 Total India North America United Kingdom Central Europe Mexico Others1 Total 1

Carrying amount in goodwill Total 2010 1,660 1,765 830 433 413 3,043 8,144 1,701 1,918 962 562 428 3,355 8,926

Pre-tax discount rate

Long-term GDP growth rate

INR USD/CAD GBP CHF/EUR MXN Various

11.4% 7.7% 8.8% 6.6% 7.9% 6.7%–14.7%

8.1% 2.4% 2.5% 2.0% 4.0% 1.2%–7.5%

INR USD/CAD GBP CHF/EUR MXN Various

12.5% 9.0% 8.0% 7.5% 9.0% 6.2%–13.9%

8.0% 2.5% 2.8% 1.5% 4.9% 2.0%–7.0%

Currency

Individually not significant.

Sensitivity to Changes in Assumptions With regard to the assessment of value-in-use of a cash generating unit or a group of cash generating units, management believes that a reasonably possible change in the pre-tax discount rate of 1 percentage point would not cause the carrying amount of a cash generating unit or a group of cash generating units to materially exceed its recoverable amount.

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Lufthansa Annual Report 2010 Notes to the consolidated financial statement 16. Goodwill and Intangible Assets with an Indefinite Useful Life

in €m Cost as of 1.1.2009 Accumulated impairment losses Carrying amount 1.1.2009 Currency translation differences Additions due to changes in consolidation Additions Reclassifications Disposals due to changes in consolidation Disposals Reclassifications to assets held for sale Impairment losses Reversal of impairment losses Carrying amount 31.12.2009 Cost as of 1.1.2010 Accumulated impairment losses Carrying amount 1.1.2010 Currency translation differences Additions due to changes in consolidation Additions Reclassifications Disposals due to changes in consolidation Disposals Reclassifications to assets held for sale Impairment losses Reversal of impairment losses Carrying amount 31.12.2010 Cost as of 31.12.2010 Accumulated impairment losses

Goodwill from consolidation 895 – 300 595 1 – 3 – – – – – – 599 899 – 300 599 6 – – – – – – – – 605 906 – 301

Intangible assets with an indefinite useful life 226 – 226 – 25 705 6 – – – – – – 912 912 – 912 65 0* – – – – – – – 977 977 –

Total 1,121 – 300 821 – 24 705 9 – – – – – – 1,511 1,811 – 300 1,511 71 0* – – – – – – – 1,582 1,883 – 301

* Rounded below EUR 1 million

The following table provides an overview of the goodwill tested and the assumptions made in the respective impairment tests. Deutsche Lufthansa AG and regional partners Passage Airline Group

LSG Sky Chefs USA Group

LSG Sky Chefs Korea

LSG Sky Chefs Havacilik Hizmetleri A.S.

Catering Segment Carrying amount of goodwill EUR 249m EUR 2m EUR 277m Impairment losses – – – Revenue growth p.a. over planning period 5.6% to 10.4% 1.3% to 2.6% .3% to 3.5% EBITDA margin over planning 19.9% to period 9.5% to 11.4% 25.9% .3% to 8.3% Investment ratio over 5.2% to planning period 7.4% to 10.1% 26.2% .5% to 3.7% Duration of planning period 3 years 3 years 5 years Revenue growth p.a. after end of planning period 4.1% 1.0% 2.0%

Catering

Catering

Catering

Catering

EUR 52m –

EUR 7m –

EUR 6m –

EUR 12m –

Name of the CGU

SWISS Aviation Training Ltd. Passage Airline Group

ZAO AeroMEAL

Various LSG * companies

5.0% to 7.1%

4.0% to 5.0%

27.4% to 28.7% 1.6% to 2.0%

14.5% to 15.1% 1.5% to 4.0%

0.7% to 1.0%

0.0% to 4.0%

5 years

5 years

5 years

5 years

3.3%

4.0%

5.0%

1.0% to 5.0%

5.5% to 10.0% 1.0% to 12.3% 17.5% to 19.7% 5.4% to 29.5%

Impairment of Assets (IAS 36)

Name of the CGU EBITDA margin after end of planning period Investment ratio after end of planning period Discount rate *

Deutsche Lufthansa AG and regional partners

257

SWISS Aviation Training Ltd.

LSG Sky Chefs USA Group

LSG Sky Chefs Korea

LSG Sky Chefs Havacilik Hizmetleri A.S.

ZAO AeroMEAL

Various LSG * companies

11.3%

25.9%

8.0%

28.7%

15.0%

19.0% 8.0% to 29.0%

7.4%

8.8%

1.5%

2.0%

1.5%

1.0%

1.0% to 4.0%

7.4%

8.5%

8.1%

7.8%

7.4%

7.4%

7.4% to 8.1%

Goodwill of less than EUR 5m in any individual instance.

The assumptions on revenue growth used for the impairment tests are based on external sources for the planning period. In some cases reductions were made for risk to allow for special regional features and market share trends specific to the respective companies. Assuming sustained revenue growth of 4 per cent at the end of the planning period by Deutsche Lufthansa AG and its regional partners as described in the table, the recoverable amount would exceed the carrying amount by a considerable figure. Even if the assumptions for revenue growth and/or the discount rate were to be reduced substantially, which is not likely, the recoverable amount would exceed the carrying amount. Assuming sustained revenue growth of 2 per cent at the end of the planning period by the LSG Sky Chefs USA Group as described in the table, the recoverable amount would exceed the carrying amount by a considerable amount. Even if the assumptions for revenue growth and/or the discount rate were to be reduced substantially, which is not likely, the recoverable amount would exceed the carrying amount. The EBITDA margins used are based on past experience or were developed on the basis of cost-cutting measures initiated. The investment rates are based on past experience and take account of the replacement of any means of production envisaged during the planning period. The intangible assets with indefinite useful lives consist of slots purchased as part of company acquisitions and brand names acquired. The regular impairment test for the brands acquired was carried out for the fair value less costs to sell or the value in use. Testing was based in particular on the revenue generated with the individual brands. The following assumptions were used in the impairment test for the acquired brands: Group company Carrying amount for brand Impairment losses Revenue growth for brand p.a. in planning period Duration of planning period Revenue growth p.a. after end of planning period Savings in hypothetical leasing payments before taxes (royalty rate) * Discount rate *

SWISS EUR 207m

AUA EUR 109m

5.2% to 6.4% 1.5% to 11.7% 3 years 3 years 2.0% 2.0% 0.6% 0.35% 6.4%

6.4%

bmi EUR 21m 4.1% to 12.8% 3 years 2.0% 0.2% 6.4%

After-tax rate.

Assuming sustained revenue growth associated with the brand after the end of the planning period of 2.0 per cent, the recoverable amount for the SWISS brand exceeds the carrying amount by EUR 330m. Even if the assumptions for brand-related revenue growth were to be reduced substantially, which is not likely, the recoverable amount would exceed the carrying amount. Assuming sustained revenue growth associated with the brand after the end of the planning period of 2.0 per cent, the recoverable amount for the AUA brands exceeds the carrying amount by EUR 68m. Even if the assumptions for brand-related revenue growth were to be reduced substantially, which is not likely, the recoverable amount would exceed the carrying amount. Assuming sustained brand-related revenue growth after the end of the planning period of 2.0 per cent, the recoverable amount for the bmi brand exceeds the carrying amount by EUR 10m. Assuming sustained revenue contraction of –0.5 per cent, the recoverable amount would be equal to the carrying amount. The carrying amount of EUR 640m for the acquired slots was tested for impairment on the basis of fair value less costs to sell or the value in use at the level of the smallest cash generating unit (CGU). The fair value test was performed on the basis of current published transaction prices for sales/purchases of

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slots between market participants. There were no impairment charges to be made in the Passenger Airline Group segment.

Repsol YPF, S.A. Consolidated Financial Statements – 31 December 2010 Notes to the Consolidated Financial Statements 3.3. Accounting Policies (in Part) 3.3.24 Methodology for Estimating Recoverable Amount The recoverable amount of assets is generally estimated on the basis of their value in use, calculated on the basis of future expected cash flows derived from the use of the assets. In the assessment of the value in use, cash flow forecasts based on the best income and expense estimates available of the CGUs using sector forecasts, past results and future expectations of business evolution and market development are utilized. Among the most sensitive aspects included in the forecasts used in all the CGUs, the purchase and sale prices of hydrocarbons, inflation, employee costs and investments are highlighted. The cash flows from the exploration and production assets are generally projected for a period that covers the economically productive useful lives of the oil and gas fields and is limited, by the contractual expiration of the operating permits, commitments or contracts. The estimated cash flows are based on production levels, commodity prices and estimates of the future investments that will be necessary in relation to undeveloped oil and gas reserves, production costs, field decline rates, market supply and demand, contractual conditions and other factors. The unproved reserves are weighted with risk factors, on the basis of the type of each one of the exploration and production assets. The reference prices considered are based on a combination of market prices available in the financial community. The cash flows of the refining and marketing businesses are estimated on the basis of the projected sales trends, unit contribution margins, fixed costs and investment or divestment flows, including the investments needed to maintain business volumes, in line with the assumptions modeled in each business’ specific strategic plans. However, cash inflows and outflows relating to planned restructurings or productivity enhancements are not considered. The cash flows projection period is generally a five-year period, extrapolating the flows of the fifth year for subsequent years without applying any growth rate. These estimated net cash flows are discounted to present value using the specific cost of capital to each asset based on the currency in which its cash flows are denominated and the risks associated with the cash flows, including country risk. The rates used in 2010 and 2009 for the various businesses are in the following ranges: E&P R&M

2010 7.7% - 19.7% 4.2% - 15.7%

2009 7.8% - 18.6% 4.9% - 15.0%

Repsol YPF Group reviews the carrying amounts of intangible assets, property, plant and equipment and other non-current assets whenever there are indicators of impairment, or at least annually, to determine whether those assets have incurred an impairment loss. These reviews are performed in accordance with the general principles established in Note 3. In 2010 the Group recognized net impairment losses on non-current assets in the amount of €221 million. In May 2010, Repsol YPF formally informed the National Iranian Oil Company (NIOC) and Shell of its decision to terminate its participation in the integrated natural gas liquefaction project in Iran (Persian LNG). As a result, the Group has recognized €85 million of impairment charges in connection with the assets capitalized as part of this project, of which €52 million corresponded to assets of the Upstream segment, while the remaining €33 million belonged to the LNG segment. In 2010, the Group recognized an impairment loss of €81 million in connection with exploration assets in an area in Libya due to uncertainties surrounding the exploitation terms of the associated resources.

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In addition, in 2010 the Group recognized impairment charges in connection with several assets associated with the Chemicals business, in the aggregate amount of €14 million, following the optimization of the Group’s productive capacity in Spain. In 2009 the Group recognized a net reversal of impairment losses on non-current assets in the amount of €74 million. The amount included a €50 million impairment loss on emission allowances (Note 35), the effect of which was almost totally by the gain resulting from the transfer to the income statement of the deferred revenue recognized in connection with emission allowances allocated in 2009 under Spain’s National Allocation Plan. This balance also reflected the reversal of the impairment provision recognized on the Argentine businesses in prior years in the amount of €172 million. This reversal was the result of the reassessment in 2009 of the configuration of cash generating units (CGUs) into which the Argentine upstream assets were grouped. Until 2008 each field was considered an individual CGU. Since 2009, primarily considering the trends of certain economic, operating and commercial conditions under which the Group operates in Argentina, the aforementioned assets were grouped into four CGUs, which provide a better reflection of the way the Group’s current management decisions occur with respect to these assets. The new CGUs are the following: one CGU grouping the field assets with primarily oil reserves and three CGUs grouping field assets with mostly gas reserves, classified by national basin (Neuquina, Northwest and Austral). 5. Goodwill The breakdown, by company, of goodwill at year-end 2010 and 2009 is as follows:

YPF s.a. Gas Natural Fenosa Group companies (1) Refap s.a. Repsol Portuguesa, s.a. Repsol Gas Portugal, s.a. Empresas Lipigas s.a. EESS de Repsol Commercial P.P, s.a. Other companies (1)

Millions of Euros 2010 2009 1,802 1,671 2,146 2,156 – 264 154 154 118 118 94 80 95 96 208 194 4,617 4,733

In December 2010 the Group sold its interest in the refinery, Alberto Pascualini Refap, S.A. (Note 31).

The changes in 2010 and 2009 in this line item in the accompanying consolidated balance sheet were as follows:

Balance at beginning of year Additions Change in the scope of consolidation Translation differences Write-downs Reclassifications and others changes BALANCE AT THE END OF YEAR

Millions of Euros 2010 2009 4,733 3,055 6 1,788 (285) (49) 189 10 (10) (16) (16) (55) 4,617 4,733

In 2010 the “Changes in the scope of consolidation” subheading includes the Derecognition of €291 million of goodwill associated with Alberto Pascualini Refap, S.A., which was sold during the year (Note 31). In 2009 the most significant amount included under the heading “Additions” corresponded to the acquisition of Unión Fenosa, S.A. by Gas Natural SDG, S.A., which generated goodwill amounting to €1,745 million (representing the Group’s pro rata share corresponding to its shareholding in Gas Natural Fenosa). The detail of the gross goodwill and accumulated impairment losses at December 31, 2010 and 2009 is as follows:

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Millions of Euros 2010 2009 4,643 4,749 (26) (16) 4,617 4,733

Gross goodwill Accumulated impairment losses Net goodwill

Testing Goodwill for Impairment The detail, of goodwill at December 31, 2010 and 2009 by operating segment is as follows: Millions of Euros 2010 2009 85 78 584 828 1,802 1,671 1,230 1,141 572 530 2,146 2,156 4,617 4,733

Upstream Downstream YPF Upstream Downstream Gas Natural TOTAL

Repsol YPF considers that, based on current knowledge, the reasonably foreseeable changes in key assumptions for determining fair value, on which the determination of the recoverable amounts was based, will not have any material impact on the Group’s 2010 or 2009 Financial Statements.

Telstra Annual Report—Year Ended 30 June 2011 Notes to the Financial Statements 21. Impairment Cash Generating Units For the purposes of undertaking our impairment testing, we identify cash generating units (CGUs). Our CGUs are determined according to the smallest group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The carrying amount of our goodwill and intangible assets with an indefinite useful life are detailed below:

Goodwill As at 30 June 2010 2009 $m $m CGUs (a) CSL New World Group TelstraClear Group Telstra Europe Group (b) Sensis Group Location Navigation (formerly Location Publishing Group) Adstream Group (c) SouFun Group Sequel Group 1300 Australia Pty Ltd (d) Octave Group (e) Dotad Group (f)(g) Telstra Entity CGU (a)

(b)

932 136 80 215 14 24 119 16 116 87 63 1,802

1,160 134 93 215 15 24 342 126 16 158 63 2,346

Intangible assets with indefinite useful lives As at 30 June 2010 2009 $m $m 8 12 20

10 12 337 359

As at 30 June 2010, the carrying value of our assets in the CSL New World Group CGU were tested for impairment based on value in use. This test resulted in an impairment charge of $168 million being recognized in the Telstra Group financial statements. The impairment arose as a result of insufficient growth in market share in the highly competitive market in Hong Kong resulting in a weaker outlook of future cash flows. As a result of the impairment and foreign exchange rate movements, the carrying amount of the CSL New World Group goodwill is $932 million which is equal to its recoverable amount. Our assessment of the Sensis Group CGU excludes Location Navigation Group, Adstream Group, SouFun Group, Sequel Group and Dotad Group that form part of the Sensis reportable segment. These CGUs are assessed separately.

Impairment of Assets (IAS 36)

(c)

(d)

(e)

(f)

(g)

261

The SouFun Group has been classified as held for sale as at 30 June 2010, and we have reclassified the SouFun Group goodwill balance of $326 million as part of this reclassification. Refer to note 12 for details on non-current assets held for sale. As at 30 June 2010, the carrying value of our assets in the Octave Group were tested for impairment based on value in use. During fiscal 2010 there were significant changes in the regulatory environment in China in which the Octave Group operates. These changes are industry wide and it is not yet known with any certainty whether the changes are permanent or temporary, and it is uncertain as to whether or when these changes will be reversed. The future cash flow assumptions used in determining the recoverable amount of the Octave Group CGU incorporate our assessment of the risk that 50% of estimated future cash flows may not eventuate as a result of these regulatory changes. If this assumption is not correct and the future cash flows decline by a further 3% then the carrying value will equal the recoverable amount. Written confirmation is being sought from authorities in China as to the likely regulatory position as well as with the relevant contracting party regarding future possibilities. On 23 February 2010, our controlled entity Telstra Robin Holdings Limited acquired 67% of the issued capital of Dotad Media Holdings Limited (Dotad) for a total consideration of $105 million. Refer to note 20 for further details. The Telstra Entity CGU consists of our ubiquitous telecommunications infrastructure network in Australia, excluding the hybrid fibre coaxial (HFC) cable network that we consider not to be integrated with the rest of our telecommunications network. Assets that form part of the ubiquitous telecommunications network are considered to be working together to generate our net cash flows. No one item of telecommunications equipment is of any value without the other assets to which it is connected in order to achieve delivery of our products and services. From 1 July 2009, the Trading Post mastheads have been assigned a finite life and are being amortized over a period of 5 years. As such, they are no longer subject to impairment testing unless an indication of impairment exists and are therefore excluded from the table above.

Impairment Testing Our impairment testing compares the carrying value of an individual asset or CGU with its recoverable amount as determined using a value in use calculation. Our assumptions for determining the recoverable amount of each asset and CGU are based on past experience and our expectations for the future. Our cash flow projections are based on five year management approved forecasts. These forecasts use management estimates to determine income, expenses, capital expenditure and cash flows for each asset and CGU. We have used the following key assumptions in determining the recoverable amount of our CGUs to which goodwill or indefinite useful life intangible assets has been allocated: (h)

CSL New World Group TelstraClear Group Telstra Europe Group Sensis Group Location Navigation Adstream Group (c) SouFun Group 1300 Australia Pty Ltd Sequel Group (d) Octave Group (e) Dotad Group (h)

(i)

Discount rate As at 30 June 2010 2009 % % 11.2 10.5 13.0 13.0 9.5 9.1 13.0 12.8 13.9 12.9 13.2 13.0 15.0 13.6 13.0 17.3 16.8 19.5 17.0 19.4

Terminal value (i) growth rate As at 30 June 2010 2009 % % 2.0 2.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 5.0 3.0 3.0 5.0 5.0 5.0 5.0 5.0

Discount rate represents the pre tax discount rate applied to the cash flow projections. The discount rate reflects the market determined, risk adjusted discount rate which is adjusted for specific risks relating to the CGU and the countries in which they operate. Terminal value growth rate represents the growth rate applied to extrapolate our cash flows beyond the five year forecast period. These growth rates are based on our expectation of the CGUs’ long term performance in their respective markets. The terminal growth rates for the Australian CGUs are aligned at three percent.

Telstra Entity CGU and HFC Network With the integration of TBS into the Telstra Entity CGU in fiscal 2009, we test this CGU for impairment on an annual basis. The HFC network is only reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Our impairment testing of the Telstra Entity CGU as at 30 June 2010 compares the carrying value of the CGU with its recoverable amount determined using a value in use calculation and no impairment was

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identified. We have applied a pre tax discount rate of 14.3% to the cash flow projections of the CGU. The discount rate reflects the market determined, risk adjusted discount rate which was adjusted for specific risks relating to the CGU. The cash flows have been extrapolated over the weighted average remaining service life of our ubiquitous network of 8.69 years. A significant level of uncertainty still currently exists given the nonbinding Financial Heads of Agreement (FHoA) entered into on 20 June 2010 and further negotiations required between the Government, NBN Co and Telstra, which are complex and ultimately require both the Australian Competition and Consumer Commission (ACCC) and Telstra shareholder approval. We expect the trigger point for factoring in NBN related cash flows into our impairment model would be once final shareholder approval has been obtained, as prior to this there is not sufficient certainty that the proposed transaction in relation to the NBN, resulting from the FHoA, will go ahead or be in its current form. As at 30 June 2010, preliminary testing based on this FHoA in its current form indicates no impairment.

Chapter 20 BUSINESS COMBINATIONS (IFRS 3)

1.

OBJECTIVE

1.1 This Standard applies to transactions or other events that meet the definition of the term “business combination.” It does not apply to transactions such as formation of a joint venture, the acquisition of an asset or a group of assets that does not constitute a “business,” and the combination of entities or businesses under “common control.” 1.2 The Standard lays down principles of recognition and measurement to be used by an acquirer in a business combination in recognizing and measuring identifiable assets acquired, the liabilities assumed, and noncontrolling interest, if any, in its financial statements; recognizing and measuring goodwill acquired in the business combination or gain from a bargain purchase; and determining the disclosures that are required to enable users of financial statements to evaluate the nature and financial effects of the business combination. 2.

SYNOPSIS OF THE STANDARD The summary of this Standard and its key terms is presented next.

2.1 The Standard defines a business combination as a transaction or other events in which an “acquirer” obtains “control” of one or more “businesses.” 2.1.1 A business consists of “inputs” and “processes” applied to those inputs that have the ability to create “outputs.” In other words, an integrated set of activities and assets requires these elements: inputs and processes applied to those elements, which together are or will create outputs. 2.1.2 A business combination may be accomplished by • • • •

Transferring cash, cash equivalents, or other assets, by incurring liabilities Issuing equity interests Providing more than one type of consideration Without transferring consideration (say, by contract alone)

2.2 Identifying an acquirer is a key requirement of the Standard, and one of the combining entities needs to be identified as the acquirer. Usually the combining entity whose relative size (i.e., assets, revenues or profit) is significantly greater than that of the other combining entity (or entities) is the acquirer. However, the guidance contained in the Standards outlines “other factors” 263

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that shall be taken into account in identifying an acquirer in a business combination. These factors include • • • •

The relative voting rights in the combined entity after the business combination The existence of a large minority voting interest in the combined entity The composition of the governing body or the senior management of the combined entity The terms of the exchange of equity interests

2.3 In a reverse acquisition, the entity that issues securities (the legal acquirer) is identified as the acquiree and the entity whose equity interests are acquired (the legal acquiree) is the acquirer for accounting purposes. 2.4 The acquisition date is a date on which the acquirer obtains control of the acquiree and is usually the date when the acquirer legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquire—that is, it is the closing date of the transaction (i.e., the “business acquisition”). However, it may be date either before or after the closing date. 2.5 At the acquisition date, an acquirer shall recognize (separately from goodwill), all identifiable assets acquired and the liabilities assumed and noncontrolling interest, if any, in the acquiree. In order to qualify for recognition as part of applying the “acquisition method,” the assets and liabilities should not only meet the definitions of assets and liabilities in the IASB’s Framework for the Preparation and Presentation of Financial Statements, but should be part of what the acquirer and the acquiree exchanged in business combination (as opposed to a separate transaction). In certain cases, it is possible that, in applying the acquisition method, an acquirer may need to recognize assets that were not previously on the financial statements of the acquiree as these were internally generated assets from the perspective of the acquiree whereas these are now acquired assets of the acquirer and are thereby not prohibited from recognition under the principles outlined in International Accounting Standard (IAS) 38, Intangible Assets (e.g., brand name). 2.6 At the acquisition date, an acquirer shall measure identifiable assets acquired and liabilities assumed in a business combination at their fair values. Furthermore, at the acquisition date, an acquirer may elect to measure components of noncontrolling interests in the acquiree at either fair value or the proportionate share of the present ownership instruments in the recognized amounts of the acquiree’s identifiable assets. All other components of noncontrolling interests shall be measured at their acquisition date fair value, unless another measurement basis is required by International Financial Reporting Standards (IFRS). 2.7 The exceptions to the general recognition and measurement principles outlined in this Standard are • Leases and insurance contracts based on their contract terms at their inception rather than their acquisition date. • Contingent liabilities are recognized at the acquisition date even if it is not probable that an outflow of resources embodying economic resources will be required to settle the obligation. • Deferred taxes arising from a business combination are recognized using provisions of IAS 12, Income Taxes. • Liability for employee benefits is recognized under the provisions of IAS 19, Employee Benefits. • Reacquired rights are measured on the basis of remaining contractual terms of the related contract regardless of whether market participants would consider potential contract renewals in determining the fair value. • Assets held for sale are measured in accordance with IFRS 5, Assets Held for Sale and Discontinued Operations at fair value less costs to sell. • Indemnification assets are to be measured on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts.

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2.8 At the acquisition date, an acquirer shall measure goodwill as the excess of (a) over (b) where a = the aggregate of (i) the acquisition-date fair value of the consideration transferred, (ii) the amount of any noncontrolling interest (iii) in a business combination “achieved in stages,” the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree b = the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed (measured in accordance with provisions of this Standard) However, if, at the acquisition date, the amount of item b exceeds the aggregate in item a, it results in a gain on bargain purchase and shall be recognized in profit or loss on the acquisition date. 2.9 When a business combination is achieved in stages (i.e., when an acquirer increases its existing equity interest so as to achieve control of the acquiree), the previously held equity interest is remeasured at acquisition-date fair value, and any resultant gain or loss is recognized in profit or loss. 2.10 In case the accounting of a business combination is incomplete at the end of the reporting period in which the business combination occurs, the acquirer shall report in its financial statements provisional values (as opposed to fair values as required by this Standard) for those items where the accounting is incomplete. During the measurement period, the acquirer is required to retrospectively adjust the provisional amounts recognized at the acquisition date based on new information obtained about the facts and circumstances that existed as of the acquisition date which if known would have affected the measurement of amounts recognized on that date. The measurement period (when such adjustment to the “provisional values” relating to facts and circumstances is permitted) is one year from the acquisition date. An acquirer shall revise the accounting for a business combination after the measurement period (i.e., beyond a period of one year from the acquisition date) as a correction of an error under IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. 2.11 Acquisition-related costs shall be recognized as expenses in the periods in which these costs are incurred. Such costs include finder’s fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general and administrative costs (including cost of maintaining an internal acquisition department); and cost of registering and issuing debt and equity securities. 2.12 Consideration transferred in a business combination, including a contingent consideration arrangement, shall be recognized at acquisition-date fair values. If changes in fair value of the contingent consideration result after the acquisition date due to additional information that the acquirer obtained after that date about facts and circumstances that existed at the acquisition date, such changes are to be treated as measurement-period adjustments. However, if this change results from events after the acquisition date (say, meeting an earning target or reaching a certain milestone in turnover), the acquirer shall treat such a change in fair value in this way: If contingent consideration is treated as equity, it shall not be remeasured. However, if contingent consideration is classified as an asset or liability, if it is a financial instrument, within the scope of IAS 39, Financial Instruments: Recognition and Measurement, or IFRS 9, Financial Instruments, the resulting gain or loss shall be recognized in profit or loss or in other comprehensive income in accordance with IFRS 9; if it is not within the scope of IFRS 9, it shall be accounted in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, or other IFRS as appropriate. 3.

DISCLOSURE REQUIREMENTS The required disclosures to be made under this Standard are listed next.

3.1 According to IFRS 3, paragraph 59, the acquirer shall disclose information that enables users of its financial statements to evaluate the nature and the financial effects of a business combination that occur either: during the current reporting period or after the end of the reporting period but before the authorization date of the financial statements.

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3.1.1 To meet the objectives of the requirement in IFRS 3, paragraph 59, the “Application Guidance” provided by the Standard requires these disclosures: • Name and description of the acquirer; acquisition date; percentage of voting equity interests acquired; primary reasons for the business combination and description of how control was obtained by the acquirer; qualitative description of the factors that make up the goodwill recognized; acquisition-date fair value of the total consideration transferred and by each major class of consideration; equity interest of the acquirer including the number of instruments or interests issued or issuable and the method of determining the fair value of those instruments • For contingent consideration arrangements and indemnification assets: amount recognized as of the acquisition date and an estimate of range of outcomes (undiscounted); if the maximum amount is unlimited or if a range cannot be estimated, a disclosure of those facts • For acquired receivables (to be provided by major class of receivables): fair value of the receivable, gross contractual amounts of receivables, and best estimate at the acquisition date of the contractual cash flows not expected to be collected • For each class of assets acquired and liabilities assumed, the amount recognized as of date of acquisition. • For each contingent liability recognized, the information required by IAS 37, paragraph 85. If a contingent liability is not recognized because its fair value cannot be measured reliably, the acquirer should disclose the reason why it cannot be measured reliably and information required by IAS 37, paragraph 86 • The total amount of goodwill that is expected to be tax deductible • For transactions that are recognized separately from the acquisition of assets and the assumption of liabilities: a description of each transaction, how the acquirer accounted each transaction, the amounts recognized for each transaction and the line item in the financial statement where each amount is recognized, if the transaction is the effective settlement of a preexisting relationship, and the method used to determine the settlement amount • In addition to the disclosures of separately recognized transactions, these disclosures are also required: amounts of acquisition-related costs and separately the amount of those costs recognized as expense and the line item(s) in the statement of comprehensive income where those expenses are recognized and the amount of any issue costs not recognized as an expense (and how they are recognized shall also be disclosed) • In a bargain purchase: the amount of any gain recognized and the line item of the statement of comprehensive income where it is recognized, and a description of the reasons why the transaction resulted in a gain • For each business combination where the acquirer holds less than 100 percent equity interests in the acquiree at the acquisition date: the amount of the noncontrolling interest in the acquiree recognized at the acquisition date and the measurement basis for that amount • For each noncontrolling interest in an acquiree measured at fair value: the valuation technique and the key model inputs used in determining that value • In a business combination achieved in stages: acquisition-date fair value of the equity interest in the acquiree held by the acquirer immediately before the acquisition date and the amount of gain or loss recognized as a result of remeasuring to fair value the equity interest in the acquiree held by the acquirer before the business combination and the line item in the statement of comprehensive income where it is included • The amount of revenue and profit or loss of the acquiree since the acquisition date included in the consolidated statement of comprehensive income for the reporting period and the revenue and profit or loss of the consolidated entity for the current reporting as if the acquisition date for all the business combinations that occurred during the year had been as of the beginning of the annual reporting period (If such disclosures are “imprac-

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ticable,” the acquirer shall also disclose that fact and explain why such disclosures are impracticable.) 3.1.2 In case of business combinations occurring during the reporting period that are individually immaterial but are material collectively, the acquirer shall disclose in the aggregate the information in 3.1.1. 3.1.3 If the “acquisition date” of a business combination is after the end of the reporting period but before the authorization date of the financial statements, the acquirer shall disclose the information in 3.1.1 unless the initial accounting for the business combination is incomplete at the time the financial statements are authorized for issuance. In such a situation, the acquirer shall describe which disclosures could not be made and the reasons why they could not be made. 3.2 According to IFRS 3, paragraph 61, the acquirer shall disclose information that enables users of its financial statements to evaluate the nature and financial effects of adjustments recognized in the current reporting period that relate to business combinations that occurred in the period or previous reporting periods. 3.2.1 To meet the objectives of the requirement in IFRS 3, paragraph 61, the “Application Guidance” provided by the Standard requires the next disclosures for each material business combination or in the aggregate for immaterial business combinations collectively: • If the initial accounting for the business combination is incomplete and the amounts recognized in the financial statements are based on provisional values, the disclosures required are as follows: (i) reasons why the initial accounting is incomplete, (ii) the assets, liabilities, equity interests or other items for which the initial accounting is incomplete, and (iii) the nature and amount of measurement period adjustments recognized during the reporting period. • For each reporting period after acquisition date until the entity loses the right to a contingent consideration asset or settles a contingent liability, the disclosures required are as follows: (i) any change in recognized amounts, (ii) any change in ranges of outcomes and reasons for the change, and (iii) the valuation techniques and key model inputs used in the measurement • For contingent liabilities recognized in a business combination: information required by IAS 37, paragraphs 84 and 85, for each class of provision • A reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period • The amount and explanation of any gain or loss recognized in the current period relating to identifiable assets acquired or liabilities assumed in a business combination that was effected in the current or previous period and is of such size, nature, or incidence that makes such disclosure relevant to understanding the combined entity’s financial statements EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 Notes to the consolidated financial statements for the year ended 31 March 2011 2.

Accounting Policies

Business Combinations and Goodwill Business combinations are accounted for under IFRS 3 using the purchase method of accounting. The cost of acquisition is the consideration given in exchange for the identifiable net assets. This consideration includes any cash paid plus the fair value at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued by the Group. Where a share-for-share exchange transaction is accounted for as a business combination, the cost of acquisition is the fair value of the equity transferred. Contingent consideration is recognised at fair value at the acquisition date. If contingent consideration

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comprises equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of contingent consideration are recognised in the income statement. The acquired net assets are initially recognised at fair value which is deemed cost in the consolidated financial statements. Where the Group does not acquire 100% ownership of the acquired company, non controlling interests are recorded either at fair value or at their proportion of the fair value of the acquired net assets. Prior to 1 April 2010, non controlling interests were recorded at their proportion of the fair value of the acquired net assets. Any adjustment to the fair values is recognised within twelve months of the acquisition date. For acquisitions after 1 April 2010, goodwill comprises the fair value of the consideration plus the recognised amount of any non controlling interests in the acquiree, plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree, less the fair value of the identifiable net assets acquired. Any difference between the carrying value and fair value of pre existing equity interest in the acquiree is recognised in the income statement. For acquisitions prior to 1 April 2010, goodwill comprises the excess of the fair value of the consideration plus directly attributable costs over the fair value of the identifiable net assets acquired. Any goodwill and fair value adjustments are recorded as assets and liabilities of the acquired business and are recorded in the local currency of that business. Where the fair value of the identifiable net assets exceeds the fair value of the consideration, the excess is recognised as negative goodwill and recognised in the income statement immediately. The costs of integrating and reorganising acquired businesses are charged to the post-acquisition income statement. Goodwill is carried at cost less accumulated impairment losses. No amortisation is charged. 33 Acquisition and Disposal of Business Acquisitions During the Year Ended 31 March 2011 The Group’s two major acquisitions during the year were the acquisitions of a controlling interest in Hedef Alliance Holding A.S. (“Hedef Alliance”) in July 2010 and of a controlling interest in AndreaeNoris Zahn AG (“ANZAG”) in December 2010. Both were previously associates of the Group. Hedef Alliance The Group increased its shareholding in Hedef Alliance to 70% in two stages during the year, having previously held a 50% associate interest. In addition, the Group has committed to further increasing its ownership over the next two years. These commitments have been recognised as financial liabilities within the consolidated statement of financial position. Hedef Alliance is one of the largest pharmaceutical wholesalers in Turkey, and has a controlling 50% interest in United Company of Pharmacists S.A.E. (“UCP”), the leading pharmaceutical wholesaler in Egypt, and a 30% associate interest in Hydra Pharm SPA, the largest wholesaler in Algeria. The Group obtained control of Hedef Alliance on 23 July 2010 by acquiring an additional 10% stake for consideration of £94 million which was settled in cash. A further 10% stake was acquired on 18 February 2011 for consideration of £86 million, of which £23 million was deferred at 31 March 2011. The net assets acquired at the date of acquisition, as adjusted from book to fair value, and the attributable goodwill were:

Other intangible assets Property, plant and equipment Investments in associates and joint ventures Inventories Trade and other receivables Cash and cash equivalents net of borrowings Trade and other payables, and provisions Deferred tax liabilities Goodwill arising on acquisition Non controlling interests Fair value of existing interest Satisfied by: – cash

Book value at acquisition £million -34 10 284 758 102 (741) (5) 442

Fair value adjustments £million 237 23 4 ----(52) 212

Fair value £million 237 57 14 284 758 102 (741) (57) 654 215 (375) (400) 94 94

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The goodwill of £215 million represents the intangible assets which could not be individually separated and reliably measured due to their nature. This included the growth opportunities presented through investment in international businesses in large and growing markets. The non controlling interests have been measured at fair value. The re-measurement to fair value of the Group’s existing 50% associate interest in Hedef Alliance resulted in a gain of £22 million (fair value of £400 million less £378 million carrying value of equity accounted associate at acquisition date), which was recognized in the income statement within profit from operations. ANZAG Through Alliance Healthcare Deutschland Holdings 1 GmbH, a company owned 80% by the Group and 20% by a fellow subsidiary owned by the Group’s parent and ultimate controlling entity, the Group acquired a controlling shareholding in ANZAG. Alliance Healthcare Deutschland Holdings 1 GmbH initially acquired the Group’s pre-existing 29.99% interest, subsequently increased this by 51.89% to 81.88% in two stages during the year. ANZAG is one of the largest pharmaceutical wholesalers in Germany and has a controlling interest in a pharmaceutical wholesale business and health & beauty business in Lithuania, a pharmaceutical wholesale business in Romania and an associate interest in a pharmaceutical wholesale business in Croatia which also trades in Bosnia Herzegovina, Serbia and Slovenia. The Group obtained control of ANZAG on 16 December 2010 by Alliance Healthcare Deutschland Holdings 1 GmbH acquiring an additional 51.65% stake for consideration of £121 million which was all settled in cash. Following a tender offer for the remaining shares, a further 0.24% stake was acquired on 1 February 2011 for consideration of £1 million. The net assets acquired at the date of acquisition, as adjusted from book to fair value, and the attributable goodwill were:

Other intangible assets Property, plant and equipment Investments in associates and joint ventures Inventories Trade and other receivables Net borrowings Trade and other payables, and provisions Retirement benefit obligations Deferred tax liabilities Total identifiable net assets Transfer to special reserve Negative goodwill arising on acquisition Non controlling interests Fair value of existing interest Satisfied by: – cash

Book value at acquisition £million 3 104 16 303 403 (158) (391) (52) (2) 226

Fair value adjustments £million 34 -------(9) 25

Fair value £million 37 104 16 303 403 (158) (391) (52) (11) 251 45 (16) (87) (71) 122 122

The negative goodwill reflects the value of net assets employed relative to ANZAG’s enterprise value, and in accordance with IFRS 3 Business Combinations was included in the income statement within profit from operations. The non controlling interests have been measured at fair value. The remeasurement to fair value of the Group’s existing 29.99% interest in ANZAG resulted in a loss of £3 million (fair value of £71 million less £74 million carrying value of equity accounted associate at acquisition date), which has been recognised in the income statement The consolidated income statement includes revenue of £1,714 million and profit of £68 million in respect of Hedef Alliance, and revenue of £1,047 million and profit of £7 million in respect of ANZAG since their respective acquisition dates. If Hedef Alliance and ANZAG had both been subsidiaries of the Group from the beginning of the year, taking into account their respective results prior to acquisition, revenue and profit for the combined Group on a pro forma basis would have been £23,738 million and £639 million respectively. Other Acquisitions In addition, the Group acquired a number of businesses in the year for cash consideration totalling £6 million. Net assets identified included the fair value of the pharmacy licences of £5 million. Goodwill on these acquisitions was £2 million and non controlling interests recognised was £2 million.

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Acquisition Related Costs The Group incurred acquisition related costs of £8 million in respect of the acquisitions described above and other acquisition related projects. These costs have been included within administrative costs in the Group’s consolidated income statement and classified as exceptional items. The principal business acquisition in the year ended 31 March 2010 was Dollond & Aitchison on 5 May 2009 which was merged with Boots Opticians to form the second largest optical chain in the UK. The combined entity, which now trades as Boots Opticians, is being run as a stand-alone business within Alliance Boots. The acquisition was by way of a share-for-share exchange. Details of the net assets acquired of Dollond & Aitchison at the date of acquisition, as adjusted from book to fair value, the purchase consideration transferred, and the attributable goodwill were: Book value at acquisition £million 5 12 7 5 (1) (26) -2

Other intangible assets Property, plant and equipment Inventories Trade and other receivables Net borrowings Trade and other payables, and provisions Deferred tax liabilities Goodwill arising on acquisition – attributable to the equity holders Non controlling interest in business acquired Satisfied by: – shares

Fair value adjustments £million 18 6 (1) ---(11) 12

Fair value £million 23 18 6 5 (1) (26) (11) 14 44 (6) 52 52

The acquisition of Dollond & Aitchison was satisfied through the transfer of shares in Boots Opticians to the vendor of Dollond & Aitchison which now holds a non controlling interest of 42% in the combined Boots Opticians business. As part of the consideration, pre-existing goodwill of £26 million was derecognised and the net increase in goodwill in relation to the acquisition was £18 million. The goodwill arising on the acquisition of this business represented the synergistic value in combining two large businesses in the market. The Group has an ongoing future dividend obligation to the non controlling interest. In addition, the Group acquired a pharmacy in the year ended 31 March 2010 for cash consideration of £1 million comprising the fair value of the pharmacy licence. The Group recorded a further £10 million of cash consideration relating to acquisitions made in prior years. Disposals On 31 July 2010 the Group sold 51% of its interest in its Italian subsidiary Alliance Healthcare Italia S.p.a. to a fellow wholly owned subsidiary of AB Acquisitions Holdings Limited, the Group’s parent and ultimate controlling entity (note 12).

Anglo American plc Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 1

Accounting Policies

Business Combinations and Goodwill Arising Thereon The identifiable assets, liabilities and contingent liabilities of a subsidiary, joint venture entity or an associate, which can be measured reliably, are recorded at their provisional fair values at the date of acquisition. Goodwill is the fair value of the consideration transferred (including contingent consideration and previously held non-controlling interests) less the fair value of the Group’s share of identifiable net assets on acquisition. Transaction costs incurred in connection with the business combination are expensed. Provisional fair values are finalized within 12 months of the acquisition date.

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Goodwill in respect of subsidiaries and joint ventures is included within intangible assets. Goodwill relating to associates is included within the carrying value of the associate. Where the fair value of the identifiable net assets acquired exceeds the cost of the acquisition, the surplus, which represents the discount on the acquisition, is recognised directly in the income statement in the period of acquisition. For non-wholly owned subsidiaries, non-controlling interests are initially recorded at the non-controlling interest’s proportion of the fair values of net assets recognised at acquisition.

Anheuser-Busch InBev NV Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 2.

Statement of compliance

(H) Business Combinations The company applies the purchase method of accounting to account for acquisitions of businesses. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred and equity instruments issued. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over the company’s interest in the fair value of the identifiable net assets acquired is recorded as goodwill. The allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions requiring management judgment. (I) Goodwill Goodwill is determined as the excess of the consideration paid over AB InBev’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary, jointly controlled entity or associate recognized at the date of acquisition. All business combinations are accounted for by applying the purchase method. Business combinations entered into before 31 March 2004 were accounted for in accordance with IAS 22 Business Combinations. This means that acquired intangibles such as brands were subsumed under goodwill for those transactions. Effective 1 January 2010, when AB InBev acquires non-controlling interests any difference between the cost of acquisition and the non-controlling interest’s share of net assets acquired is accounted for as an equity transaction in accordance with IAS 27 Consolidated and Separate Financial Statements. In conformity with IFRS 3 Business Combinations, goodwill is stated at cost and not amortized but tested for impairment on an annual basis and whenever there is an indicator that the cash generating unit to which goodwill has been allocated, may be impaired (refer accounting policy P). Goodwill is expressed in the currency of the subsidiary or jointly controlled entity to which it relates and is translated to US dollar using the year-end exchange rate. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. If AB InBev’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized exceeds the cost of the business combination such excess is recognized immediately in the income statement as required by IFRS 3 Business Combinations. Expenditure on internally generated goodwill is expensed as incurred. 4.

Use of Estimates and Judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that pe-

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riod or in the period of the revision and future periods if the revision affects both current and future periods. Although each of its significant accounting policies reflects judgments, assessments or estimates, AB InBev believes that the following accounting policies reflect the most critical judgments, estimates and assumptions that are important to its business operations and the understanding of its results: business combinations, intangible assets, goodwill, impairment, provisions, share based payments, employee benefits and accounting for current and deferred tax. The fair values of acquired identifiable intangibles are based on an assessment of future cash flows. Impairment analyses of goodwill and indefinite-lived intangible assets are performed annually and whenever a triggering event has occurred, in order to determine whether the carrying value exceeds the recoverable amount. These calculations are based on estimates of future cash flows. The company uses its judgment to select a variety of methods including the discounted cash flow method and option valuation models and make assumptions about the fair value of financial instruments that are mainly based on market conditions existing at each balance sheet date. Actuarial assumptions are established to anticipate future events and are used in calculating pension and other postretirement benefit expense and liability. These factors include assumptions with respect to interest rates, expected investment returns on plan assets, rates of increase in health care costs, rates of future compensation increases, turnover rates, and life expectancy. During 2010 AB InBev conducted an operational review of the useful lives of certain items of property, plant and equipment in the zone Latin America North, which resulted in changes in the expected usage of some of these assets. See Note 13 Property, plant and equipment. Judgments made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are further discussed in the relevant notes hereafter. 6.

Acquisitions and Disposals of Subsidiaries

The table below summarizes the impact of acquisitions on the Statement of financial position of AB InBev for 31 December 2010 and 2009:

Million US dollar Non-current assets Property, plant and equipment Intangible assets Investment in associates Current assets Inventories Trade and other receivables Cash and cash equivalents Non-current liabilities Interest-bearing loans and borrowings Employee benefits Provisions Deferred tax liabilities Current liabilities Income tax payable Trade and other payables Net identifiable assets and liabilities Goodwill on acquisition Net cash paid on prior year acquisitions Consideration paid satisfied in cash Cash acquired Net cash outflow

2010 Total Acquisitions

2009 Total Acquisitions

1 15 --

15 13 (12)

2 2 --

4 4 6

-----

(2) (1) (1) (1)

-(1) 19 -18 37 -37

(2) (5) 18 17 579 614 (6) 608

2010 Acquisitions On 29 October 2010, the company acquired a local distributor in the US for a total cash consideration of 19m US dollar. Costs directly attributable to the acquisition were less than 1m US dollar. As the purchase price was fully allocated to the respective asset categories, no goodwill was recognized.

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Net cash paid on prior year acquisitions of 18m US dollar mainly reflects the settlement of outstanding consideration payable to former Anheuser-Busch shareholders who had not yet claimed the proceeds as of 31 December 2009, as well as the settlement of transaction costs. 2009 Acquisitions In March 2009, the company acquired Corporación Boliviana de Bebidas for a total cash consideration of 27m US dollar. Costs directly attributable to the acquisition were less than 1m US dollar. Goodwill recognized on this transaction amounted to 9m US dollar. The company also acquired local distributors. As these distributors are immediately integrated in the AB InBev operations, no separate reporting is maintained on their contributions to the AB InBev profit. Goodwill recognized on these transactions amounted to 8m US dollar. Net cash paid on prior year acquisitions of 579m US dollar mainly reflected the settlement of outstanding consideration payable to former Anheuser-Busch shareholders who had not yet claimed the proceeds as of 31 December 2008, as well as the settlement of transaction costs related to the Anheuser-Busch acquisition. Disposals The table below summarizes the impact of disposals on the Statement of financial position of AB InBev for 31 December 2010 and 2009:

Million US dollar Non-current assets Property, plant and equipment Goodwill Intangible assets Investment securities Deferred tax assets Trade and other receivables Current assets Income tax receivable Inventories Trade and other receivables Cash and cash equivalents Assets held for sale Non-current liabilities Interest-bearing loans and borrowings Trade and other payables Provisions Deferred tax liabilities Current liabilities Bank overdrafts Interest-bearing loans and borrowings Income tax payable Trade and other payables Provisions Liabilities held for sale Net identifiable assets and liabilities Loss/(gain) on disposal Net cash received from last years’ disposal Consideration received, satisfied in cash Cash disposed of Cash to be received Net cash inflow

2010 Total disposals (68) – – 71 – (1) – (14) (10) (7) –

2009 Oriental Brewery – – – – – – – – – (75) (1,396)

2009 Busch Entertainment

2009 Central Europe

2009 Other disposals

2009 Total disposals

(1,889) – (470) – – (3)

(595) (166) (39) (1) (5) (15)

– – (1) – – (1)

(2,484) (166) (510) (1) (5) (19)

– (33) (82) – –

(3) (75) (138) (334) –

– (1) 3 (7) (58)

(3) (109) (217) (416) (1,454)

– – – –

– – – –

– – – –

1 5 4 8

– – – –

1 5 4 8

–

43

–

13

–

56

4 – (2) – –

– – – – 159

– – 195 – –

– 21 190 5 –

4 – 1 – 60

4 21 386 5 219

(1,124) (1,088)

– (1)

(27) 31

(1,269) (428)

(20)

–

(16) 7 – (9)

(1,697) 32 225 (1,440)

(2,282) – – (2,282) – – (2,282)

– (2,212) 322 374 (1,516)

– (1) 7 – 6

(4,675) (1,517) – (6,192) 361 599 (5,232)

2010 Disposals On 20 October 2010, AmBev and Cerveceria Regional S.A. closed a transaction pursuant to which they combined their business in Venezuela, with Regional owning a 85% interest and AmBev owning the remaining 15% in the new company, which may be increased to 20% over the next four years. The measurement at fair value of the retained interest, as prescribed by Amended IAS 27 Consolidated and separate financial statements, led to the recognition of an impairment loss of (31)m US dollar.

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During 2010, AB InBev collected the deferred consideration related to the disposal of Oriental Brewery. The deferred consideration with a notional amount of 300m US dollar had been reported for a fair value amount of 225m US dollar by year end 2009. The deferred consideration was sold to a third party for a gross proceed of 275m US dollar excluding interest accrued since inception and resulted in a nonrecurring gain of 50m US dollar – see Note 8 Non-recurring items. The cash receipt was partially offset by corporate taxes paid on the disposal of Busch Entertainment and other subsidiaries (255m US dollar). 2009 Disposals On 24 July 2009, AB InBev announced that it completed the sale of Oriental Brewery to Kohlberg Kravis Roberts & Co. L.P. for 1.8 billion US dollar of which 1.5 billion US dollar was cash and 0.3 billion US dollar was received as an unsecured deferred payment. As a result of the sale, AB InBev recorded a capital gain of approximately 428m US dollar. On 1 December 2009, AB InBev completed the sale of its indirect wholly owned subsidiary of Busch Entertainment Corporation, to an entity established by Blackstone Capital Partners V L.P. for up to 2.7 billion US dollar. The purchase price was comprised of a cash payment of 2.3 billion US dollar and a right to participate in Blackstone Capital Partners’ return on initial investment, which is capped at 400m US dollar. There was no capital gain recorded on this transaction as the selling price equaled the net carrying value at the date of disposal. On 2 December 2009, the company completed the sale of the Central European operations to CVC Capital Partners for an enterprise value of 2.2 billion US dollar, of which 1.6 billion US dollar was cash, 448m US dollar was received as an unsecured deferred payment obligation with a six-year maturity and 165m US dollar represents the value of noncontrolling interest. The company also received additional rights to a future payments estimated up to 800m US dollar contingent on CVC’s return on initial investments. As a result of the sale, AB InBev recorded a capital gain of approximately 1.1 billion US dollar. Other 2009 Disposals The sale of the company’s integrated distribution network in France (CafeIn) during 2008 was closed by February 2009. The impact of the selling price is reflected in the changes in assets and liabilities above. There was no capital gain recorded on this transaction as the selling price equaled the net carrying value at date of disposal. The company also disposed of local distributors during the year. Such disposals were not material individually or in the aggregate. The impact on assets and liabilities of these disposals is reflected in the above table.

BAE Systems Annual Report 2010 Notes to the Group accounts for the year ended 31 December 29. Acquisition of Subsidiaries Acquisition of Subsidiaries for the Year Ended 31 December 2010 In 2010, the Group acquired Atlantic Marine Holding Company (Atlantic Marine) and OASYS Technology, LLC (OASYS). If the acquisitions had occurred on 1 January 2010, combined sales of Group and equity accounted investments would have been £22.5bn, revenue £21.2bn and profit £1,022m from continuing operations for the year ended 31 December 2010. For all acquisitions made in the year, fair values remain provisional, but will be finalised within 12 months of acquisition.

Acquisition Atlantic Marine OASYS

Acquisition date 13 July 2010 19 October 2010

Percentage share 100% 100%

Total consideration £m 245 33 278

Goodwill £m 133 28 161

Consolidated results for the period from acquisition to 31 December 2010 Profit after tax Revenue £m £m 74 3 7 1 81 4

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275

Atlantic Marine On 13 July 2010, the Group completed the acquisition of Atlantic Marine, a naval services and marine fabrication business, for $372m (headline price of $352m, plus purchase price adjustments of $20m) (£245m). The business employs approximately 1,500 people at Mayport and Jacksonville, Florida, Moss Point, Mississippi, and Mobile, Alabama. The acquisition complements BAE Systems’ existing ship repair and upgrade capabilities serving the US Navy. The Group anticipates continued strong demand for naval support capabilities in the US and the acquisition is consistent with BAE Systems’ strategy to address anticipated growth in Services activity in its home markets. Atlantic Marine operates two facilities in Jacksonville and Mobile, both of which are situated in deep water ports along some of the busiest trade routes in the US. Additionally, Atlantic Marine operates a facility located on the Mayport Naval Station near Jacksonville, the second largest homeport of US Navy surface combatants on the East and Gulf Coasts, and proposed as the new homeport for an aircraft carrier in the 2010 Quadrennial Defense Review. These opportunities do not translate into separately identifiable intangible assets, but represent much of the assessed value within Atlantic Marine supporting the recognised goodwill. The goodwill is not expected to be deductible for tax purposes. The Atlantic Marine acquisition had the following effect on the Group’s assets and liabilities:

Intangible assets Property, plant and equipment Inventories Receivables Deferred tax assets Payables Deferred tax liabilities Provisions Cash and cash equivalents Net assets/(liabilities) acquired Goodwill Consideration – cash

Book value £m 1 94 – 15 1 (13) (23) (14) 18 79

Accounting policy alignments £m – (1) 1 (1) – (1) – – – (2)

Fair value adjustments £m 36 20 – – – (1) (18) (2) – 35

Fair value £m 37 113 1 14 1 (15) (41) (16) 18 112 133 245

The Group incurred acquisition-related costs of £5m related to external legal fees and due diligence costs. These costs have been included in operating costs. The intangible assets acquired as part of the acquisition of Atlantic Marine of £37m primarily relate to customer relationships. Receivables include trade receivables with a fair value and gross contractual value of £13m, which are expected to be fully recoverable. OASYS On 19 October 2010, the Group completed the acquisition of OASYS, a US manufacturer of electrooptical systems and sub-assemblies based in Manchester, New Hampshire, for cash consideration of $24m (£15m) and a potential earn-out of up to $29m (£18m). The fair value of the contingent consideration at the acquisition date is $29m (£18m). Payment of the contingent consideration is dependent on the business achieving certain revenue targets for 2010 and 2011. The net assets and goodwill included in the consolidated balance sheet as a result of this acquisition are £5m and £28m, respectively. The acquisition of OASYS complements the existing Electronic Solutions business in the US and enhances the Group’s product offerings in growing electro-optical markets. These opportunities do not translate to separately identifiable intangible assets, but represent much of the assessed value within OASYS supporting the recognised goodwill. Adjustments to Goodwill in Respect of Prior Year Acquisitions Tenix Defence Holdings Pty Limited (Tenix Defence) Outstanding issues concerning the acquisition of the Tenix Defence business in 2008, including the completion accounting process, have been resolved successfully with agreement of contingent payments

276

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totalling A$127.5m (£74m, net of legal fees) from the former owners of the business. In September 2010, the Group received a payment of A$112.5m (£65m, net of legal fees) with the remainder due in 2011. These payments reduce purchase consideration and, therefore, the amount of goodwill arising on consolidation is reduced by £64m (£74m, less £10m deferred tax) from £323m to £259m. Acquisition of Subsidiaries for the Year Ended 31 December 2009 The most significant acquisition made by the Group during the year ended 31 December 2009 was of the 45% shareholding in BVT Surface Fleet Limited (BVT) held by VT Group plc (VT). If the acquisition had occurred on 1 January 2009, combined sales of Group and equity accounted investments, revenue and loss for the year ended 31 December 2009 from continuing operations would have been £22.4bn, £21.3bn and £74m, respectively. BVT (Now BAE Systems Surface Ships) On 30 October 2009, the BVT joint venture became a wholly-owned subsidiary of the Group after VT Group plc exercised its option to sell its 45% shareholding in BVT to BAE Systems. Consideration paid including transaction costs for the remaining 45% interest was £348m. The now wholly-owned company has been renamed BAE Systems Surface Ships Limited (Surface Ships). The Group previously held a 55% interest in BVT, and accounted for its share of the results and net assets of BVT in accordance with IAS 31, Interests in Joint Ventures. Total goodwill arising amounted to £584m, which comprised £225m on the initial formation of the BVT joint venture in the year ended 31 December 2008 and £359m arising on the acquisition of the 45% interest. A final update of the fair values arising on acquisition has been undertaken, with the main adjustment being for additional losses identified on the export ship contracts amounting to £163m. The losses have arisen due to circumstances in existence prior to 1 July 2008, but those losses have only been identified in the current year. Goodwill has increased by £53m to £637m primarily reflecting 45% of the post-tax losses. In accordance with IFRS 3 (2004), the portion of these losses relating to the Group's original 55% interest in the joint venture has been reflected in the revaluation reserve (£64m), leaving a cumulative credit on that reserve of £10m. Comparatives for the year ended 31 December 2009 have been restated accordingly. In the period from acquisition to 31 December 2009, Surface Ships contributed revenue and profit after tax of £338m and £34m, respectively, to the Group’s consolidated results as a wholly-owned subsidiary. The acquisition of BVT has had the following effect on the Group’s assets and liabilities. The figures in the table below represent a 100% interest in BVT. Restated

Intangible assets Property, plant and equipment Inventories Receivables Deferred tax assets Payables Current tax (liabilities)/assets Deferred tax liabilities Provisions Cash and cash equivalents Net liabilities acquired Goodwill Fair value of net liabilities acquired and goodwill arising

Book value (30 October 2009) £m – 136 61 225 2 (433) (16) (6) (12) 33 (10)

Accounting Fair value policy alignments adjustments £m £m -225 -– -– -– -22 -(327) -27 -(63) -– -– -(116)

Fair value £m 225 136 61 225 24 (760) 11 (69) (12) 33 (126) 637 511

Business Combinations (IFRS 3)

277

Restated Book value (30 October 2009) £m

Accounting Fair value policy alignments adjustments £m £m

Components of cost of acquisitions: Fair value of consideration for initial 55% shareholding in 2008 Fair value of consideration for remaining 45% shareholding in 2009 Total cost of acquisition Losses under equity method of initial 55% shareholding Gain on revaluation of step acquisition Fair value of net liabilities acquired and goodwill arising

Fair value £m 189 348 537 (36) 10 511

Consideration satisfied by: Cash paid on acquisition of remaining 45% shareholding in 2009 Directly attributable costs: Paid Cash consideration Fair value of net assets contributed to BVT joint venture for initial 55% shareholding in 2008 Directly attributable costs: Paid Total cost of acquisition

346 2 348 178 11 537

The intangible assets acquired as part of the acquisition of BVT of £225m represented order backlog. Advanced Ceramics Research The Group acquired Advanced Ceramics Research, Inc. in the US on 8 June 2009 for a consideration of $14m (£9m). The net assets and goodwill included in the Group’s consolidated balance sheet as a result of this acquisition were £1m and £8m, respectively.

CNP Assurances Annual Financial Report 2010 Note to the consolidated financial statements for the year ended 31 December 2010 5.2 Analysis of the Barclays Vida y Pensioners Acquisition Price

In € millions Cost of the business combination Acquisition price before adjustment Contractually agreed adjustment Earn-out, subject to future achievement of objectives Business acquisition costs Net asset value at 1 September 2009 Value of business in force net of tax Value of distribution agreements net of tax Goodwill

Based on a 100% interest 409.6 280.0 50.4 75.5 3.7 167.7 72.4 128.7

CNP share 50% 244.4 140.0 25.2 75.5 3.7 83.8 36.2 64.3 60.0

As of 31 December 2009, the entire difference between the acquisition price and net asset value was recognised in goodwill. Pursuant to IFRS 3 (2004), the work involved in calculating the final goodwill for Barclays Vida y Pensiones was completed by 1 September 2010. In order to share out the value created by the partnership on an equitable basis, the agreement between Barclays and CNP Assurances provides for an earn-out mechanism over 12 years based on the achievement of certain sales targets and margins and on the growth of the Barclays branch network. As payment of this contingent consideration is deemed probable, a best estimate of its amount has been included in the calculation of goodwill. Once the remeasurement of net assets acquired was complete, the following amounts were booked in intangible assets:

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278

•

•

The value of In-Force business acquired corresponding to the present value of future profits related to contracts subscribed at the acquisition date, in an amount of €101.4 million before tax (€72.4 million net of tax); The value of the distribution agreement, in an amount of €180.2 million before tax (€128.7 million net of tax), relating to future business. The value of the distribution agreement is estimated based on cash flows from price adjustments payable and expected to result from new branch openings for the distribution partner, Barclays.

Goodwill resulting after the recognition of these intangible assets amounts to €60 million. Notes 5 Scope of Consolidation

Company

Change in scope of consolidation

31.12.2010 Consolidation method

Country

Business

31.12.2009

% voting rights

% voting rights

% voting rights

% interest

1. Strategic subsidiaries CNP ASSURANCES CNP IAM PREVIPOSTE ITV CNP INTERNATIONAL LA BANQUE POSTALE PREVOYANCE CNP SEGUROS DE VIDA CNP HOLDING BRASIL CAIXA SEGUROS CNP UNICREDIT VITA CNP VIDA BARCLAYS VIDA Y PENSIONES MARFIN INSURANCE HOLDINGS LTD CNP EUROPE LIFE LTD GLOBAL GLOBAL VIDA

(1) (1)

Full Full Full Full Full

France France France France France

Insurance Insurance Insurance Insurance Insurance

100.00% 100.00% 100.00% 100.00% 100.00%

100.00% 100.00% 100.00% 100.00% 100.00%

100.00% 100.00% 100.00% 100.00% 100.00%

100.00% 100.00% 100.00% 100.00% 100.00%

Proportionate Full Full Full Full Full

France Argentina Brazil Brazil Italy Spain

Insurance Insurance Insurance Insurance Insurance Insurance

50.00% 76.47% 100.00% 51.75% 57.50% 94.00%

50.00% 76.47% 100.00% 51.75% 57.50% 94.00%

50.00% 76.47% 100.00% 51.75% 57.50% 94.00%

50.00% 76.47% 100.00% 51.75% 57.50% 94.00%

Full

Spain

Insurance

50.00%

50.00%

50.00%

50.00%

Full Full ---

Cyprus Ireland Portugal Portugal

Insurance Insurance Insurance Insurance

50.10% 100.00% 0.00% 0.00%

50.10% 100.00% 0.00% 0.00%

50.10% 100.00% 83.52% 83.57%

50.10% 100.00% 83.52% 83.57%

Full Full Full

France France France

Mutual fund Mutual fund Mutual fund

99.79% 97.08% 95.31%

99.79% 97.08% 95.31%

99.79% 97.02% 94.79%

99.79% 97.02% 94.79%

Full

France

Mutual fund

74.68%

74.68%

71.24%

71.24%

Full Full

France France

Mutual fund Mutual fund

75.68% 49.65%

75.68% 49.65%

73.93% 49.71%

73.93% 49.71%

Full Full Full Full Full Full Full Full

France France France France France France France France

Mutual fund Mutual fund Mutual fund Mutual fund Mutual fund Mutual fund Mutual fund Mutual fund

61.22% 100.00% 49.75% 54.28% 92.49% 56.49% 80.80% 99.78%

61.22% 100.00% 49.75% 54.28% 92.49% 56.49% 80.80% 99.78%

60.51% 100.00% 49.74% 54.55% 92.02% 55.66% 80.46% 99.13%

60.51% 100.00% 49.74% 54.55% 92.02% 55.66% 80.46% 99.13%

2. Mutual funds UNIVERS CNP 1 FCP CNP ASSUR EURO SI ECUREUIL PROFIL 30 LBPAM PROFIL. 50 D 5 DEC LBPAM ACT. DIVERSIF 5 DEC CNP ACP OBLIG FCP BOULE DE NEIGE 3 3 DEC CDC IONIS FCP 4 DEC CNP ACP 10 FCP ECUREUIL PROFIL 90 PROGRESSIO 5 DEC AL DENTE 3 3 DEC VIVACCIO ACT 5 DEC CNP ASSUR ALT. 3 DEC

Business Combinations (IFRS 3)

Company

Change in scope of consolidation

279

31.12.2010 Consolidation method

Country

Business

% voting rights

31.12.2009

% voting rights

% voting rights

% interest

3. Property companies ASSURBAIL

Full

France

AEP3 SCI

Full

France

CIMO

Full

France

AEP4 SCI

Full

France

PB6

Proportionate Full

France France

Full

France

ASSURIMMEUBLE ECUREUIL VIE DÉVELOPPEMENT NATIXIS GLOBAL ASSET MANAGEMENT (1) (2)

Sold on 3 March 2010. Sold on 17 December 2009.

France (2)

--

Lease financing Non-trading property company Non-trading property company Non-trading property company Property company Non-trading property company Brokerage Asset management

100.00%

100.00%

99.07%

99.07%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

50.00%

50.00%

50.00%

50.00%

100.00%

100.00%

100.00%

100.00%

51.00%

51.00%

51.00%

51.00%

0.00%

0.00%

0.00%

0.00%

Chapter 21 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (IFRS 5)

1.

OBJECTIVE

1.1 This Standard is relevant in case of noncurrent assets or groups of assets and liabilities (known as disposal groups) that are held for sale. 1.2

This Standard also applies to the presentation and disclosure of discontinued operations.

2.

SYNOPSIS OF THE STANDARD

The provisions of this Standard, which specifies the accounting for noncurrent assets held for sale and the presentation and disclosure of discontinued operations, are summarized next. 2.1

Non-Current Assets Held for Sale

2.1.1 An entity should classify a “noncurrent asset” or “disposal group” under the category “held for sale” if its carrying amount will be realized primarily through a sale transaction as opposed through the continuing operations of the entity. 2.1.2 In order to be classified as held for sale, an asset or disposal group should be available for immediate sale in its present condition subject only to the terms that are usual and customary for sales of such assets (or disposal assets), and its sale must be highly probable. 2.1.3 To be considered highly probable, an entity has to establish that its management is committed to a plan to sell the asset (or disposal group) and that an active program to locate a buyer and complete the plan has been initiated. 2.1.4 The sale must be expected to qualify for recognition as a completed sale within one year from the date of classification. 2.1.5 Events or transactions may extend the period to complete the sale beyond one year. This would not preclude the asset (or disposal group) from being classified as held for sale provided the delay is beyond the control of the entity and there is sufficient evidence that the entity remains committed to the plan of sale. 281

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282

2.1.6 If assets are acquired with the intention of subsequent disposal, the entity should classify the noncurrent asset (or disposal group) as held for sale at the date of acquisition only if the one-year requirement in paragraph 8 of International Financial Reporting Standard (IFRS) 5, Non-Current Assets Held for Sale and Discontinued Operations (read with paragraph 9 of IFRS 5), is met, and it is highly probable that the other conditions specified in paragraphs 7 and 8 of IFRS 5 will be met within a short period of time following the acquisition (usually within three months). 2.1.7 An asset (or disposal group) is classified as held for distribution to owners when the entity is committed to such a distribution of the asset (or disposal group) to the owners, the asset is available for distribution in its present condition, and the distribution is highly probable. In order to be considered highly probable, actions to complete the distribution must have been initiated, and it should be expected that the distribution would be completed within one year from the date of the classification. 2.1.8. An entity should measure a noncurrent asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell. Similarly, an asset held for distribution to owners should be measured at the lower of its carrying amounts and fair value less costs to distribute (which are the incremental costs directly attributable to the distribution, excluding finance costs and income tax expense). 2.1.9 An entity should recognize an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair value less cost to sell. 2.1.10 An entity should not depreciate or amortize a noncurrent asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale. 2.1.11 In case of a change of plan of sale (i.e., when a noncurrent asset or disposal group that is classified as held for sale no longer meets the criteria of such a classification under IFRS 5), the entity should cease to classify the asset (or disposal group) as held for sale. In such case, the entity shall measure such an asset (or disposal group) at the lower of its carrying amount on the date of classification as held for sale, as adjusted for depreciation, amortization, or revaluations that would have been recognized had the asset or disposal group not been so classified; and its recoverable amount at the date of the subsequent decision to sell. 2.2

Discontinued Operations

2.2.1 An entity is required to present and disclose information that is useful to users of financial statements in evaluating the financial effects of the discontinued operations and disposal of noncurrent assets (or disposal group). 2.2.2 According to IFRS 5, paragraph 32: A “discontinued operation” is a component of the entity that has either has been disposed of, or is classified as held for sale, and: 1. Represents a separate major line of business or geographical area of operations; 2. Is part of a single coordinated plan to disposal of a separate major line of business or geographical area of operations; or 3. Is a subsidiary acquired exclusively with a view to its disposal.

2.2.3 A component of an entity is a part of the entity (i.e., operations and cash flows) that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. 3.

DISCLOSURE REQUIREMENTS

The next disclosures are required for noncurrent assets held for sale and for the discontinued operations. 3.1

Non-Current Assets Held for Sale

3.1.1 In case of an expected sale of an asset (or disposal group) when the criteria in paragraphs 7 and 8 of IFRS 5 (i.e., with respect to being made available for immediate sale, the one-year re-

Non-Current Assets Held for Sale and Discontinued Operations (IFRS 5)

283

quirement, and the sale being highly probable, etc.) are met after the reporting period but before the authorization of the financial statements for issue, the entity shall disclose the information prescribed by paragraph 41 of IFRS 5 (captioned “additional disclosures”) in notes to the financial statements. 3.1.2 In case of classifying an asset (or disposal group) as held for sale, these additional disclosures should be made in the notes to the financial statements: • Description of the noncurrent assets (or disposal group) • Description of the facts and circumstances leading to the decision to sell, the expected disposal, and the expected manner and timing of accomplishing the plan for the disposal • Any gain or loss recognized on impairment or subsequent increase in values and if not separately presented in the statement of comprehensive income, the caption in the statement of comprehensive income that includes such a gain or loss • If applicable, the reportable segment in which the noncurrent asset (or disposal group) is presented in accordance with IFRS 8. 3.1.3 In case of change of plan to sell, the entity shall disclose, in the period of the decision to change the plan to sell the noncurrent asset (disposal group), a description of the facts and circumstances leading to the decision and the effect of the decision on the results of operations for the period and any prior periods presented. 3.2

Discontinued Operations

3.2.1 An entity shall disclose • A single amount in the statement of comprehensive income after derived from the total of • The post-tax profit or loss of discontinued operations and • The post-tax gain or loss recognized on the measurement to the fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation. • The breakdown of the single amount presented in the statement of comprehensive income into the revenue, expenses, and pretax profit or loss of discontinued operations; the gain or loss recognized on the measurement to fair value less costs to sell or in disposal of the assets or disposal group(s) constituting the “discontinued operations”; and the related income tax expense. (The breakdown of the single amount can be presented either in the notes to the financial statements or in the statement of comprehensive income.) • The net cash flows attributable to operating, investing, and financing activities of the discontinued operations. (Such disclosures may be presented either in the notes to the financial statements or in the financial statements.) • The amount of income from continuing operations and from discontinued operations attributed to owners of the parent. (These disclosures may be presented either in the notes to the financial statements or in the statement of comprehensive income.) 3.2.2 An entity shall re-present disclosures of prior periods so that disclosures relating to all operations that have been discontinued by the end of the reporting period are captured for the latest period presented. 3.2.3 Any adjustments in the current period to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period shall be classified separately in discontinued operations. The nature and amount of such adjustments shall be disclosed.

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EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 Notes to the consolidated financial statements for the year ended 31 March 2011 2.

Accounting Policies

Assets Held for Sale and Discontinued Operations Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through sale rather than through continuing use. The asset or disposal group must be available for immediate sale and the sale must be highly probable and be expected to complete within one year of the year end. Where applicable, assets and disposal groups classified as held for sale are measured at the lower of fair value less costs to sell and carrying amount. Impairment losses on initial classification as held for sale are included in the income statement. Gains reversing previous impairment losses or losses on subsequent remeasurements are also included in the income statement. Assets classified as held for sale are disclosed separately on the face of the statement of financial position and classified as current assets or liabilities with disposal groups being separated between assets held for sale and liabilities held for sale. No amortisation or depreciation is charged on assets, including those in disposal groups, classified as held for sale. Discontinued operations are components of the Group’s business that represent separate major lines of business or geographical areas of operations. Classification as discontinued operations occurs upon the date of disposal or when operations meet the criteria for classification as held for sale, if earlier. When operations are classified as discontinued, the comparative income statement is represented as if the operations had been discontinued from the start of the comparative year and included in the income statement as a separate line entitled ‘Profit for the year from discontinued operations’. 12. Discontinued Operations On 31 July 2010 the Group sold 51% of its interest in its Italian subsidiary Alliance Healthcare Italia S.p.a. to a fellow wholly owned subsidiary of AB Acquisitions Holdings Limited, the Group’s parent and ultimate controlling entity. From that date the Group no longer had the ability to control the businesses operated and owned by Alliance Healthcare Italia S.p.a., and since Italy was considered to be a significant separate geography, the results from Italy are shown separately as discontinued operations. The comparative income statement of the Group has been re-presented to show these discontinued operations separately from continuing operations. From the date of disposal, the Group’s remaining 49% interest in Alliance Healthcare Italia S.p.a. has been accounted for as an associate. The cash flow for the year from discontinued operations was as follows

Net cash (outflow)/inflow from operating activities Net cash generated from investing activities Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents

2011 £million (31) 1 (5) (35)

2010 Re-presented £million 38 4 22 64

The consideration received on the sale of the Group’s 51% interest was £62 million, and net borrowings at disposal were £214 million, which included £120 million of bank overdrafts and £6 million of cash and cash equivalents.

Non-Current Assets Held for Sale and Discontinued Operations (IFRS 5)

285

The effect of disposal on the financial position of the Group was 2011 £million 34 75 22 43 156 240 6 1 (220) (229) (3) 125

Intangible assets Property, plant and equipment Investments in associates and joint ventures Non-current receivables Inventories Trade and other receivables Cash and cash equivalents Assets classified as held for sale Borrowings Trade and other payables, and provisions Net deferred tax liabilities Net assets

Up to the date of disposal, the average number of employees was 1,056 (2010 full year: 1,059). The profit for the year from discontinued operations was

Revenue Cost of sales Gross profit Selling, distribution and store costs Administrative costs Profit from operations before associates and joint ventures Share of post tax earnings of associates and joint ventures Profit from operations Finance income Finance costs Profit before tax Tax Profit for the year

2011 £million 361 (324) 37 (22) (8) 7 -7 -(3) 4 (1) 3

2010 Re-presented £million 1,152 (1,040) 112 (73) (20) 19 1 20 5 (10) 15 (7) 8

2011 £million 3 3

2010 £million 9 9

23. Assets Classified as Held for Sale The carrying amounts of assets classified as held for sales were

Property, plant and equipment

During the year, the Group disposed of property, plant and equipment, which had previously been reclassified as assets held for sale. The proceeds and gain on disposal of these assets was £7 million and £nil respectively. In the prior year a gain on disposal of assets held for sale of £2 million was recognised and presented as an exceptional item.

Anheuser-Busch InBev NV Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 (CC) Discontinued Operations and Non-Current Assets Held for Sale A discontinued operation is a component of the company that either has been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operations and is part of a single coordinated plan to dispose of or is a subsidiary acquired exclusively with a view to resale. AB InBev classifies a noncurrent asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use if all of the conditions of IFRS 5 are met. A disposal group is defined as a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets

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that will be transferred. Immediately before classification as held for sale, the company measures the carrying amount of the asset (or all the assets and liabilities in the disposal group) in accordance with applicable IFRS. Then, on initial classification as held for sale, noncurrent assets and disposal groups are recognized at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in profit or loss. The same applies to gains and losses on subsequent re-measurement. Noncurrent assets classified as held for sale are no longer depreciated or amortized. 22. Assets and Liabilities Held for Sale Assets Million US dollar Balance at the end of previous year Effect of movements in foreign exchange Disposal through the sale of subsidiaries Disposals Impairment loss Transfers from other asset categories Balance at end of year

2010 66 1 -(71) (18) 54 32

Liabilities 2009 51 44 (1,454) (908) 7 2,326 66

2010 --------

2009 -(6) 289 37 -(320) --

Assets held for sale at 31 December 2010 include land and buildings, mainly in Brazil. The disposal of these assets is expected in 2011. No gain or loss with respect to these assets was recognized in 2010. 2009 assets held for sale included 66m US dollar and buildings, mainly in Brazil, UK and US. These assets were sold in 2010. The total amount of other comprehensive income accumulated in equity relating to assets held for sale was immaterial as at 31 December 2010 and 31 December 2009. In 2009 transfers from other asset categories for an amount of 2 326m US dollar and from other liability categories for an amount of 320m US dollar mainly result from the reclassification of the identifiable assets and liabilities of the Korean subsidiary, of four metal beverage can lid manufacturing plants from AB InBev’s US metal packaging subsidiary and of the Tennent’s Lager brand and associated trading assets in Scotland, Northern Ireland and the Republic of Ireland, in accordance with IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations. See also Note 6 Acquisitions and disposals of subsidiaries.

BAE Systems Annual Report 2010 Notes to the Group accounts for the year ended 31 December 1.

Accounting Policies

Discontinued Operations A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or meets the criteria as held for sale. When an operation is classified as a discontinued operation, the comparative consolidated income statement is represented as if the operation had been discontinued from the start of the comparative period. 9.

Disposals

Discontinued Operations for the Year Ended 31 December 2010 On 3 June 2010, the Group sold half of its 20.5% shareholding in Saab AB to Investor AB for a cash consideration of SEK1,041m (£92m). Following the loss of significant influence over the company, the Group has discontinued the use of the equity method and the remaining shareholding in Saab is shown within other financial assets as a financial asset at fair value through profit or loss at 31 December 2010 (see note 17). The Group’s share of the results of Saab to the date of disposal is shown within discontinued operations for the current and prior periods. The results from discontinued operations which have been included in the consolidated income statement are as follows:

Non-Current Assets Held for Sale and Discontinued Operations (IFRS 5)

Share of results of equity accounted investments Profit on disposal of discontinued operations Profit for the year – discontinued operations

287

2010 £m 2 52 54

2009 £m 16 -16

The profit on disposal of discontinued operations is calculated as follows: Cash consideration Fair value of retained 10.25% investment Transaction costs Carrying value of 20.5% shareholding (note 14) Cumulative net hedging gain Cumulative currency translation gain Profit on disposal of discontinued operations

£m 92 97 (3) (155) 4 17 52

Following the classification of Saab as a discontinued operation, combined sales of Group and equity accounted investments in the comparatives for the year ended 31 December 2009 have been reduced by £425m. Continuing Operations for the Year Ended 31 December 2010 During 2010, the Group completed the disposal of its Sistemas y Desarrollos Funcionales Limitada (SISDEF) joint venture for total cash consideration of £1m. Profit on disposal is £1m. Continuing Operations for the Year Ended 31 December 2009 Profit on disposal of businesses of £68m comprised the finalisation of the accounting gain recognised in 2008 on the disposal of the Group’s interests in the businesses contributed to the BVT joint venture following acquisition of VT Group’s 45% interest in 2009 (£58m) and additional proceeds received in respect of the disposal in 2008 of the Group’s interest in Flagship Training (£10m). The Group received deferred consideration of £72m in the year ended 31 December 2009 in respect of the disposals of Flagship Training Limited in 2008 (£70m) and the Inertial Products business in 2007 (£2m).

Compass Group Annual Report 2010 Accounting Policies for the year ended 30 September 2010 6

Discontinued Operations

Year Ended 30 September 2010 The profit for the year from discontinued operations of £13 million arose on the release of surplus provisions relating to prior period disposals and a £1 million loss from discontinued operations. Year Ended 30 September 2009 The profit for the year from discontinued operations comprises the release of surplus provisions of £23 million and accruals of £20 million relating to prior period disposals, additional proceeds of £2 million and a loss after tax from trading activities of £1 million.

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2010 £m

2009 £m

-(1) (1) -(1)

3 (4) (1) -(1)

Disposal of net assets and other adjustments relating to discontinued operations Profit on disposal of net assets of discontinued operations 2,3 Release of surplus provisions and accruals related to discontinued operations Profit before tax Income tax (expense)/credit (see below) Total profit after tax

-16 16 (2) 14

2 43 45 (4) 41

Profit for the year from discontinued operations Profit/(loss) for the year from discontinued operations

13

40

Financial performance of discontinued operations Trading activities of discontinued operations1 External revenue Operating costs Loss before tax Income tax (expense)/credit Loss after tax

1

The trading activity in the years ended 30 September 2009 and 30 September 2010 relates to the final run-off of activity in businesses earmarked for closure. 2 Released surplus provisions of £16 million in the year ended 30 September 2010. 3 Released surplus provisions of £23 million and the release of surplus accruals of £20 million, total £43 million, in the year ended 30 September 2009.

Income tax from discontinued operations Income tax on disposal of net assets and other adjustments relating to discontinued operations Current tax Deferred tax Income tax (expense)/credit on disposal of net assets of discontinued operations Total income tax from discontinued operations Total income tax (expense)/credit from discontinued operations

Net assets disposed and disposal proceeds Increase/(decrease) in retained liabilities1,2 Profit/(loss) on disposal before tax Consideration, net of costs Consideration deferred to future periods Cash disposed of Cash inflow/(outflow) from current year disposals Deferred consideration and other payments relating to previous disposals Cash inflow/(outflow) from disposals 1

2

2010 £m

2009 £m

-(2) (2)

4 (8) (4)

(2)

(4)

2010 £m (23) 16 (7) (2) -(9) -(9)

2009 £m (79) 45 (34) --(34) -(34)

Including the release of surplus provisions of £16 million and the utilisation of accruals/provisions in respect of purchase price adjustments, warranty claims and other indemnities of £7 million in the year ended 30 September 2010. Total £23 million. Including the release of surplus provisions of £23 million and surplus accruals of £20 million, and the utilisation of accruals/provisions in respect of purchase price adjustments, warranty claims and other indemnities of £36 million in the year ended 30 September 2009. Total £79 million.

Section VI FINANCIAL INSTRUMENTS

Chapter 22: Financial Instruments: Presentation (IAS 32) Chapter 23: Financial Instruments: Recognition and Measurement (IAS 39) Chapter 24: Financial Instruments: Disclosures (IFRS 7) IFRIC 9, Reassessment of Embedded

Derivatives IFRIC 16, Hedges of a Net Investment in a

Foreign Operation IFRIC 19, Extinguishing Financial Liabilities

with Equity Instruments

289

Chapter 22 FINANCIAL INSTRUMENTS: PRESENTATION (IAS 32)

1.

OBJECTIVE

1.1 This Standard applies to all types of financial instruments, except those specifically excluded (see 1.2) and to contracts to buy or sell a nonfinancial item that can be settled • In cash, • By another financial instrument, or • By exchanging financial instruments, as if the contracts were financial instruments. 1.2 This Standard does not apply to interest in subsidiaries (International Accounting Standard [IAS] 27, Consolidated and Separate Financial Statements), joint ventures (IAS 31, Interests in Joint Ventures), associates (IAS 28, Investments in Associates), employee benefit plans (IAS 19, Employee Benefits), share-based payments (International Financial Reporting Standard [IFRS] 2, Share-Based Payment), insurance contracts (IFRS 4, Insurance Contracts), or contracts for contingent consideration in a business combination (IFRS 3, Business Combinations). 2.

SYNOPSIS OF THE STANDARD

A summary of this Standard, which aims at establishing principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities, is presented next. 2.1 A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another. A financial instrument is a liability if there is a contractual obligation to deliver cash or other financial assets; it is equity if it evidences a residual interest in the assets of an undertaking after deducting all of its liabilities. 2.2 On initial recognition, a financial instrument is classified as a liability, asset, or an equity instrument by the issuer of the financial instrument. 2.3 Financial instruments, except certain puttable financial instruments, that include an obligation to deliver cash or other financial assets should always be classified as a financial liability. 291

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2.3.1 Puttable financial instruments should be classified as equity when they meet specified criteria. 2.4 The issuer of a compound financial instrument should adopt split accounting and separately classify the liability and equity element (e.g., convertible bonds). 2.5 Contracts that will be settled with the entity’s own equity should be classified as equity, and all considerations received and paid should be accounted through equity. If an entity reacquires its own equity (treasury shares), those instruments should be deducted from equity. No gain or loss should be recognized. 2.6 Interest, dividends, losses, and gains may relate to financial liability or equity and would be reported in income statement as expense or income, or debited directly to equity respectively. 2.7 A financial asset and a financial liability should be offset only when a legally enforceable right to set off exists and there is an intention either to settle net or simultaneously. 2.8 Rights, options, and warrants denominated in foreign currency may be treated as equity instruments. 3.

DISCLOSURE REQUIREMENTS

The disclosure for this Standard is dealt with under IFRS 7, Financial Instruments: Disclosures.

Chapter 23 FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT (IAS 39)

1.

OBJECTIVE

1.1 The objective of this Standard is to establish principles for recognizing and measuring financial assets, financial liabilities, and some contracts to buy or sell nonfinancial items. The requirements for presentation and disclosure are covered by International Accounting Standard (IAS) 32, Financial Instruments: Presentation, and International Financial Reporting Standard (IFRS) 7, Financial Instruments: Disclosures, respectively. 1.2 This Standard does not apply to interest in subsidiaries (IAS 27, Consolidated and Separate Financial Statements), joint ventures (IAS 31, Interests in Joint Ventures), associates (IAS 28, Investments in Associates), employee benefit plans (IAS 19, Employee Benefits), share-based payments (IFRS 2, Share-Based Payment), insurance contracts (IFRS 4, Insurance Contracts) or contracts for contingent consideration in a business combination (IFRS 3, Business Combinations), own equity dealt with under IAS 32, or right to reimbursement covered under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. 1.3 The classification and measurement provisions of this Standard are being replaced by IFRS 9, Financial Instruments (see Appendix A) effective January 1, 2015, with earlier application permitted. In the next two phases of replacing IAS 39 with IFRS 9, issues involving impairment methodology and hedge accounting will be replaced. 2.

SYNOPSIS OF THE STANDARD

The provisions of this Standard, which deals with recognition and measurement of financial instruments, are summarized next. 2.1 A financial asset or a financial liability should be recognized in the statement of financial position of an entity only when the entity becomes a party to the contractual provisions of the instrument and not earlier.

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2.1.1 A financial liability (or a part of a financial liability) can be removed from the statement of financial position only when it is extinguished either by way of discharge of obligation specified in the contract or by way of cancellation or expiry of the contract. 2.1.2 A financial asset can be derecognized when the entity loses the right to cash flow from the asset, when the entity transfers substantially all risks and rewards associated with ownership, or when the entity loses control over the asset. 2.2 At the initial recognition, the financial asset or financial liability is measured at its fair value. In cases of financial asset or financial liability not recognized at fair value through profit or loss but are classified otherwise like loans and receivables, held to maturity, etc., transaction costs directly attributable to the acquisition or issue of the financial asset or financial liability are to be added to determine the fair value. 2.2.1 Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction. 2.3 All measurement of financial assets after initial recognition will depend on the next classification of financial assets. 2.3.1 Financial assets recognized at fair value through profit or loss should be measured at fair value with all movements being recognized in the profit and loss. 2.3.2 Held-to-maturity investments should be measured at amortized cost using the effective interest rate. 2.3.3 Loans and receivables should be measured at amortized cost using the effective interest rate. 2.3.4 Available-for-sale financial assets should be measured at fair value with all movements being recognized directly in the equity. 2.4 Cost shall continue to be the value in cases of equity instruments without a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives linked to and required to be settled by delivery of such unquoted equity instruments. 2.5 All financial liabilities after initial recognition should be measured at amortized cost using the effective interest method, except for • Financial liabilities at fair value through profit or loss that are measured at fair value and all movements recorded through profit and loss • Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies • Financial guarantee contracts that will be measured at the higher of the amount determined in accordance with IAS 37 and the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18, Revenue • Commitments to provide a loan at a below-market interest rate that will be measured at the higher of the amount determined in accordance with IAS 37 and the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18 2.6 In case of financial assets and financial liabilities carried at amortized cost, the gains or losses should be recognized in profit or loss when the financial asset or financial liability is derecognized or impaired. All financial assets except those measured at fair value through profit or loss should be tested for impairment at each reporting date. 2.7 Financial assets and liabilities that are designated as hedged items are to be measured under the hedge accounting requirements. Hedge accounting is permitted only when there is a designated hedging relationship. 2.8

Three types of hedge relationship are recognized.

Financial Instruments: Recognition and Measurement (IAS 39)

295

2.8.1 Fair value hedge: This hedge protects from exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability, or firm commitment, arising out exposure to a particular risk that could affect profit or loss. In a fair value hedge, • Gain or loss from remeasuring the hedging instrument at fair value shall be recognized in profit and loss. • Gain or loss on the hedged item attributable exclusively to the risk hedged against shall be used to adjust the carrying amount of the hedged item and be recognized in profit or loss. 2.8.2 Cash flow hedge: A cash flow hedge hedges exposure to variability in cash flows attributable to a specific risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss. A cash flow hedge is deemed effective if the movement in fair value of the hedged item and the hedge asset moves within a boundary of 80% to 125% of each other. Gain or loss on the effective portion of hedge shall be recognized directly in equity through the statement of changes in equity. The rest of the gains and losses on the ineffective portion of the hedge shall be recognized in profit or loss. 2.8.3 Hedge of a net investment in a foreign operation: This is defined under IAS 21, Effects of Changes in Foreign Exchange Rates, and is analogous to a cash flow hedge. The gain or loss of the hedging instrument that is determined as an effective hedge should be recognized in equity. The gain or loss of the ineffective portion of the hedging instrument should be recognized in profit and loss. On disposal of the foreign operation, the cumulative gain or loss of the hedging instrument so recognized in equity is transferred.

Chapter 24 FINANCIAL INSTRUMENTS: DISCLOSURES (IFRS 7)

1.

OBJECTIVE

1.1

This Standard deals with disclosures for financial instruments and their related risks.

1.2 It applies to all entities and for all risks arising from financial instruments excluding interest in subsidiaries, joint ventures, associates, employee benefit plans, share-based payments, insurance contracts, and contracts for contingent consideration in a business combination. 2.

SYNOPSIS OF THE STANDARD

2.1 This Standard mandates disclosures relating to financial instruments and their impact on the statement of financial position, statement of comprehensive income, equity, accounting policies, hedge accounting, and fair values of financial instruments, which are outlined in detail in this chapter. These disclosures enable users to evaluate significance of financial instruments for an entity’s financial position and performance. 2.2 This Standard also requires qualitative and quantitative disclosures with respect to the nature and extent of the risk exposures arising from financial instruments, and management’s objectives, policies, and processes for managing those risks. 3.

DISCLOSURE REQUIREMENTS The disclosures required to be made under this Standard are discussed next.

3.1

Statement of Financial Position

3.1.1 The carrying value of financial assets and liabilities, credit risk and related collateral issues, liabilities with embedded options, loans payable, and derecognition and reclassification issues should be disclosed. 3.1.2 Details of collaterals given or received related to items on the balance sheet should be disclosed; these include the assets pledged, carrying value and fair value, terms and conditions, and the fair value of collateral received.

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298

3.1.3 Reconciliation of changes during the period should be provided for all financial assets impaired per class of asset. 3.1.4 Embedded options in the balance sheet should be disclosed detailing the interdependencies for all financial liabilities with multiple embedded derivatives. 3.1.5 Where loans are in default or conditions have been breached, the carrying amount of such liabilities, details of the principal, interest, sinking fund or redemption terms, and any remedy of default or renegotiation of loan terms that had taken place prior to the issue of the financial statements should be disclosed. 3.2

Reclassification

3.2.1 Where financial assets are reclassified from at cost or amortized cost to fair value or vice versa, the entity should disclose the amount reclassified and reasons for the reclassification. 3.2.2 Where the entity has reclassified a financial asset out of the fair value through profit or loss category or out of the available-for-sale category, it should disclose a. The amount reclassified into and out of each category, b. Carrying amounts and fair values of all financial assets, and fair value gain or loss recognized in profit or loss or other comprehensive income for each reporting period after reclassification until derecognition; c. The fair value gain or loss that would have been recognized in profit or loss or other comprehensive income for each reporting period after reclassification until derecognition if the financial asset had not been reclassified, and gain, loss, income and expense recognized in profit or loss, and d. Effective interest rate and estimated amounts of cash flows the entity expects to recover, at date of reclassification. 3.3

Derecognition

3.3.1 For all transfers of assets not qualifying for derecognition, the nature of assets, risks/rewards still exposed and carrying amount of assets still recognized, and the original value and associated liabilities should be disclosed. The disclosure should enable users to understand • Associated liabilities related to transferred financial assets that are not derecognized in their entirety. • Nature of, and risks associated with, the entity’s continuing involvement in derecognized financial assets. 3.3.2 For derecognized financial assets where the entity retains a continuing involvement, these issues would be disclosed: • Carrying amount and fair value of assets and liabilities that represent the entity’s continuing involvement in the derecognized financial assets • Estimated amount of maximum exposure to loss from its continuing involvement, computation methodology, and assumptions made thereof • Undiscounted cash outflows, along with a maturity analysis, that would or may be required to repurchase derecognized financial assets or other amounts payable to transferee in respect of the transferred assets 3.3.3 For all continuing involvement, these issues should be disclosed: • Gain or loss recognized at the date of transfer of the assets. • Income and expenses recognized, both in the reporting period and cumulatively, from the entity’s continuing involvement. • If the total amount of proceeds from transfer activity is not evenly distributed, a disclosure should be made of when the greatest transfer activity took place, related amount recognized from the transfer activity, and total amount of proceeds from the transfer activity.

Financial Instruments: Disclosures (IFRS 7)

3.4

299

Statement of Comprehensive Income

3.4.1 The disclosures on face of the statement of comprehensive income or in the notes should include • Net gains and losses on trading financial assets and liabilities held at fair value through profit and loss and designated financial assets and liabilities held at fair value through profit and loss • Net gains and losses from all other financial assets not measured at fair value and financial liabilities measured at amortized cost • Net gains and losses related to available-for-sale financial assets recognized and amounts removed from equity • Interest income and interest expense using effective interest rate method • Fee income and expenses for assets and liabilities not fair valued through profit and loss • Interest income on impaired financial assets and amount of impairment loss on each class of financial asset. 3.5

Other Disclosures

3.5.1 Other disclosures include accounting policies and measurement bases used when preparing those financial statements, details of hedge accounting for all hedge types, and fair value information in a three-level hierarchy in respect of all classes of financial assets and financial liabilities. 3.6

Fair Value

3.6.1 Fair value should be disclosed for all classes of financial assets and financial liabilities including methods and valuation techniques used and the assumptions made. The entity shall disclose the fair value hierarchy used for fair value measurement and any transfers between Level 1 and Level 2. For measurements in Level 3, reconciliation from beginning to and ending balance, alternative assumptions that may be used that change fair value significantly, and the gains and losses included in statement of comprehensive income should be disclosed. The fair value hierarchy has three levels: • Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly • Level 3—inputs for the asset or liability that are not based on observable market data 3.6.2 Where fair value is not used, the carrying amounts and reasons for not using fair value should be disclosed. Carrying amount and profit and loss on derecognition of instruments whose fair value could not be measured reliably should also be disclosed. 3.7

Hedges

3.7.1 The types of hedges and risks related to hedging activities must be disclosed, detailing • A description of the financial instruments designated as hedging instrument • Fair value of financial instruments designated as hedging instruments • For cash flow hedges: • Period when cash flow would occur and the impact on the profit and loss expected • Description of forecast transactions where hedge accounting was previously used and is no longer expected to occur • Amount recognized in equity during the period • Amount removed from equity into profit and loss account • Amount removed from equity into initial cost/carrying amount of forecast hedged nonfinancial instrument • Ineffectiveness recognized in profit and loss

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• For fair value hedges: • Gains and losses on hedging instruments • Gains and losses on hedged item attributable to hedged risk • For hedges of net instruments in foreign operations, disclosure of the ineffectiveness recognized in the profit and loss accounts is required. 3.8

Qualitative Disclosures of the Nature and Extent of Risks

3.8.1 Qualitative disclosures of the nature and extent of risks arising from financial instruments should include exposure to risk and how risks arise; objectives, policies, and processes to manage risk; as well as any changes in risk management processes, methods used to measure risk, and any changes in risk measurement processes. 3.8.2 For each type of risk, the entity is required to disclose summary quantitative data about its exposure on reporting date and the concentration of risk. Areas of risk include credit risk, liquidity risk, market risk, and other risks. 3.9

Credit Risk

3.9.1 The Standard requires disclosure of the maximum exposure to credit risk for each class of financial asset and financial liability. Further, for each class of financial assets, these disclosures are required: • Description of any collateral held including the fair value of the collateral held • Information regarding credit quality of financial assets that are neither past due nor impaired • Carrying value of assets renegotiated • Age analysis of past due items that are not impaired • Analysis of impaired items—including any factors considered in determining the impairment as well as the fair value of collateral • Policies for disposal or usage of collateral 3.9.2 Credit risk is related to loans and receivables and to liabilities. For loans and receivables measured at fair value through profit and loss, these issues should be disclosed: Maximum exposure to credit risk Mitigation by using credit derivatives Change in fair value attributable to credit risk Change in the fair value of credit derivatives for the current period and cumulatively since loan was designated at fair value • Methods and assumptions used for computing the credit risk disclosure • • • •

3.9.3 For liabilities at fair value, these issues should be disclosed: • Changes in fair value attributable to credit risk • Methods and assumptions used to achieve this specific credit risk disclosure • Difference between the current carrying amount and the required contractual payment when the liability matures 3.10

Liquidity Risk

3.10.1 The Standard mandates the next disclosures for quantitative disclosures for liquidity risk: • An analysis of remaining contractual maturities for derivative and nonderivative financial liabilities • A description of the management of inherent liquidity risk

Financial Instruments: Disclosures (IFRS 7)

3.11

301

Market Risk

3.11.1 For each type of market risk arising from financial assets and financial liabilities, these quantitative disclosures are required: • Sensitivity analysis, including the impact on income and equity. Value-at-risk (VAR) may be used, as long as objectives and key parameters are disclosed. • Methods and assumptions used for sensitivity analysis should be disclosed, including changes from the previous period. • If data provided are not representative of risk during the period, that fact should be disclosed along with reasons why that is true. 4.

IFRIC 9, REASSESSMENT OF EMBEDDED DERIVATIVES

4.1 International Financial Reporting Interpretations Committee (IFRIC) states that when an entity first becomes a party to a hybrid contract, it must assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. This Interpretation excludes contracts with embedded derivatives acquired in a combination between entities under common control or in the formation of a joint venture. On reclassification of a financial asset out of the fair value through profit or loss category, all embedded derivatives have to be assessed and, if necessary, separately accounted for in financial statements. 5.

IFRIC 16, HEDGES OF A NET INVESTMENT IN A FOREIGN OPERATION

5.1 This Interpretation clarifies that the presentation currency does not create an exposure to which an entity may apply hedge accounting. Therefore, a parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation. The Interpretation further clarifies that the hedging instrument(s) may be held by any entity or entities within the group. It also states that although IAS 39 must be applied to determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, the provisions of IAS 21, The Effects of Changes in Foreign Exchange Rates, must be applied in respect of the hedged item. 6. IFRIC 19, EXTINGUISHING FINANCIAL LIABILITIES WITH EQUITY INSTRUMENTS 6.1 This Interpretation deals with the accounting treatment to be adopted by entities that issue equity instruments in order to settle, in full or in part, a financial liability. In case a debtor issues equity instruments to a creditor to extinguish all or part of a financial liability, the debtor should derecognize the financial liability fully or partly. For this purpose, the debtor should measure the equity instruments issued to the creditor at fair value, unless fair value is not reliably determinable, in which case the equity instruments issued should be measured at the fair value of the liability extinguished. If only part of a liability is extinguished, the debtor must determine whether any part of the consideration paid relates to modification of the terms of the remaining liability. If it does, the debtor must allocate the fair value of the consideration paid between the liability extinguished and the liability retained. 6.2 The difference between the carrying amount of the financial liability (or part) extinguished and the measurement of the equity instruments issued should be recognized in profit or loss.

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EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 Notes to the consolidated financial statements for the year ended 31 March 2011 26. Financial Assets and Liabilities The carrying amounts of financial assets and liabilities were: 2011 £million Current borrowings Bank overdrafts Bank loans – other Loan notes Finance lease liabilities Non-current borrowings Bank loans – senior facilities Bank loans – subordinated facility Bank loans – other Other loans Finance lease liabilities Total borrowings Cash and cash equivalents Total borrowings net of cash and cash equivalents Restricted cash Derivative financial instruments – interest rate and credit instrument assets Derivative financial instruments – currency and interest rate instrument liabilities Net borrowings Available-for-sale investments Loans to customers and extended terms Profit participating notes Loan assets Trade receivables net of provision for impairment Trade payables Liability to acquire equity stakes from non controlling interests Future dividend obligations to non controlling interests Net financial liabilities

2010 £million

(35) (127) (105) (7) (274)

(271) (109) (166) (10) (556)

(7,472) (606) (173) (9) (14) (8,274) (8,548) 629 (7,919) 285 36

(7,550) (583) (90) (75) (24) (8,322) (8,878) 343 (8,878) 349 11

(245) (7,843) 67 69 163 51 3,092 (3,410) (283) (95) (8,189)

(214) (8,389) 80 89 37 2 2,244 (2,478) -(68) (8,483)

The Group’s principal net borrowings arose from the following sources: •

•

• •

Variable rate committed bank term loans – senior and subordinated facilities. These loans, which are denominated in Sterling, Euros and Swiss Francs, are fully drawn and their aggregate carrying value at 31 March 2011 was £8,078 million (2010: £8,133 million) including the impact of currency revaluation and reported net of unamortised fees incurred in respect of the loans. These loans mature between 2014 and 2017. £105 million (2010: £166 million) of loan notes classified within current borrowings, which can be redeemed by the holders giving notice prior to the semi-annual interest payment dates. If no such notice is given the notes will fall due on their contractual maturity dates which are up to 2014. The Group holds a floating rate interest bearing deposit of £105 million (2010: £165 million) shown within restricted cash (note 22) as collateral against loan notes with the same principal amount. This deposit is only available to the Group for the purpose of redeeming the associated loan notes. £300 million (2010: £199 million) of other bank loans represent a mix of fixed and variable rate borrowings mostly denominated in Euros and Russian Roubles. These loans mature between 2011 and 2019. Bank overdrafts which are repayable on demand.

Financial Instruments: Disclosures (IFRS 7)

303

Maturity Profile of Financial Liabilities The table below shows the contractual maturities of financial liabilities on an undiscounted basis. Interest payments are calculated based on liabilities held at 31 March 2011 without taking account of any future debt issuance. Floating rate interest was estimated using prevailing interest conditions at 31 March 2011. Cash flows in non-Sterling currencies were translated using prevailing exchange rates at 31 March 2011. All floating rate borrowings re-price within six months of the year end.

2011 Fixed Other loans Bank loans – other Finance lease liabilities Floating Bank overdrafts Bank loans – senior facilities Bank loans – subordinated facility Bank loans – other Loan notes Total borrowings Trade payables Liabilities to acquire equity stakes from non controlling interests Total non-derivative financial liabilities Interest rate derivatives: – outflows – inflows

Aggregate Carrying contractual value cash flows £million £million

1-2 years £million

2-5 years £million

>5 years £million

(9) (268) (21)

(11) (292) (39)

(1) (112) (8)

(1) (131) (6)

(9) (35) (6)

-(14) (19)

(35) (7,472) (606) (32) (105) (8,548) (3,410)

(35) (9,259) (1,002) (32) (105) (10,775) (3,410)

(35) (342) (27) (32) (105) (662) (3,410)

-(379) (31) --(548) --

-(7,544) (117) --(7,711) --

-(994) (927) --(1,854) --

(283)

(336)

(136)

(12,241)

(14,521)

(4,208)

(548)

(49)

(78) 17 (61)

(39) 7 (32)

(39) 10 (29)

----

----

(196)

(876) 668 (208)

(315) 247 (68)

(561) 421 (140)

----

----

(245) (12,486)

(269) (14,790)

(100) (4,308)

(169) (717)

Currency swaps: – outflows – inflows Total derivative financial liabilities Total financial liabilities

1 year or less £million

--

(200) (7,911)

-(7,911)

-(1,854)

-(1,854)

In addition to the contractual maturities of financial liabilities presented above, the Group has an ongoing future dividend obligation in relation to the non controlling interest arising on the acquisitions of Hedef Alliance Holding A.S. in the current year and Dollond & Aitchison in the prior year. The contractual undiscounted cash flows are £16 million (2010: £2 million) within one year, £13 million (2010: £4 million) between 1 and 2 years and £27 million (2010: £14 million) between 2 and 5 years.

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2010 Fixed: Other loans Finance lease liabilities Floating: Bank overdrafts Bank loans – senior facilities Bank loans – subordinated facility Bank loans – other Loan notes Total borrowings Trade payables Total non-derivative financial liabilities Interest rate derivatives: – outflows – inflows

Aggregate Carrying contractual value cash flows £million £million

1 year or less £million

1-2 years £million

2-5 years £million

>5 years £million

(75) (34)

(99) (50)

(6) (10)

(6) (9)

(87) (12)

-(19)

(271) (7,550) (583) (199) (9,166) (8,878) (2,478)

(271) (10,033) (1,089) (215) (166) (11,923) (2,478)

(271) (335) (27) (110) (166) (925) (2,478)

-(363) 929) (6) -(413) --

-(2,631) (135) (57) -(2,922) --

-(6,704) (898) (42) -(7,663) --

(11,356)

(14,401)

(3,403)

(413)

(2,922)

(7,663)

(38)

(103) 33 (70)

(39) 6 (33)

(39) 8 (31)

(25) 19 (6)

(9,176) Total derivative financial liabilities (214) Total financial liabilities (11,570)

(1,074) 897 (177) (247) (14,648)

(34) 36 2 (31) (3,434)

(368) 307 (61) (92) (505)

(672) 554 (118) (124) (3,046)

Currency swaps: – outflows – inflows

-------(7,663)

Currency Profile The financial assets and liabilities by currency, before the effects of currency hedging, were:

2011 Bank overdrafts Bank loans – senior facilities Bank loans – subordinated facility Bank loans – other Other loans Loan notes Finance lease liabilities Total borrowings Cash and cash equivalents Restricted cash Derivative financial instruments – interest rate and credit instrument assets Derivative financial instruments – currency and interest rate instrument liabilities Available-for-sale investments Loans to customers and extended terms Profit participating notes Loan assets Trade receivables net of provision for impairment Trade payables Liabilities to acquire equity stakes from non controlling interests Future dividend obligations to non controlling interests Net financial liabilities

Total £million (35) (7,472) (606) (300) (9) (105) (21) (8,548) 629 285

Sterling £million -(5,217) (606) -(9) (105) (20) (5,957) 162 197

Euros £million (27) (1,985) -(232) --(1) (2,245) 310 85

Swiss Francs £million -(270) -----(270) ---

Turkish Lira £million ---(3) ---(3) 71 --

Other £million (8) --(65) ---(73) 86 3

36

20

16

--

--

--

(245) 67

(241) 15

(4) 52

---

---

---

69 163 51

-129 24

64 6 2

-28 --

--23

5 -2

---

570 (487)

342 (591)

--

(234)

(49)

-(242)

(28) (88)

-(275)

3,092 (3,410) (283) (95) (8,189)

1,080 (1,273) -(67) (5,911)

1,100 (1,059) --(1,673)

Financial Instruments: Disclosures (IFRS 7)

2010 Bank overdrafts Bank loans – senior facilities Bank loans – subordinated facility Bank loans – other Other loans Loan notes Finance lease liabilities Total borrowings Cash and cash equivalents Restricted cash Derivative financial instruments – currency rate and credit instrument assets Derivative financial instruments – currency and interest rate instrument liabilities Available-for-sale investments Other loans and profit participating note Loans to customers and extended terms Trade receivables net of provision for impairment Trade payables Future dividend obligations to non controlling interests Net financial liabilities

305

Swiss Francs £million -(249) -----(249) ---

Other £million (7) --(44) ---(51) 109 3

--

--

--

(223) 17 39 --

9 63 -84

-----

---5

2,244 (2,478)

878 (967)

1,158 (1,117)

---

(68) (8,483)

(68) (6,241)

-(1,873)

Total £million (271) (5,550) (583) (199) (75) (166) (34) (8,878) 343 349

Sterling £million (123) (5,258) (583) -(75) (166) (29) (6,234) 50 256

11

11

(214) 80 39 89

Euros £million (141) (2,043) -(155) --(5) (2,344) 184 90

-(249)

208 (394) -(120)

Finance Lease Liabilities

Less than one year Between one year and five years More than five years

2011

2010

Present value Minimum of minimum lease lease payments Interest payments £million £million £million 8 (1) 7 12 (3) 9 19 (14) 5 39 (18) 21

Present value Minimum of minimum lease lease payments Interest payments £million £million £million 10 -10 21 (3) 18 19 (13) 6 50 (16) 34

Under the terms of the finance lease agreements entered into by the Group, no material contingent rents are payable. Carrying Value and Fair Value Carrying values and fair values of the Group’s financial assets and liabilities held to finance the Group’s operations were:

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2011 Carrying Fair value value £million £million Liabilities held at amortised cost Bank overdrafts Bank loans – senior facilities Bank loans – subordinated facility Bank loans – other Other loans Loan notes Finance lease liabilities Liabilities to acquire equity stakes from non controlling interests Future dividend obligations to non controlling interests Trade payables Liabilities held at fair value Derivative instruments – interest rate Derivative instruments – currency Loans and receivables financial assets Trade receivables net of provision for impairment Loans to customers and extended terms Loan assets Profit participating notes Financial assets held at fair value Derivative instruments – currency Derivative instruments – interest and credit Available-for-sale investments Cash and cash equivalents Restricted cash Net financial liabilities

2010 Carrying value £million

Fair value £million

(271) (7,550) (583) (199) (75) (166) (34)

(271) (7,669) (598) (199) (75) (166) (46)

(35) (7,472) (606) (300) (9) (105) (21)

(35) (7,566) (620) (300) (9) (105) (34)

(283)

(283)

(95) (3,410) (12,336)

(95) (3,410) (12,457)

(68) (2,478) (11,424)

(68) (2,478) (11,570)

(49) (196) (245)

(49) (196) (245)

(38) (176) (214)

(38) (176) (214)

3,092 69 51 163 3,375

3,092 69 51 163 3,375

2,244 89 2 37 2,372

2,244 89 2 37 2,372

-36 67 103 629 285 (8,189)

-36 67 103 629 285 (8,310)

1 10 80 91 343 349 (8,483)

1 10 80 91 343 349 (8,629)

--

--

The fair values of bank overdrafts, bank loans - other, trade receivables and loans to customers approximate to their carrying values due to either their short term nature or being re-priced at variable interest rates. The carrying values of the senior facilities and subordinated facility bank loans, which are variable rate, were lower than the fair values of the instruments due mainly to the impact of unamortised fees included in the carrying value. The carrying values of financial assets and liabilities held at fair value, as analysed by the levels of the fair value hierarchy, were: 2011 Financial liabilities Forward currency exchange derivatives Interest rate derivatives Cross currency swap derivatives Financial assets Derivative instruments – interest and credit Available-for-sale investments

Level 1 £million

Level 2 £million

Total £million

-----

(2) (49) (194) (245)

(92) (49) (194) (245)

-67 67

36 -36

36 67 103

Financial Instruments: Disclosures (IFRS 7)

2010 Financial liabilities Interest rate derivatives Cross currency swap derivatives Financial assets Forward currency exchange derivatives Derivative instruments – credit Available-for-sale investments

307

Level 1 £million

Level 2 £million

Total £million

----

(38) (176) (214)

(38) (176) (214)

--80 80

1 10 -11

1 10 80 91

The levels of the fair value hierarchy reflect the significance of the valuation inputs used in making fair value measurements and are defined as follows: Level 1: Quoted prices in active markets for the same instrument. Level 2: Quoted prices in active markets for similar assets or liabilities or other valuation techniques for which all significant inputs are based on observable market data. Level 3: Valuation techniques for which any significant input is not based on observable market data. Derivative Financial Instruments The derivative financial instruments that the Group holds are not traded in an active market. Accordingly, their fair values are determined by using suitable valuation techniques that do not make use of entity-specific estimates or by using movements in observable prices for underlying financial instruments attributable to the hedged risks. The fair value of interest rate swaps is calculated by discounting the estimated cash flows received and paid based on the applicable observable yield curves using the risk-free interest rate. The fair value of interest rate caps is calculated using an options pricing methodology. The fair value of cross currency contracts and forward currency contracts is estimated by discounting the difference between the contractual forward price and the current available forward price for the residual maturity of the contract using the risk-free interest rate. The fair value of credit derivatives is calculated by discounting anticipated cash flows using the applicable observable yield curve plus a margin derived from the current trading value of the underlying security. All computed fair values for derivative financial instruments include an appropriate adjustment for own and counterparty credit risk as appropriate. Available-for-Sale Investments The fair values of quoted investments are based on current bid prices. 27 Financial Risk Management Capital Risk Management The Group’s objectives in managing its capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure that reduces the cost of capital. The Group defines its capital employed of £12,967 million (2010: £12,729 million) as total equity of £5,124 million (2010: £4,340 million) and net borrowings of £7,843 million (2010: £8,389 million). The ability of certain Group companies to pay dividends, for ultimate distribution to shareholders, is restricted by the terms of the financing agreements to which they are party. Financial Risk Management—Overview The Group’s trading and financing activities expose it to various financial risks that could adversely impact on future earnings and cash flows. Although not necessarily mutually exclusive, these financial risks are categorised separately according to their different generic risk characteristics and include market risk (foreign currency risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group is actively engaged in the management of all of these financial risks in order to moderate their potential adverse impact on the Group’s financial performance and position. Liquidity Risk Management Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Access to cost-effective funding is managed by maintaining a range of committed and uncommitted facilities, sufficient to meet anticipated needs, arranging funding ahead of requirements, and developing diversified sources of funding.

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Group liquidity is optimised through cash pooling and deposits with, or loans from, Group treasury companies. The Group’s core borrowings are provided through committed term loans. The carrying value of these loans, which are denominated in Sterling, Euros and Swiss Francs, at 31 March 2011 was £8,078 million (2010: £8,133 million) including the impact of repurchases, currency revaluation and reported net of unamortised fees incurred in respect of the loans. These loans mature between 2014 and 2017. The Group also has access to a committed £702 million (2010: £820 million) revolving credit facility, £nil (2010: £14 million) of which was drawn down at 31 March 2011, £176 million (2010: £184 million) of which was utilised in providing guarantees and letters of credit principally to the Boots Pension Scheme and £526 million (2010: £622 million) of which was available as at 31 March 2011. This facility provides access to funding in a range of currencies and is available until 2014. The Group’s net borrowings vary throughout the year in a predictable seasonal pattern subject to material acquisitions and disposals. In particular, net borrowings peak in the period between September and October due to the working capital requirements of Christmas trading. The Group monitors its net borrowing position on a daily basis against both budget and a rolling two month cash forecast. The maturity profile of the Group’s financial liabilities at 31 March 2011 is shown in note 26. Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, derivative financial instruments, cash balances, restricted cash, short term deposits and profit participating notes. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, at the year end. Credit risk exposure to commercial counterparties is managed through credit control functions in each of the businesses. New customers are credit checked, customer limits are reviewed at least annually and aged receivable reviews are undertaken regularly. The Group considers the possibility of significant loss in the event of non-performance by a financial or commercial counterparty to be unlikely. At 31 March 2011 there were no significant concentrations of credit risk in respect of trade receivables and customer loans. The largest credit exposure of the Group at 31 March 2011 was to the National Health Service in the UK. The maximum exposure to credit risk for trade receivables, including loans to customers and extended terms, net of provision for impairment, other loans and the profit participating notes at 31 March 2011 by geographic region was:

UK Other European countries Other countries

2011 £million 908 1,757 710 3,375

2010 £million 914 1,453 5 2,372

Exposures to other financial counterparties arise from other non trade receivables, the use of derivative financial instruments, cash balances and short term deposits. The Group protects itself against the risk of financial loss arising from the failure of financial counterparties by setting ratings based limits to the maximum exposure to individual counterparties or their groups. Limits are set by reference to ratings issued by the major rating agencies, Standard and Poor’s and Moody’s Investors Service Limited. At 31 March 2011 total exposures of the Group to other financial counterparties was £1,164 million (2010: £779 million) of which £36 million (2010: £48 million) related to derivative financial instruments, £629 million (2010: £343 million) was in respect of cash and cash equivalents, £285 million (2010: £349 million) was in respect of restricted cash and £214 million (2010: £39 million) was in respect of profit participating notes and other loans. £564 million (2010: £439 million) of derivative financial assets, cash and cash equivalents and restricted cash relate to balances managed centrally by Group treasury spread across a number of high quality counterparties, all of whom have a credit rating of A or better. The remaining £386 million (2010: £301 million) of cash and cash equivalents represents short-

Financial Instruments: Disclosures (IFRS 7)

309

term deposits, restricted cash, cash-in-transit and cash held in operational bank accounts across the Group. The profit participating notes are issued by, and other loans are invested in, or lent to, unrated entities. Market Risk Market risk is the risk that changes in market prices, such as currency exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage market risks within acceptable parameters. The Group transacts in financial instruments including derivatives in order to manage these risks in accordance with the Group treasury policies approved by the Board. Currency Risk The Group is party to a variety of currency derivatives in the management of exchange rate exposures, including cross currency swaps and forward currency exchange contracts. Movements in the fair value of all forward currency exchange contracts other than those that are designated and effective as cash flow hedges or net investment hedges are reported directly in the income statement. Currency Transaction Risk The Group utilises forward currency exchange derivatives to hedge significant committed and highly probable future transactions and cash flows denominated in currencies other than the functional currency of a Group entity. At 31 March 2011, the Group had no outstanding forward currency exchange contracts (2010: £nil) that were designated and effective as cash flow hedges of committed forecast transactions. A loss of £1 million was recycled from the cash flow hedge reserve to cost of sales in respect of contracts designated as cash flow hedges of the attributable currency risk on highly probable forecast transactions (2010: loss of £4 million). During the year there were no gains or losses recycled from the cash flow hedge reserve to non-current non-financial assets in respect of contracts designated as cash flow hedges of the attributable currency risk on capital expenditure projects (2010: gain of £1 million). The Group has significant non-Sterling denominated currency net investments denominated in Euros and Swiss Francs and in addition uses derivative financial instruments, specifically cross currency swaps, forward currency exchange contracts and non-Sterling currency borrowings to hedge the non-Sterling currency risk. The Group has a number of cross currency swap contracts in place. At 31 March 2011, the fair value of the Group’s cross currency swaps was a liability of £194 million (2010: £176 million). £46 million (2010: £37 million) of the liability related to cross currency swaps designated as net investment hedges of non-Sterling denominated currency net investments and the associated movements in fair value have been deferred in equity. The remaining liability of £148 million (2010: £139 million) related to cross currency swaps designated as held for trading. The currency exchange risk associated with these swaps was hedged through the use of short dated forward currency exchange contracts designated as held for trading. The effect of currency swaps and forward currency exchange contracts to manage translation risk on net borrowings was

Sterling Euro Swiss Franc Other Total net borrowings

2011 Before hedging £million (5,819) (1,838) (270) 84 (7,843)

2011 After hedging £million (5,921) (1,828) (363) 269 (7,843)

2010 Before hedging £million (6,140) (2,061) (249) 61 (8,389)

2010 After hedging £million (5,945) (2,063) (348) (33) (8,389)

At 31 March 2011 the total notional amount of outstanding forward currency exchange contracts that the Group has committed was £487 million (2010: £312 million). At 31 March 2011 the statement of financial position carrying value of the Group’s outstanding forward currency exchange contracts was a £2 million liability (2010: £1 million asset).

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Currency Risk—Sensitivity Analysis The table below shows the Group’s sensitivity to non-Sterling exchange rates on its non-Sterling financial instruments, excluding trade payables and trade receivables, which do not represent a significant exposure to exchange rates. A 10% (2010: 10%) strengthening of Sterling against the following currencies would have increased/(decreased) equity and profit by the amounts shown below. This analysis assumes that all other variables, including interest rates, remain constant and that instruments designated as net investment hedges remain highly effective. In this table financial instruments are only considered sensitive for exchange rates where they are not in the functional currency of the entity that holds them.

Euro Swiss Franc Turkish Lira Other

2011 Impact on equity £million 71 35 -2

2011 Impact on profit £million (1) -(11) --

2010 Impact on equity £million 76 35 -2

2010 Impact on profit £million (1) --1

A 10% (2010: 10%) weakening of Sterling against these currencies at 31 March 2011 would have had the equal and opposite effect to that shown above on the basis that all other variables remain constant. The movements in equity relate to non-Sterling borrowings and cross currency swaps used to hedge Group assets denominated in those currencies. An appreciation in the value of the borrowing or cross currency swap would be matched by a corresponding depreciation in the value of the related Group asset, which would also be recorded in equity. Exchange rate sensitivities on Group assets other than financial instruments have not been shown in the table above. Cash Flow Interest Rate Risk The Board’s policy is to protect its ability to service its debt obligations by ensuring that floating rate interest payments on not less than 50% of the principal outstanding under the facilities raised to finance the acquisition of Alliance Boots plc are hedged. Exposures are hedged through a combination of interest rate caps and interest rate swaps. The Group has a mixture of fixed and floating rate borrowings. Before the impact of derivative financial instruments, £298 million or 3.5% (2010: £109 million or 1.2%) of total borrowings were at fixed interest rates. The re-pricing risk of the fixed borrowings coincides with their maturity. The floating rate borrowings re-price within 6 months of the reporting date, based on short term borrowing rates for the relevant currency. The Group has interest rate swaps with notional principal amounts of £500 million (2010: £500 million) and €10 million (2010: €12 million) to swap outstanding borrowings from floating to fixed rates. The Group has interest rate caps with notional principal amounts of £3,500 million (2010: £3,500 million) and €1,623 million (2010: €1,623 million) to protect the Group from rising interest rates on the corresponding amounts of borrowings until July 2012. The Group also has interest rate caps effective between July 2012 and July 2015 with notional principal amounts of £1,500 million and €2,000 million respectively. After taking into account the impact of derivative financial instruments, £5,610 million or 66% (2010: £5,443 million or 61%) of the Group’s total borrowings were at fixed or capped interest rates. All other borrowings re-price within six months of the year end. At 31 March 2011, £5,410 million or 66% (2010: £5,438 million or 66%) of the principal outstanding under the facilities raised to finance the acquisition of Alliance Boots plc was hedged. The impact of a 1% increase and a 1% decrease in interest rates on 31 March 2011 on pre tax profit are shown in the table below. This analysis assumes that all other variables are held constant. On this basis there would have been no significant amounts recognised directly in equity.

Financial Instruments: Disclosures (IFRS 7)

Gain/(loss) – derivative financial instruments Gain/(loss) – variable rate financial instruments

311

2011 1% increase in interest rates £million 44 (76)

2011 1% decrease in interest rates £million (28) 76

2010 1% increase in interest rates £million 63 (84)

2010 1% decrease in interest rates £million (40) 84

Equity Price Risk The Group is exposed to equity price risk through its long term holdings of listed and unlisted securities, which are classified as available-for-sale investments and held at fair value. The associated measurement volatility on these investments is recorded directly in equity, unless an equity instrument has suffered a significant and prolonged decline, in which case an impairment loss is recorded in profit or loss. Equity Price Risk—Sensitivity Analysis The potential impact on the Group’s equity resulting from the application of +/-5% movement in the fair value of its available-for-sale investments would have been a gain/(loss) recorded in the available-forsale reserve of £3 million (2010: £4 million). 28 Analysis of Movement in Net Borrowings Set out below is a reconciliation of the net increase in cash and cash equivalents to the increase in net borrowings at 31 March 2011:

Net increase/(decrease) in cash and cash equivalents Net (decrease)/increase in restricted cash Cash and cash equivalents outflow from decrease in debt and debt financing Movement in net borrowings resulting from cash flows Discounts on repurchase of acquisition borrowings Borrowings acquired with businesses Borrowings derecognised on disposal of businesses Finance leases entered into Amortisation of prepaid financing fees Capitalised finance costs Currency translation differences and fair value adjustments on financial instruments Movement in net borrowings in the year Net borrowings at 1 April Net borrowings at 31 March

2011 £million 529 (63) 426 892 4 (419) 100 -(26) (21)

2010 £million (144) 5 644 505 128 (1) -(6) (30) (19)

16 546 (8,389) (7,843)

68 645 (9,034) (8,389)

Cash and cash equivalents outflow from decrease in debt and debt financing comprised of proceeds from borrowings of £23 million (2010: £39 million), less repayment of borrowings, repurchase of acquisition borrowings and settlement of derivatives of £439 million (2010: £666 million) and repayment of capital element of finance lease obligations of £10 million (2010: £17 million). Set out below is an analysis of the movement in net borrowings during the year:

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2011 At 1 April 2010 Net increase in cash and cash equivalents Net decrease in restricted cash Cash and cash equivalents outflow from decrease in debt and debt financing Discounts on repurchase of acquisition borrowings Borrowings acquired with businesses Borrowings derecognised on disposal of businesses Amortisation of prepaid financing fees Capitalised finance costs Non-cash movements Currency translation differences and fair value adjustments on financial instruments At 31 March 2011

2010 At 1 April 2009 Net decrease in cash and cash equivalents Net increase in restricted cash Cash and cash equivalents outflow from decrease in debt and debt financing Discounts on repurchase of acquisition borrowings Borrowings acquired with businesses Finance leases entered into Amortisation of prepaid financing fees Capitalised finance costs Non-cash movements Currency translation differences and fair value adjustments on financial instruments At 31 March 2010

Cash and cash equivalents £million 343 294 --

Restricted cash £million 349

Borrowings Borrowings within within non- Derivative current current financial Net liabilities liabilities instruments borrowings £million £million £million £million (556) (8,322) (203) (8,389)

-(63)

235 --

---

---

529 (63)

--

--

211

219

(4)

426

--

--

--

4

--

4

--

--

(222)

(197)

--

(419)

--

--

57

43

--

100

----

----

--(7)

(26) (21) 7

----

(26) (21) --

(8) 629

(1) 285

8 (274)

19 (8,274)

(2) (209)

16 (7,843)

Cash and cash Restricted equivalents cash £million £million 473 343 (125) --

Borrowings within current liabilities £million (930)

-5

(19) --

--

--

--

Borrowings within non- Derivative current financial Net liabilities instrumen borrowings £million ts £million £million (8,674) (246) (9,034) ---

---

(144) 5

396

199

49

644

--

--

128

--

128

---

---

(1) (2)

-(4)

---

(1) (6)

----

----

--(9)

(30) (19) 9

----

(30) (19) --

1 349

9 (556)

69 (8,322)

(6) (203)

68 (8,389)

(5) 343

In the Group statement of cash flows, cash and cash equivalents included bank overdrafts classified as borrowings within current liabilities in the statement of financial position, which amounted to £35 million (2010: £271 million).

Financial Instruments: Disclosures (IFRS 7)

313

Anglo American plc Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 23 Financial Assets The carrying amounts and fair value of financial assets are as follows: 2010 Estimated Carrying fair value value

US$ million At fair value through profit and loss (1) Trade and other receivables (2) Other financial assets (derivatives) Loans and receivables Cash and cash equivalents Trade and other receivables(1) Financial asset investments Available for sale investments Financial asset investments Total financial assets (1) (2)

2009 Estimated fair value

Carrying value

777 842

777 842

838 603

838 603

6,401 3,106 1,871

6,401 3,106 1,920

3,269 2,512 1,566

3,269 2,512 1,595

1,300 14,297

1,300 14,346

1,131 9,919

1,131 9,948

Trade and other receivables exclude prepayments and accrued income. Derivative instruments are analysed between those which are ‘Held for trading’ and those designated into hedge relationships in note 25.

The fair values of financial assets represent the market value of quoted investments and other traded instruments. For non-listed investments and other non-traded financial assets, fair value is calculated with discounted cash flows using market assumptions, unless carrying value is considered to approximate fair value. Fair Value Hierarchy An analysis of financial assets carried at fair value is set out below: (1)

At fair value through profit and loss Trade and other receivables Other financial assets (derivatives) Available for sale investments Financial asset investments (1)

(2)

(3)

2010 (3) Level 3

(2)

(1)

Level 1

–

777

–

838

–

838

801

41

842

3

569

31

603

22 1,600

55 96

1,300 2,919

1,072 1,075

19 1,426

40 71

1,131 2,572

Level 2

–

777

–

1,223 1,223

Level 2

2009 (2) (3) Level 3

Total

Level 1

Total

Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes listed equity shares, and certain exchange-traded derivatives. Valued using techniques based significantly on observable market data. Instruments in this category are valued using valuation techniques where all of the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data. Instruments in this category have been valued using a valuation technique where at least one input (which could have a significant effect on the instrument’s valuation) is not based on observable market data. Where inputs can be observed from market data without undue cost and effort, the observed input is used. Otherwise, management determines a reasonable estimate for the input. Financial assets included within level 3 primarily consist of embedded derivatives and financial asset investments where valuation depends upon unobservable inputs.

There have been no significant transfers between level 1 and level 2 in the year ended 31 December 2010. The movements in the fair value of the level 3 financial assets are shown in the following table:

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US$ million At 1 January Net loss recorded in remeasurements Net gain recorded in statement of comprehensive income Additions Transfer to assets held for sale Reclassification from/to level 3 Other financial liabilities (derivatives) Currency movements At 31 December

2009 137 (111) 1 – – 35 9 71

2010 71 (6) 10 3 (26) 41 3 96

For the level 3 financial assets, changing certain inputs to reasonably possible alternative assumptions may change the fair value significantly. Where significant, the effect of a change in these assumptions to a reasonably possible alternative assumption is outlined in the table below. These sensitivities have been calculated by amending the fair value of the level 3 financial assets at 31 December for a change in each individual assumption, as outlined below, whilst keeping all other assumptions consistent with those used to calculate the fair value recognised in the financial statements.

US$ million Other financial assets (derivatives Financial asset investments

(1)

Change in assumption Increase of 5% in dividend forecast Decrease of 5% in dividend forecast (1) Shift of TJLP curve Decrease of 10% in liquidity discount percentage Increase of 10% in liquidity discount percentage

2010 Increase/ (decrease) in fair value of assets 11 (11) 38

2009 Increase/ (decrease) in fair value of assets – – –

14

11

14)

(11)

Brazilian domestic long term interest rate curve.

24 Financial Liabilities

US$ million At fair value through profit and loss (1) Trade and other payables (2) Other financial liabilities (derivatives) Designated into fair value hedge Borrowings Financial liabilities at amortised cost (1) Trade and other payables (3) Borrowings Total financial liabilities (1)

(2)

(3)

2010 Estimated Carrying fair value value

2009 Estimated fair value

Carrying value

434 835

434 835

315 659

315 659

8,815

8,192

7,793

7,168

4,404 7,216 21,704

4,404 5,247 19,112

4,297 8,744 21,808

4,297 7,147 19,586

Trade and other payables exclude tax and social security and current and non-current deferred income and include other noncurrent payables. Derivative instruments are analysed between those which are ‘Held for trading’ and those designated into hedge relationships in note 25. Fair value of the convertible bond represents the quoted price of the debt and therefore includes the portion accounted for in equity.

The fair value of financial liabilities is determined by reference to its quoted market price, otherwise the carrying value approximates fair value.

Financial Instruments: Disclosures (IFRS 7)

315

Fair Value Hierarchy An analysis of financial liabilities carried at fair value is set out below: Level 1 At fair value through profit and loss Trade and other payables Other financial liabilities (derivatives) (1)

(2)

(3)

(1)

2010 (2) Level 2 Level 3 (3) Total

Level 1

(1)

2009 (2) (3) Level 2 Level 3 Total

–

434

–

434

–

315

–

315

– –

775 1,209

60 60

835 1,269

3 3

543 86\58

113 113

659 974

Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes exchangetraded derivatives. Valued using techniques based significantly on observable market data. Instruments in this category are valued using valuation techniques where all of the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data. Instruments in this category have been valued using a valuation technique where at least one input (which could have a significant effect on the instrument’s valuation) is not based on observable market data. Where inputs can be observed from market data without undue cost and effort, the observed input is used. Otherwise, management determines a reasonable estimate for the input. Financial instruments included within level 3 primarily consist of embedded derivatives where valuation depends upon unobservable inputs and commodity sales contracts which do not meet the conditions for the ‘own use’ exemption under IAS 39.

There have been no significant transfers between level 1 and level 2 in the year ended 31 December 2010. The movements in the fair value of the level 3 financial liabilities are shown in the following table: US$ million At 1 January Net gain recorded in remeasurements Net loss recorded in underlying earnings Reduction in assumed life of financial liability Reclassification to/from level 3 Other financial assets (derivatives) Currency movements At 31 December (1)

2010 113 (121) – – 41 27 60

2009 269 (21) 6 (1) (181) 35 5 113

Relates to reduction of embedded derivative liability at Loma de Níquel which was recorded in operating special items.

For the level 3 financial liabilities, changing certain inputs to reasonably possible alternative assumptions may change the fair value significantly. At 31 December 2010 the effect of a change in these assumptions to a reasonably possible alternative assumption was not considered significant. At 31 December 2009, where significant, the effect of a change in these assumptions to a reasonably possible alternative assumption is outlined in the table below. These sensitivities have been calculated by amending the fair value of the level 3 financial liabilities at 31 December 2009 for a change in each individual assumption, as outlined below, whilst keeping all other assumptions consistent with those used to calculate the fair value recognised in the financial statements.

US$ million Other financial liabilities (derivatives)

Change in assumption Increase of 5% in dividend forecast Decrease of 5% in dividend forecast

2009 Increase/(decrease) in fair value of liabilities 9 (9)

Financial liability risk exposures are set out in note 25. 25 Financial Risk Management and Derivative Financial Assets/Liabilities The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board has approved and monitors the risk management processes, inclusive of documented treasury policies, counterparty limits, controlling and reporting structures. The risk management processes of the Group’s independently listed subsidiaries are in line with the Group’s own policy.

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The types of risk exposure, the way in which such exposure is managed and quantification of the level of exposure in the balance sheet at year end is provided as follows (subcategorised into credit risk, liquidity risk and market risk). Credit Risk The Group’s principal financial assets are cash, trade and other receivables and investments. The Group’s maximum exposure to credit risk arising from underlying financial assets is as follows: US$ million Cash and cash equivalents Trade and other receivables (1) Financial asset investments Other financial assets (derivatives) Other guarantees and loan facilities (1)

2010 6,401 3,883 1,920 842 92 13,138

2009 3,269 3,350 1,595 603 12 8,829

Includes $643 million (2009: $546 million) of preference shares in BEE entities.

The Group limits exposure to credit risk on liquid funds and derivative financial instruments through adherence to a policy of, where possible: • • •

Acceptable minimum counterparty credit ratings assigned by international credit-rating agencies (including long term ratings of A- (Standard & Poor’s), A3 (Moody’s) or A- (Fitch) or better); Daily counterparty settlement limits (which are not to exceed three times the credit limit for an individual bank); and Exposure diversification (the aggregate group exposure to key financial counterparties cannot exceed 5% of the counterparty’s shareholders’ equity).

Given the diverse nature of the Group’s operations (both in relation to commodity markets and geographically), together with insurance cover (including letters of credit from financial institutions), it does not have significant concentration of credit risk in respect of trade receivables, with exposure spread over a large number of customers. An allowance for impairment of trade receivables is made where there is an identified loss event, which based on previous experience, is evidence of a reduction in the recoverability of the cash flows. Details of the credit quality of trade receivables and the associated provision for impairment is disclosed in note 21. Liquidity Risk The Group ensures that there are sufficient committed loan facilities (including refinancing, where necessary) in order to meet short term business requirements, after taking into account cash flows from operations and its holding of cash and cash equivalents, as well as any group distribution restrictions that exist. In addition, certain projects are financed by means of limited recourse project finance, if appropriate. The expected undiscounted cash flows of the Group’s financial liabilities (including associated derivatives), by remaining contractual maturity, based on conditions existing at the balance sheet date are as follows:

Financial Instruments: Disclosures (IFRS 7)

US$ million 2010 Financial liabilities (excluding derivatives) (2) Net settled derivatives 2009 Financial liabilities (excluding derivatives) (2) Net settled derivatives

US$ million 2010 Financial liabilities (excluding derivatives) (2) Net settled derivatives 2009 Financial liabilities (excluding derivatives) (2) Net settled derivatives (1) (2) (3)

317

Within one year Fixed Floating Capital interest interest repayment

One to two years Floating Capital interest repayment

(1)

(566) 486 (80)

(126) (306) (432)

(1,155) 3 (1,152)

(1)

(523) 441 (82)

(185) (273) (458)

(3,226) 5 (3,221)

(566) 485 (81)

(148) (303) (451)

(6,356) 13 (6,343)

(550) 461 (89)

(200) (267) (467)

(5,600) -(5,660)

Fixed interest

Fixed interest

Two to five years Floating Capital interest repayment

Fixed interest

Greater than five years Floating Capital interest repayment

(3)

(530) 530 --

(1,400) (282) (1,682)

(3,241) (291) (3,532)

(3)

(672) 672 --

608) (331) (939)

(4,394) (339) (4,733)

(1,197) 1,083 (114)

(137) (619) (756)

(7,504 (337) (7,841)

91,379) 1,187 (192)

(295) (712) (1,007)

(5,877 (32) (5,909)

Includes guarantees and loan facilities. The expected maturities were not materially different from the contracted maturities. Includes the full value of the convertible bond and assumes no conversion.

The Group had the following undrawn committed borrowing facilities at 31 December: US$ million Expiry date (1) Within one year Greater than one year, less than two years Greater than two years, less than five years Greater than five years (1)

2010

2009

3,781 12 7,269 58 11,120

2,247 3,090 4,093 90 9,520

Includes undrawn rand facilities equivalent to $1.7 billion (2009: $1.5 billion) in respect of a series of facilities with 364 day maturities which roll automatically on a daily basis, unless notice is served.

In February 2011 the Group cancelled its $2.25 billion revolving credit facility maturing in June 2011. At 31 December 2010 $1.1 billion (2009: nil) was drawn under the facility which was subsequently repaid. Market Risk Market risk is the risk that financial instrument fair values will fluctuate due to changes in market prices. The significant market risks to which the Group is exposed are foreign exchange risk, interest rate risk and commodity price risk. Foreign Exchange Risk As a global business, the Group is exposed to many currencies principally as a result of non-US dollar operating costs and to a lesser extent, from non-US dollar revenues. The Group’s policy is generally not to hedge such exposures as hedging is not deemed appropriate given the diversified nature of the Group, though exceptions can be approved by the Group Management Committee. In addition, currency exposures exist in respect of non-US dollar expenditure on approved capital projects and non-US dollar borrowings in US dollar functional currency entities. The Group’s policy is that such exposures should be hedged subject to a review of the specific circumstances of the exposure.

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Financial Impact of assets currency (excluding (1) derivatives) derivative US$ million (2) US dollar 5,293 140) Rand 6,065 140 Sterling 386 – Euro 20 – Australian dollar 811 – Brazilian real 571 – Other currencies 358 – 13,504 – Total financial assets

2010 Total financial assets – Financial Financial Impact of exposure to assets assets (excluding currency(1) Derivative currency (excluding derivatives) derivatives) derivative assets risk US$ million US dollar (6,444) (5,797) (813) (13,054) (7,719) Rand (3,906) (22) (22) (3,950) (3,550) Sterling (2,136) 1,796 – (340) (1,609) Euro (3,500) 3,486 – (14) (3,764) Australian dollar (595) – – (595) (543) Brazilian real (1,098) 462 – (636) (1,052) Other currencies (690) (598) 75 – (523) (18,277) – (835) (19,112) (18,927) Total financial assets (1)

(2)

Derivative assets 565 7 – – – – 31 603

2009 Total financial assets – exposure to currency risk 4,716 3,309 455 87 271 407 703 9,948

Impact of currency Derivative (1) derivative assets (5,364) (609) (4) (50) 1,198 – 3,652 – – – 401 – 117 – – (659)

2009 Total financial assets – exposure to currency risk (13,692) (3,604) (411) (112) (543) (651) (573) (19,586)

2010 Total financial assets – Financial Impact of exposure to assets currency Derivative currency (excluding (1) assets risk derivatives) derivative 765 5,918 4,353 202) 77 6,282 3,125 177 455 – – 386 – 20 85 2 – 811 271 – – 571 407 – – 358 649 23 9,345 – 842 14,346

Where currency derivatives are held to manage financial instrument exposures the notional principal amount is reallocated to reflect the remaining exposure to the Group. Of these US dollar financial assets, $413 million (2009: $127 million) are subject to South African exchange controls and will be converted to rand within six months of 31 December.

Interest Rate Risk Interest rate risk arises due to fluctuations in interest rates which impact on the value of short term investments and financing activities. Exposure to interest rate risk is particularly with reference to changes in US and South African interest rates. The Group policy is to borrow funds at floating rates of interest as, over the longer term, this is considered by management to give somewhat of a natural hedge against commodity price movements, given the correlation with economic growth (and industrial activity) which in turn shows a high correlation with commodity price fluctuation. In certain circumstances, the Group uses interest rate swap contracts to manage its exposure to interest rate movements on a portion of its existing debt. Strategic hedging using fixed rate debt may also be undertaken from time to time if approved by the Group Management Committee. In respect of financial assets, the Group’s policy is to invest cash at floating rates of interest and cash reserves are to be maintained in short term investments (less than one year) in order to maintain liquidity, while achieving a satisfactory return for shareholders. The exposure of the Group’s financial assets (excluding intra-group loan balances) to interest rate risk is as follows:

Financial Instruments: Disclosures (IFRS 7)

319

2009

2010 Interest bearing financial assets Floating Fixed (1) rate rate

US$ million Financial assets (2) 6,981 (excluding derivatives) Derivative assets 315 Financial asset exposure to interest rate risk 7,296 (1) (2)

Interest bearing financial assets

Non-interest bearing financial assets Equity investments

Other noninterest bearing Total

Floating Fixed (1) rate rate

Non-interest bearing financial assets Other nonEquity interest investments bearing Total

1,068 --

1,300 --

4,155 527

13,504 842

3,530 174

1,032 --

1,131 --

3,652 429

9,345 603

1,068

1,300

4,682

14,346

3,704

1,032

1,131

4,081

9,948

Includes $643 million (2009: $546 million) of preference shares in BEE entities. At 31 December 2010 and 31 December 2009 no interest rate swaps were held in respect of financial asset exposures.

Floating rate financial assets consist mainly of cash and bank term deposits. Interest on floating rate financial assets is based on the relevant national inter-bank rates. Fixed rate financial assets consist mainly of financial asset investments and cash, and have a weighted average interest rate of 11.7% (2009: 11.0%) for an average period of three years (2009: three years). Equity investments have no maturity period and the majority are fully liquid. The exposure of the Group’s financial liabilities (excluding intra-group loan balances) to interest rate risk is as follows:

US$ million Financial liabilities (excluding derivatives) (1) Impact of interest rate swaps Derivative liabilities Financial liability exposure to interest rate risk (1)

Interest bearing financial liabilities Floating Fixed rate rate

2010 Non-interest bearing financial liabilities

Total

Interest bearing financial liabilities Floating Fixed rate rate

2009 Non-interest bearing financial liabilities

Total

(3,921) (8,046) (44)

(9,507) 8,046 --

(4,849) -(791)

(18,277) -(835)

(5,529) (6,896) (109)

(8,697) 6,896 --

(4,701) -(550)

(18,927) -(659)

(12,011)

(1,461)

(5,640)

(19,112)

(12,534)

(1,801)

(5,251)

(19,586)

Where interest rate swaps are held to manage financial liability exposures the notional principal amount is reallocated to reflect the remaining exposure to the Group.

Interest on floating rate financial liabilities is based on the relevant national inter-bank rates. Remaining fixed rate borrowings accrue interest at a weighted average interest rate of 9% (2009: 9%) for an average period of three years (2009: four years). Average maturity on non-interest bearing instruments is 14 months (2009: 14 months). Commodity Price Risk The Group’s earnings are exposed to movements in the prices of the commodities it produces. The Group policy is generally not to hedge price risk, although some hedging may be undertaken for strategic reasons. In such cases, the Group uses forward and deferred contracts to hedge the price risk. Certain of the Group’s sales and purchases are provisionally priced and as a result are susceptible to future price movements. The exposure of the Group’s financial assets and liabilities to commodity price risk is as follows:

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US$ million Total net financial instruments (excluding derivatives) Commodity (2) derivatives (net) Non-commodity derivatives (net) Total financial instrument exposure to commodity risk (1) (2)

2010 Commodity price linked Not linked Subject to to Fixed price commodity (1) price movements price

(136)

1,322

(5,959)

(26)

--

--

--

--

33

(162)

1,322

(5,926)

2009

Total

Commodity price linked Subject to Fixed price (1) price movements

Total

(10,667)

(9,582)

(4,773)

352

(27\6)

(78)

--

--

(78)

--

--

22

22

274

733

33

(4,766)

733

Not linked to commodity price

(10,645)

(9,638)

Includes financial instruments whose commodity prices are set quarterly or via contract negotiation. Includes a $26 million (2009: $44 million) derivative embedded in a long term power contract.

Derivatives In accordance with IAS 32, Financial Instruments: Presentation and IAS 39, the fair value of all derivatives are separately recorded on the balance sheet within ‘Other financial assets (derivatives)’ and ‘Other financial liabilities (derivatives)’. Derivatives are classified as current or non-current depending on the expected maturity of the derivative. The Group utilises derivative instruments to manage certain market risk exposures as explained above. The Group does not use derivative financial instruments for speculative purposes, however it may choose not to designate certain derivatives as hedges for accounting purposes. Such derivatives that are not hedge accounted are classified as ‘non-hedges’ and fair value movements are recorded in the income statement. The use of derivative instruments is subject to limits and the positions are regularly monitored and reported to senior management. Embedded Derivatives Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of their host contract and the host contract is not carried at fair value. Embedded derivatives may be designated into hedge relationships and are accounted for in accordance with the Group’s accounting policy set out in note 1. Anglo American Sur Anglo American inherited a 1978 agreement with Enami, a Chilean state controlled minerals company, when it acquired Anglo American Sur in 2002. In 2008 this agreement was transferred by Enami to Codelco, the Chilean state copper company. Anglo American Sur is wholly owned by the Group and owns the Los Bronces and El Soldado copper mines and the Chagres smelter. The agreement grants Codelco the right, subject to certain conditions and limitations, to acquire up to a 49% non-controlling interest in Anglo American Sur. The right to exercise the option is restricted to a window that occurs once every three years in the month of January until January 2027, with the next window in January 2012. The calculations of the price at which Codelco can exercise its rights are complex and confidential but do, inter alia, take account of company profitability over a five year period. The option’s fair value is calculated as the difference between the estimated fair value of the underlying assets to which the option relates and the estimated option price. The estimated fair value of the underlying assets may vary based on a market participant’s assumptions at any point in time, including, inter alia, commodity prices, foreign exchange rates and discount rates. In addition, the option price must be estimated based on current assumptions about inputs that cannot be finalized in advance of the option window and are subject to significant fluctuations. Based on a range of scenarios for these key variables, it has been concluded that the option has insufficient value to warrant recognition on the balance sheet as at 31 December 2010. Cash Flow Hedges In certain cases the Group classifies its forward foreign currency and commodity price contracts hedging highly probable forecast transactions as cash flow hedges. Where this designation is documented, changes in fair value are recognised in equity until the hedged transactions occur, at which time the re-

Financial Instruments: Disclosures (IFRS 7)

321

spective gains or losses are transferred to the income statement (or hedged balance sheet item) in accordance with the Group’s accounting policy set out in note 1. Fair Value Hedges The majority of interest rate swaps (taken out to swap the Group’s fixed rate borrowings to floating rate, in accordance with the Group’s policy) have been designated as fair value hedges. The carrying value of the hedged debt is adjusted to reflect the fair value of the interest rate risk being hedged. Subsequent changes in the fair value of the hedged risk are offset against fair value changes in the interest rate swap and classified within net finance costs in the income statement. Non-Hedges The Group may choose not to designate certain derivatives as hedges. This may occur where the Group is economically hedged but IAS 39 hedge accounting cannot be achieved or where gains and losses on both the derivative and hedged item naturally offset in the income statement, which may for example be the case for certain cross currency swaps of non-US dollar debt. Where derivatives have not been designated as hedges, fair value changes are recognised in the income statement in accordance with the Group’s accounting policy set out in note 1 and are classified as financing or operating depending on the nature of the associated hedged risk. The fair value of the Group’s open derivative position at 31 December (excluding normal purchase and sale contracts held off balance sheet), recorded within ‘Other financial assets (derivatives)’ and ‘Other financial liabilities (derivatives)’ is as follows:

US$ million (1) Cash flow hedge Forward foreign currency contracts Forward commodity contracts Other Fair value hedge Interest rate swaps Non-hedge (‘Held for trading’) Forward foreign currency contracts Cross currency swaps Other (1)

Current 2009 2010 Asset Liability Asset Liability

Non-current 2009 2010 Asset Liability Asset Liability

50

–

40

–

–

–

19

–

– –

– –

– –

(3) (1)

– –

– –

– –

– –

–

–

18

–

309

(44)

157

(70)

307

(34)

285

(18)

119

–

26

(2)

20 – 377

– (46) (80)

14 8 365

(14) (40) (76)

3 34 465

7 29 238

(424) (87) (583)

(676) (35) (755)

The timing of the expected cash flows associated with these hedges is as follows US$ million Within one year Greater than one year, less than two years

2010 50 -50

2009 36 19 55

The periods when these hedges are expected to impact the income statement generally follow the cash flow profile with the exception of hedging associated with capital projects which is included in the capitalised asset value and depreciated over the life of the asset.

These marked to market valuations are in no way predictive of the future value of the hedged position, nor of the future impact on the profit of the Group. The valuations represent the cost of closing all hedge contracts at year end, at market prices and rates available at the time. Normal Purchase and Normal Sale Contracts Commodity based contracts that meet the scope exemption in IAS 39 (in that they are settled through physical delivery of the Group’s production or are used within the production process), are classified as normal purchase or sale contracts. In accordance with IAS 39 these contracts are not marked to market. Capital Risk Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and, with

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cognisance of forecast future market conditions and structuring, to maintain an optimal capital structure to reduce the cost of capital. In order to manage the short and long term capital structure, the Group adjusts the amount of ordinary dividends paid to shareholders, returns capital to shareholders (via, for example, share buybacks and special dividends), arranges debt to fund new acquisitions and may also sell non-core assets to reduce debt. The Group monitors capital on the basis of the ratio of net debt to total capital (gearing). Net debt is calculated as total borrowings less cash and cash equivalents (including derivatives which provide an economic hedge of debt and the net debt of disposal groups). Total capital is calculated as ‘Net assets’ (as shown in the Consolidated balance sheet) excluding net debt. Gearing at 31 December 2010 was 16.3% (2009: 28.7%). The decrease in gearing since 31 December 2009 is due to lower net debt combined with higher net assets. Financial Instrument Sensitivities Financial instruments affected by market risk include borrowings, deposits, derivative financial instruments, trade receivables and trade payables. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity of the Group’s financial instruments (at 31 December) to changes in commodity prices, interest rates and foreign currencies. The sensitivity analysis has been prepared on the basis that the components of net debt, the ratio of fixed to floating interest rates of the debt and derivatives portfolio and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at 31 December. In addition, the commodity price impact for provisionally priced contracts is based on the related trade receivables and trade payables at 31 December. As a consequence, this sensitivity analysis relates to the position at 31 December. The following assumptions were made in calculating the sensitivity analysis: • • • • • • • •

All income statement sensitivities also impact equity. For debt and other deposits carried at amortised cost, carrying value does not change as interest rates move. No sensitivity is provided for interest accruals as these are based on pre-agreed interest rates and therefore are not susceptible to further rate changes. Changes in the carrying value of derivatives (from movements in commodity prices and interest rates) designated as cash flow hedges are assumed to be recorded fully within equity on the grounds of materiality. No sensitivity has been calculated on derivatives and related underlying instruments designated into fair value hedge relationships as these are assumed materially to offset one another. All hedge relationships are assumed to be fully effective on the grounds of materiality. Debt with a maturity of less than one year is floating rate, unless it is a long-term fixed rate debt in its final year. Translation of foreign subsidiaries and operations into the Group’s presentation currency has been excluded from the sensitivity.

Using the above assumptions, the following table shows the illustrative effect on the income statement and equity that would result from reasonably possible changes in the relevant commodity price, interest rate or foreign currency.

Financial Instruments: Disclosures (IFRS 7)

323

2009

2010 US$ million Commodity price sensitivities 10% increase in the platinum price 10% decrease in the platinum price 10% increase in the copper price 10% decrease in the copper price Interest rate sensitivities 50 bp increase in US interest rates 50 bp decrease in US interest rates (1) Foreign currency sensitivities +10% US dollar to rand -10% US dollar to rand +10% US dollar to Australian dollar -10% US dollar to Australian dollar (2) +10% US dollar to Brazilian real (2) -10% US dollar to Brazilian real (2) +10% US dollar to Chilean peso (2) -10% US dollar to Chilean peso (1) (2)

Income statement

Equity

Income statement

Equity

(19) 19 59 (59)

(19) 19 59 (59)

(14) 14 89 (89)

(14) 14 89 (89)

1 (1)

1 (1)

3 (3)

3 (3)

(76) 76 23 (23) 456 (297) 38 (46)

(76) 76 23 (23) 482 (302) 60 (73)

(59) 59 4 (4) 191 (175) (11) 14

(59) 59 4 (4) 198 (183) (67) 82

+ represents strengthening of US dollar against the respective currency. Includes sensitivities for non-hedge derivatives related to capital expenditure.

The above sensitivities are calculated with reference to a single moment in time and are subject to change due to a number of factors including: • • • • •

Fluctuating trade receivable and trade payable balances; Derivative instruments and borrowings settled throughout the year; Fluctuating cash balances; Changes in currency mix; and Commercial paper with short term maturities, which is regularly replaced or settled.

As the sensitivities are limited to year end financial instrument balances they do not take account of the Group’s sales and operating costs which are highly sensitive to changes in commodity prices and exchange rates. In addition, each of the sensitivities is calculated in isolation, whilst in reality commodity prices, interest rates and foreign currencies do not move independently.

Daimler Annual Report 2010 Notes to the financial statements 30. Financial Instruments Carrying Amounts and Fair Values of Financial Instruments The following table shows the carrying amounts and fair values of the Group’s financial instruments. The fair value of a financial instrument is the price at which a party would accept the rights and/or obligations of that financial instrument from another independent party. Given the varying influencing factors, the reported fair values can only be viewed as indicators of the prices that may actually be achieved on the market.

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In millions of Euros Financial assets Receivables from financial services Trade receivables Cash and cash equivalents Marketable debt securities Available-for-sale financial assets Other financial assets (1) Available-for-sale financial assets Financial assets recognized at fair value through profit or loss Derivative financial instruments used in hedge accounting Other receivables and assets

At December 31, 2010 Carrying amount Fair value

Financial liabilities Financing liabilities Trade payables Other financial liabilities Financial liabilities recognized at fair value through profit or loss Derivative financial instruments used in hedge accounting Miscellaneous other financial liabilities (1)

At December 31, 2009 Carrying amount Fair value

41,030 7,192 10,903

41,107 7,192 10,903

38,478 5,285 9,800

38,510 5,285 9,800

2,096

2,096

6,342

6,342

2,199

2,199

1,084

1,084

731

731

1,218

1,218

816 1,695 66,662

816 1,695 66,739

1,074 1,759 65,040

1,074 1,759 65,072

53,682 7,657

55,419 7,657

58,294 5,622

59,677 5,622

1,150

1,150

675

675

858 8,501 71,848

858 8,501 73,585

208 8,854 73,653

208 8,854 75,036

Includes equity interests measured at cost of €714 million (2009: €699 million), whose fair value cannot be determined with sufficient reliability.

The fair values of financial instruments were calculated on the basis of market information available on the balance sheet date. The following methods and premises were used: Receivables from financial services. The fair values of receivables from financial services with variable interest rates are estimated to be equal to the respective carrying amounts since the interest rates agreed and those available on the market do not significantly differ. The fair values of receivables from financial services with fixed interest rates are determined on the basis of discounted expected future cash flows. The discounting is based on the current interest rates at which similar loans with identical terms could have been borrowed as of December 31, 2010 and December 31, 2009. Trade receivables and cash and cash equivalents. Due to the short terms of these financial instruments, it is assumed that their fair values are equal to the carrying amounts. Marketable debt securities and other financial assets Financial assets available for sale include: •

•

Debt and equity instruments measured at fair value; these instruments were measured using quoted market prices at December 31. Otherwise, the fair value measurement of these debt and equity instruments is based on inputs that are either directly or indirectly observable on active markets. Equity interests measured at cost; for these financial instruments fair values could not be determined because market prices or fair values are not available. These equity interests comprise investments in non-listed companies for which no objective evidence existed at the balance sheet date that these assets are impaired and whose fair values cannot be determined with sufficient reliability. It is assumed that the fair values approximate the carrying amounts.

Financial assets recognized at fair value through profit or loss include derivative financial instruments not used in hedge accounting. These financial instruments as well as derivative financial instruments used in hedge accounting comprise: •

Derivative currency hedging contracts; the fair values of currency forwards and cross currency interest rate swaps are determined on the basis of the discounted estimated future cash flows using

Financial Instruments: Disclosures (IFRS 7)

•

•

325

market interest rates appropriate to the remaining terms of the financial instruments. Currency options were measured using price quotations or option pricing models using market data. Derivative interest rate hedging contracts; the fair values of interest rate hedging instruments (e.g. interest rate swaps, forward rate agreements) are calculated on the basis of the discounted estimated future cash flows using the market interest rates appropriate to the remaining terms of the financial instruments. Interest options were measured using price quotations or option pricing models using market data. Derivative commodity hedging contracts; the fair values of commodity hedging contracts (e.g. commodity forwards) are determined on the basis of current reference prices in consideration of forward premiums and discounts.

Other receivables and assets are carried at amortized cost. Because of the predominant short maturities of these financial instruments in general, it is assumed that the fair values approximate the carrying amounts. Financing liabilities. The fair values of bonds, loans and deposits in the direct banking business are calculated as the present values of the estimated future cash flows. Market interest rates for the appropriate terms are used for discounting. On account of the short terms of commercial papers it is assumed that the carrying amounts of these financial instruments approximate their fair values. Trade payables. Due to the short maturities of these financial instruments, it is assumed that their fair values are equal to the carrying amounts. Other financial liabilities. Financial liabilities recognized at fair value through profit or loss include derivative financial instruments not used in hedge accounting. For information regarding these financial instruments as well as derivative financial instruments used in hedge accounting see the notes above under marketable debt securities and other financial assets. Miscellaneous other financial liabilities are carried at amortized cost. Because of the short maturities of these financial instruments in general, it is assumed that the fair values approximate the carrying amounts. Financial assets and liabilities measured at fair value are classified into the following fair value hierarchy: At December 31, 2010 In millions of Euros Total Level 1(1) Level 2 (2) Level 3 (3) Assets measured at fair value Financial assets available for sale 3,581 2,150 1,431 – Financial assets recognized at fair value through profit or loss 731 – 731 – Derivative financial instruments 816 – 816 used in hedge accounting – 5,128 2,150 2,978 – Liabilities measured at fair value Financial liabilities recognized at fair value through profit or 1,150 – 1,150 loss – Derivative financial instruments used in hedge accounting 858 – 858 – 2,008 – 2,008 – (1) (2)

(3)

Total

At December 31, 2009 (1) (2) (3) Level 1 Level 2 Level 3

6,727

940

5,787

– –

1,218

–

1,218

1,074 9,019

– 940

1,074 8,079

–

675

–

675

–

208 883

– –

208 883

– –

–

Fair value measurement based on quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair value measurement based on inputs for the asset or liability that are observable on active markets either directly (i. e. as prices) or indirectly (i. e. derived from prices). Fair value measurement based on inputs for the asset or liability that are not observable market data.

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The carrying amounts of financial instruments presented according to IAS 39 measurement categories are as follows: In millions of Euros Assets (1) Receivables from financial services Trade receivables Other receivables and assets Loans and receivables Marketable debt securities Other financial assets Available-for-sale financial assets (2) Financial assets recognized at fair value through profit or loss Liabilities Trade payables (3) Financing liabilities (4) Other financial liabilities Financial liabilities measured at cost (2) Financial liabilities recognized at fair value through profit or loss

At December 31, 2010 2009 29,702 7,192 1,695 38,589 2,096 2,199 4,295 731

26,787 5,285 1,759 33,831 6,342 1,084 7,426 1,218

7,657 51,986 8,274 67,917 1,150

5,622 56,567 8,671 70,860 675

The table above does not include cash and cash equivalents or the carrying amounts of derivative financial instruments used in hedge accounting as these financial instruments are not assigned to an IAS 39 measurement category. (1)

This does not include lease receivables of €11,328 million (2009: €11,691 million) as these are not assigned to an IAS 39 measurement category. (2) Financial instruments classified as held for trading purposes. These figures comprise financial instruments that are not used in hedge accounting. (3) This does not include liabilities from finance leases of €499 million (2009: €397 million) or liabilities from non-transference of assets of €1,197 million (2009: €1,330 million) as these are not assigned to an IAS 39 measurement category. (4) This does not include liabilities from financial guarantees of €227 million (2009: €183 million) as these are not assigned to an IAS 39 measurement category.

Net Gains or Losses The following table shows the net gains or losses of financial instruments included in the consolidated statement of income/ loss (not including derivative financial instruments used in hedge accounting): In millions of Euros Financial assets and liabilities recognized (1) at fair value through profit or loss Financial assets available for sale Loans and receivables Financial liabilities measured at cost (1)

2010 -613 353 -237 255

2009 -407 38 -546 -130

Financial instruments classified as held for trading purposes. These figures comprise financial instruments that are not used in hedge accounting.

Net gains and losses of financial assets and liabilities recognized at fair value through profit or loss include primarily gains and losses attributable to changes in fair value. Net gains and losses on financial assets available for sale include realized income from these investments and gains or losses from sales transactions. Net gains and losses on loans and receivables are mainly comprised of impairment losses and recoveries that are charged to cost of sales, selling expenses and other financial income/ expense, net. Net gains and losses on financial liabilities measured at cost mainly include gains and losses from the valuation of liabilities denominated in foreign currencies. Total Interest Income and Total Interest Expense Total interest income and total interest expense for financial assets or financial liabilities that are not measured at fair value through profit or loss are structured as follows: Please refer to Note 1 for qualitative descriptions of accounting for financial instruments (including derivative financial instruments).

Financial Instruments: Disclosures (IFRS 7)

327

Information on Derivative Financial Instruments Use of derivatives. The Group uses derivative financial instruments for hedging interest rate risks, currency risks and commodity price risks. For these purposes the Group mainly uses currency forward transactions, cross currency interest rate swaps, interest rate swaps, options and commodity forwards. Fair values of hedging instruments. The table below shows the fair values of hedging instruments: In millions of Euros Fair value hedges Cash flow hedges

At December 31, 2010 2009 425 240 441 -282

Fair value hedges. The Group uses fair value hedges primarily for hedging interest rate risks. The changes in fair value of these hedging instruments and the offsetting changes in the value of underlying transactions are as follows: In millions of Euros Net losses from hedging instruments Net gains from underlying transactions

2010 -66 67

2009 -31 53

These figures also include the portions of derivative financial instruments excluded from the hedge effectiveness test and the ineffective portions. Cash flow hedges. The Group uses cash flow hedges for hedging currency risks, interest rate risks and commodity price risks. Unrealized pre-tax gains and losses on the measurement of derivatives, which are recognized in equity without an effect on earnings, are as follows: In billions of Euros Unrealized losses

2010 1.0

2009 -

Reclassifications of pre-tax gains/losses from equity to the statement of income/loss are as follows: In millions of Euros Revenue Cost of sales Interest income Interest expense

2010 -265 11 -37 -291

2009 707 -63 -230 414

The unrealized gains and losses on the measurement as well as reclassifications from equity to income do not include gains and losses from derivatives of investments which are accounted for using the equity method (see Note 20 for further information). The consolidated net loss for 2010 includes net gains (before income taxes) of €2 million (2009: net losses of €1 million) from the valuation of derivative financial instruments which were ineffective for hedging purposes. In 2010, the discontinuation of cash flow hedges resulted in gains of €3 million (2009: €18 million). The maturities of the interest rate hedges and cross currency interest rate hedges correspond with those of the underlying transactions. As of December 31, 2010, Daimler utilized derivative instruments with a maximum maturity of 44 months as hedges for currency risks arising from future transactions. Nominal values of derivative financial instruments. The following table shows the nominal values of derivative financial instruments:

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In millions of Euros Hedging of currency risks from receivables/liabilities Forward exchange contracts Cross currency interest rate swaps Hedging of currency risks from forecasted transactions Forward exchange contracts and currency options Hedging of interest rate risks from receivables/liabilities Interest rate swaps Hedging of commodity price risks from forecasted transactions Forward commodity contracts

December 31, 2010 Thereof Fair Value Hedges Nominal and Cash Flow Hedges values

December 31, 2009 Thereof Fair Value Hedges Nominal and Cash Flow Hedges values

7,192 9,475

– 1,950

2,115 14,154

– 923

24,032

23,199

13,525

13,029

21,312

17,430

20,500

18,424

831 62,842

736 43,315

411 50,705

327 32,703

Hedging transactions for which the effects from the mark-to-market valuation of the hedging instrument and the underlying transaction offset each other to a large extent in the consolidated statement of income/loss are predominantly not classified for hedge accounting treatment. Explanations regarding the hedging of exchange rate risks, interest rate risks and commodity price risks can be found in Note 31 “Risk management” in the sub-item “Finance market risk.”

SECTION VII EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS

Chapter 25: Employee Benefits (IAS 19) IFRIC 14, The Limit on a Defined Benefit

Asset, Minimum Funding Requirements and Their Interaction Chapter 26: Share-Based Payments (IFRS 2)

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Chapter 25 EMPLOYEE BENEFITS (IAS 19)

1.

OBJECTIVE

1.1 This Standard prescribes the accounting treatment and disclosure by employers for employee benefits. This Standard shall be applied by an employer in accounting for all employee benefits except those that are considered under other Standards: International Financial Reporting Standards (IFRS) 2, Share-Based Payment, and International Accounting Standard (IAS) 26, Accounting and Reporting by Retirement Benefit Plans. 2.

SYNOPSIS OF THE STANDARD

The requirements of this Standard that should be applied by an employer for all employee benefits are summarized next. 2.1 This Standard provides that an employer should recognize a liability when service has been provided by an employee in exchange for the benefits to be paid in the future. Similarly, an employer should recognize an expense when the economic benefits are received by the employer from the services provided by the employee. 2.2 The employee benefits that are provided may be due to formal plans or agreements between the employer and employees, due to legislative or industry practices, or due to informal practices that give rise to a constructive obligation to grant such benefits. 2.3 This Standard covers all benefits paid to employees, whether the employees are full-time, part-time, permanent, casual, or temporary employees, and to directors and other managerial personnel of the entity. 2.4

Employee benefits can be categorized as • Postemployment benefits (examples are pension payments, insurance payments) • Other long-term employee benefits (examples are long-term disability benefits) • Termination benefits (examples are severance pay, gratuities)

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SHORT-TERM EMPLOYEE BENEFITS

Short-term employee benefits are monetary benefits that are payable within 12 months after the end of the period in which services are rendered and the nonmonetary benefits that are payable for current employees. 3.1 The short-term employee benefits (monetary and nonmonetary benefits) payable within 12 months after the end of the reporting period shall be accounted on an undiscounted basis as a liability and the associated costs as an expense. When the payment made exceeds the amount of benefits that is to be paid, the excess must be recognized as an asset (prepaid expense). 3.2 The employer must accrue the amount that is expected to be paid as a result of the unsettled or unutilized entitlement at the reporting date in the case of payments for accumulating compensated absences. An example of this is unutilized paid annual leave to the credit of the employee at the end of the reporting period that either can be carried forward to the next year or can be cashed. 3.3 In the case of payments for nonaccumulating compensated absences, the liability and cost should not be recognized until the event has occurred. An example of this is eligible maternity leave that cannot be carried forward to be used in future periods and cashed. 3.4 In a profit-sharing or incentive payment arrangement, the cost and liability shall be recognized when the constructive or legal obligation to make the payment arises and the amount to be paid can be reliably estimated. The amount that is expected to be paid should be estimated on the basis of the terms in case a formal plan exists or on the basis of past practices and trends that relate to such constructive or legal obligations. 4.

POSTEMPLOYMENT BENEFIT PLANS

Postemployment benefit plans are formal or informal arrangements under which the employer provides postemployment benefits to the employees (retirement benefits such as pensions, life insurance coverage, etc.). 4.1

Postemployment benefit plans can be defined contribution plans or defined benefit plans.

4.2 Under a defined contribution plan, the employer makes a fixed contribution to a fund under an arrangement for a certain period of time and is not obligated to make further payments if the assets of that fund are insufficient to pay all the employee benefits. 4.2.1 The obligation of the employer under a defined contribution plan for the reporting period is limited to the amount of contribution that is required to be made during that period. 4.2.2 An actuarial valuation to measure the obligation or the expense and account for the gain or loss that may arise on such valuation is not required to be carried out. 4.2.3 The contribution that is due within 12 months from the reporting date does not also have to be discounted. In case the contributions are due beyond a period of 12 months from the reporting date, they are to be discounted using a rate that has reference to the market yield on good-quality corporate bonds. 4.3 Under a defined benefit plan, the employer assumes the responsibility and related risk of meeting the obligation to current and former employees. 4.3.1 The asset or liability of the defined benefit plan that is recognized shall be the net total of • The present value of the defined benefit obligation, plus or minus • Any actuarial gains less losses not yet recognized because the gains and losses fall outside the limits of the corridor (10% of the fair value of the plan assets), minus • Past service cost not yet recognized, minus • Fair value of the plan assets at the reporting date. 4.3.2 When the net total amount is positive, a liability is recognized as above. When the net total amount is negative, an asset is recognized at the lower of the amount calculated and the net total of

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any unrecognized net actuarial losses and past service costs, and the present value of any benefits available in the form of refunds or reductions in future employer contributions to the plan. 4.3.3 The present value of a defined benefit obligation is the discounted value of the expected future payments that is required to settle the obligation from past and current employee services. 4.3.4 Actuarial gains and losses represent the adjustments that are made due to differences between the previous actuarial assumptions and the actual occurrence and the effect of any changes in actuarial assumptions. 4.3.5 The past service cost is the increase or decrease in the present value of a defined benefit obligation for employee service in previous periods that arises from changes in the postemployment or long-term employee benefits plan. 4.3.6 The fair value of plan assets at the end of the reporting period is the sum total of these amounts: • Fair value of the plan assets at the beginning of the reporting period, plus • Contributions from employer or employee during the reporting period, plus or minus • Actual return on plan assets during the reporting period (interest income, dividend income), minus • Benefits paid under the plan during the reporting period. 4.3.7 The assets and liabilities from the different employment benefit plans that an employer may have are presented separately. 4.3.8 The expense or income of the defined benefit plan shall be recognized as the net total of the next amounts except to the extent that another Standard requires or permits their inclusion in the cost of an asset: • • • • •

Current service cost Interest cost for the reporting period Expected return on any plan assets Actuarial gains and losses amortized in the reporting period Past service cost recognized in the reporting period

4.3.9 The current service cost is the increase in the present value of the defined benefit obligation arising from employee service in the current period. 4.3.10 The actuarial gains and losses are the excess of the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period over the greater of • 10% of the present value of the defined benefit obligation at the beginning of the reporting period and • 10% of the fair value of the plan assets at the same date. The excess determined by this method (corridor approach) is then divided by the expected average remaining lives of the employees in the plan. 4.3.11 The employee benefit expense that is measured is recognized in the profit or loss for the reporting period unless other Standards require or allow cost to be added to an asset. 5.

OTHER LONG-TERM EMPLOYEE BENEFITS

Other long-term employee benefits include the share of profits that are payable after 12 months of the reporting date, long-term disability benefits payable to employees, and the like. 5.1 The liability for other long-term employee benefits that is recognized shall be the net total of • Present value of the defined benefit obligation at the reporting date, minus • Fair value of the plan assets at the reporting date.

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5.2 The net total of the next amounts shall be recognized as income/expense (except to the extent that another Standard requires or permits their inclusion in the cost of an asset): • • • • • • 6.

Current service cost Interest cost for the reporting period Expected return on any plan assets Actuarial gains and losses amortized in the reporting period Past service cost recognized in the reporting period Effect of any curtailments or settlements

TERMINATION BENEFITS

Termination benefits are those benefits payable to an employee due to the employer’s decision to terminate the individual’s services before the normal agreed period or due to an employee’s decision to opt for voluntary retirement in exchange for these benefits. 6.1 Termination benefits shall be recognized as a liability and an expense only when the entity is committed either to terminate the employment of an employee or group of employees before the normal agreed period or to provide termination benefits as a result of an offer made in order to encourage voluntary withdrawal from the entity. 6.2 Under this Standard, the “commitment” of the employer is demonstrated by the employer drawing up a detailed plan for termination, which cannot be withdrawn under normal circumstances. 6.3 In case it is difficult for the employer to determine how many employees will avail themselves of the offer at the time of announcing the termination plan, the expense and corresponding liability should be determined by estimation. 6.4 This cost of termination must be expensed in full as the employer does not benefit from the employees’ future service. 7.

DISCLOSURE REQUIREMENTS

7.1 There are no specific disclosure requirements regarding short-term employee benefits. However, other Standards, such as IAS 24, Related Party Disclosures, require that disclosures relating to remuneration and benefits paid to key management personnel be disclosed. Similarly, IAS 1, Presentation of Financial Statements, requires that employee benefits be disclosed as an expense. 7.2

The next disclosures are required to be made for postemployment benefit plans.

7.2.1 Defined Contribution Plans • The amount that is recognized as an expense for defined contribution plans should be disclosed in the financial statements. Similarly, contributions made to defined contribution plans for key management personnel must also be disclosed, as required by IAS 24, Related Party Disclosures. • In the case of a multi-employer plan, the entity must disclose the fact that the plan is a defined benefit plan and explain why it is accounted for as a defined contribution plan, when that is the case. 7.2.2 Defined Benefit Plans • A description of the type of plan • Accounting policy for recognizing actuarial gains or losses • Reconciliation of the opening balance of the present value of the defined benefit obligation to the closing balance, disclosing each item that has been affected • Reconciliation of difference between the employee benefit asset or liability reported on the statement of financial position to the funded status of the plans • Total expense reported in the statement of profit or loss • Amounts recognized in the statement of comprehensive income

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• Information about investments held as plan assets, actual return on the plan assets, and how the expected return is determined • Details of actuarial assumptions used and sensitivity analysis in relation to changes in key estimates 7.2.3 Other Long-Term Employee Benefits and Termination Benefits There are no specific disclosures required for other long-term employee benefits and for termination benefits. However, IAS 1, Presentation of Financial Statements, and IAS 24, Related Party Disclosures, may have to be applied. 8. IFRIC 14, THE LIMIT ON DEFINED BENEFIT ASSETS, MINIMUM FUNDING REQUIREMENTS, AND THEIR INTERACTION 8.1 International Financial Reporting Interpretations Committee (IFRIC) 14, The Limit on Defined Benefit Assets, Minimum Funding Requirements, and Their Interaction, deals with the treatment of refunds or reductions in future contributions, how minimum funding requirement might affect the availability of reductions in future contributions and when a minimum funding requirement might give rise to a liability. 8.2 Under this Interpretation, the entity should determine the availability of a refund or a reduction in the future contributions based on the terms and conditions of the plan and the statutory requirements applicable to the jurisdiction of the plan. 8.3 In case the minimum funding requirement gives rise to a liability, such liability should be recognized immediately. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 (£ million) Notes to the consolidated financial statements for the year ended 31 March 2011 2. Accounting Policies Basis of Accounting The consolidated financial statements have been prepared in accordance with the requirements of Swiss law and International Financial Reporting Standards (IFRSs), as they apply to the consolidated financial statements for the year ended 31 March 2011. Had the consolidated financial statements been prepared under IFRSs as adopted by the European Union, there would be no material changes to the information presented in these consolidated financial statements. Defined Benefit Schemes A defined benefit scheme is a retirement benefit scheme that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service and compensation. The Group’s net obligation or asset in respect of defined benefit schemes is calculated separately for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine its present value and the fair value of any scheme assets is deducted. The discount rate is the yield at the year end on AA rated bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. Scheme assets are valued at bid price. Current and past service costs are recognised in profit from operations, finance costs include interest on defined benefit scheme liabilities and the expected return on defined benefit scheme assets is included in finance income. Past service costs are recognised immediately to the extent that the benefits are already vested, otherwise they are amortised on a straight-line basis over the average period until the benefits become vested. All actuarial gains and losses that arise in calculating the Group’s obligation in respect

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of a scheme are recognised immediately in reserves and reported in the statement of other comprehensive income. Curtailment gains resulting from changes to the membership composition of defined benefit schemes are recognised in the income statement and as a reduction in the present value of defined benefit scheme liabilities. Settlement gains or losses resulting from transfers of the liabilities of defined benefit schemes are recognised in the income statement and as a reduction in the present value of defined benefit scheme liabilities. Defined Contribution Schemes Obligations for contributions to defined contribution retirement benefit schemes are recognised as an expense in the income statement as they fall due. 8

Employee Costs

The average monthly number of persons employed by the Group in continuing operations over the year, including Directors and part-time employees, was: 2011

Health & Beauty Division Pharmaceutical Wholesale Division Contract Manufacturing & Corporate

Number of heads 76,746 20,943 1,948 99,637

Full-time equivalents 49,739 19,111 1,904 70,754

2010 Re-presented Number of Full-time heads equivalents 77,214 49,304 14,383 12,582 2,070 1,949 93,667 63,835

Costs incurred in respect of these employees were:

Wages and salaries Social security costs Retirement benefit costs: – defined benefit schemes (current service costs) – defined contribution schemes

2011 £million 1,588 209 23 65 1,885

2010 Re-presented £million 1,566 191 47 18 1,822

36 Retirement Benefit Schemes The Group operates a number of retirement benefit schemes in the UK and other countries including both defined benefit and defined contribution schemes. Defined Benefit Schemes UK Schemes The Group has two principal schemes in the UK, being the Boots Pension Scheme and the Alliance UniChem UK Pension Scheme, both of which have been closed to new members for a number of years. Both schemes entered into Memoranda of Understanding during 2007/08 with the Group, the main elements of which were an agreement that conservative investment strategies would be maintained (the Boots Pension Scheme has continued with its investment strategy of planning to hold 15% of its assets in equity and property to back long term liabilities, and 85% of its assets in a diverse portfolio of high quality bonds to match liabilities up to 35 years), and a commitment to pay additional contributions. The additional cash contributions comprised £102 million in 2007/08 with a further £366 million to be made over ten years from August 2008. £20 million was paid in 2010/11, with the same amount committed in 2011/12 and 2012/13 respectively. Following an extensive consultation process, the Group implemented a new defined contribution scheme in the UK with effect from 1 July 2010, and as a result, all the Group’s pension schemes in the UK were closed to future accrual from that date, giving rise to curtailment gains. The obligations of the Alliance UniChem UK Group Pension Scheme were subsequently transferred to an insurer for a cash payment of £80 million, giving rise to a settlement loss, prior to the scheme being fully bought out.

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The Boots Pension Scheme is currently undergoing its triennial actuarial funding valuation, and in March 2011, as part of the funding plan, the Group and the scheme’s trustees established a pension funding partnership structure. Under this structure, the Group contributed an interest in the partnership worth £146 million to the scheme, and transferred a number of properties to the partnership under a sale and leaseback arrangement. The partnership will make annual distributions of around £10 million to the scheme for 20 years and a capital sum in 2031 equal to the lower of £156 million and any funding deficit in the scheme at that point in time. Furthermore, the Group has committed to make a payment into the Boots Pension Scheme of up to £156 million in 2031, if and to the extent the scheme remains in deficit at that time. The scheme’s interest in the partnership reduces the deficit on a funding basis, although the agreement does not impact the deficit on an IAS 19 accounting basis, as the investment held by the scheme in the partnership does not qualify as an asset for the purposes of the Group’s consolidated financial statements and is therefore not included within the fair value of plan assets. Non-UK Schemes The Group also closed its defined benefit pension schemes to future accrual in the Republic of Ireland and Norway, and subsequently transferred the obligations of the Norwegian schemes to a third party. The net amount recognised in respect of defined benefit schemes was:

Present value of defined benefit scheme liabilities Less fair value of defined benefit scheme assets: – bonds – equities – other plan assets Surplus restriction

2011 £million (4,363) 3,488 510 151 4,149 (9) (223)

2010 £million (4,684) 3,536 555 131 4,222 – (462)

The change in the present value of defined benefit scheme liabilities was:

At 1 April Acquisitions of businesses Current service costs Past service costs Curtailment gains Settlement Interest on defined benefit scheme liabilities Net actuarial (gains)/losses Employee contributions Benefits paid Currency translation differences At 31 March

2011 £million 4,684 56 23 (66) (96) (237) 235 (73) 1 (163) (1) 4,363

2010 £million 3,354 – 47 6 (8) – 225 1,224 3 (166) (1) 4,684

The change in the fair value of defined benefit scheme assets was:

At 1 April Acquisitions of businesses Expected returns on defined benefit scheme assets Settlement Experience adjustments Employer contributions Employee contributions Benefits paid Currency translation differences At 31 March

2011 £million 4,222 4 206 (327) 81 125 1 (163) – 4,149

2010 £million 3,542 – 207 – 530 109 3 (166) (3) 4,222

The Group expects to contribute approximately £33 million, including £30 million of deficit funding, to its defined benefit schemes in the year ended 31 March 2012.

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The net expense recognised in the income statement comprised: 2011 £million (23) 66 96 (90) 49 206 (235) 20

Current service costs Past service costs Curtailment gains Settlement loss Expected returns on defined benefit scheme assets Interest on defined benefit scheme liabilities

2010 £million (47) (6) 8 – (45) 207 (225) (63)

The curtailment gains relate to the closure of a number of the schemes to future accrual and the settlement loss relates to the transfer of the obligations of the Alliance UniChem UK Group Pension Scheme to an insurer. The expense was recognised in the following line items in the income statement: 2011 £million 38 11 206 (235) 20

Selling, distribution and store costs Administrative costs Finance income Finance costs

2010 £million (35) (10) 207 (225) (63)

The amounts recognised in the statement of other comprehensive income were: 2011 £million Experience (losses)/gains on defined benefit scheme liabilities Changes in assumptions underlying the present value of defined benefit scheme liabilities Experience gains on defined benefit scheme assets Surplus restriction

2010 £million 48

(67)

(1,272) 530 – (694)

140 81 (9) 145

The cumulative amount of actuarial gains and losses recognised in the statement of other comprehensive income at 31 March 2011 was a net loss of £511 million (2010: £665 million loss). The amounts recognised for the fair value of scheme assets, the present value of scheme liabilities and experience gains/(losses) on scheme assets and liabilities for the past four years ended 31 March, were:

Present value of scheme liabilities Fair value of scheme assets Surplus restriction Retirement benefit (deficit)/surplus Experience gains/(losses) on scheme liabilities Experience gains/(losses) on scheme assets

2011 £million (4,363) 4,149 (9) (223) (67) 81

2010 £million (4,684) 4,222 – (462) 48 530

2009 £million (3,354) 3,542 – 188 (21) (560)

2008 £million (3,584) 3,881 – 297 3 (47)

The principal actuarial assumptions at the year end were:

Discount rate for defined benefit scheme Inflation Rate of general long term increase in salaries Rate of increase to pensions in payment

UK 5.6% 3.5% n/a 3.3%

2011 Non-UK 5.0% to 6.2% 1.8% to 3.5% 2.0% to 2.8% 1.8% to 3.3%

2010 UK 5.5% 3.6% 4.6% 3.5%

The expected returns on defined benefit scheme assets for the following financial year are:

Non-UK 4.0% to 4.6% 2.0% to 4.3% 3.0% to 3.8% 2.5% to 4.3%

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2011 UK 4.4% 7.9% 7.4% 3.7%

Bonds Equities Property Other

2010 UK 4.7% 7.9% 7.7% 4.3%

The expected return on non-UK defined benefit scheme assets ranged from 3.7% to 7.7% (2010: 5.0% to 6.0%). The expected rate of return on defined benefit scheme assets has been determined with reference to historic and projected market returns. The actual return on defined benefit scheme assets was a £286 million gain (2010: £737 million gain). The mortality assumptions adopted as at 31 March 2011 have been set to reflect the Company’s best estimate view of life expectancies of members for each individual pension arrangement. These mortality assumptions vary by arrangement, each assumption reflecting the characteristics of the membership of that arrangement. In terms of the Boots Pension Scheme, which is the Group’s largest defined benefit pension scheme, a detailed analysis of the current mortality rates experienced in the scheme was carried out during the year as part of the ongoing triennial funding valuation. These mortality rates were adopted for the 31 March 2011 IAS 19 Employee Benefits accounting valuation of this scheme. The projected life expectancy from the age of 60 years was:

Male Female

2011 Currently aged 45 27.6 29.3

2011 Currently aged 60 26.5 28.2

2010 Currently aged 45 26.8 28.6

2010 Currently aged 60 25.8 27.7

A sensitivity analysis on the principal assumptions used to measure the scheme liabilities at the year end is: Discount rate Rate of inflation Assumed life expectancy at age 60 (rate of mortality)

Change in assumption Increase by 0.25% Increase by 0.25% Increase by 1 year

Impact on scheme liabilities Decrease by £183 million Increase by £192 million Increase by £116 million

Defined Contribution Schemes The Group operates a number of defined contribution schemes. During the year, in respect of continuing operations, the Group contributed £65 million (2010: £18 million) into these schemes.

ArcelorMittal and Subsidiaries Annual Report 2010 (in millions of U.S. dollars, except share and per share data) Notes to Consolidated Financial Statements Note 1: Nature of Business, Basis of Presentation and Consolidation Basis of Presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollars with all amounts rounded to the nearest million, except for share and per share data. Note 2: Summary of Significant Accounting Policies Deferred Employee Benefits Defined contribution plans are those plans where ArcelorMittal pays fixed contributions to an external life insurance or other funds for certain categories of employees. Contributions are paid in return for services rendered by the employees during the period. They are expensed as they are incurred in line with the treatment of wages and salaries. No provisions are established in respect of defined contribution plans, as they do not generate future commitments for ArcelorMittal.

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Defined benefit plans are those plans that provide guaranteed benefits to certain categories of employees, either by way of contractual obligations or through a collective agreement. For defined benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each statement of financial position date. Actuarial gains and losses that exceed ten per cent of the greater of the present value of the Company’s defined benefit obligation and the fair value of plan assets at the end of the prior year are amortized over the expected average remaining working lives of the participating employees. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognized in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan. Voluntary retirement plans primarily correspond to the practical implementation of social plans or are linked to collective agreements signed with certain categories of employees. Early retirement plans are those plans that primarily correspond to terminating an employee’s contract before the normal retirement date. Early retirement plans are considered effective when the affected employees have formally been informed and when liabilities have been determined using an appropriate actuarial calculation. Liabilities relating to the early retirement plans are calculated annually on the basis of the effective number of employees likely to take early retirement and are discounted using an interest rate which corresponds to that of highly-rated bonds that have maturity dates similar to the terms of the Company’s early retirement obligations. Termination benefits are provided in connection with voluntary separation plans. The Company recognizes a liability and expense when it has a detailed formal plan which is without realistic possibility of withdrawal and the plan has been communicated to employees or their representatives. Other long-term employee benefits include various plans that depend on the length of service, such as long service and sabbatical awards, disability benefits and long term compensated absences such as sick leave. The amount recognized as a liability is the present value of benefit obligations at the statement of financial position date, and all changes in the provision (including actuarial gains and losses or past service costs) are recognized in the statement of operations. Note 23: Deferred Employee Benefits ArcelorMittal’s Operating Subsidiaries have different types of pension plans for their employees. Also, some of the Operating Subsidiaries offer other post-employment benefits, principally healthcare. The expense associated with these pension plans and employee benefits, as well as the carrying amount of the related liability/asset on the statements of financial position are based on a number of assumptions and factors such as the discount rate, expected compensation increases, expected return on plan assets, future healthcare cost trends and market value of the underlying assets. Actual results that differ from these assumptions are accumulated and amortized over future periods and, therefore, will affect the statement of operations and the recorded obligation in future periods. The total accumulated unrecognized actuarial loss amounted to 1,979 for pensions and 1,020 for other post-retirement benefits as of December 31, 2010. The Company agreed in 2008 to transfer to ArcelorMittal USA a number of shares held in treasury equal to a fair value of 130, subject to certain adjustments, in several tranches until the end of 2010 to provide a means for ArcelorMittal USA to meet its cash funding requirements to the ArcelorMittal USA Pension Trust. The first tranche, consisting of 1,121,995 treasury shares, was transferred on December 29, 2008 for consideration of $23.72 per share, the New York Stock Exchange opening price on December 23, 2008. The second tranche, consisting of 119,070 treasury shares, was transferred on June 29, 2009 for consideration of $32.75 per share, the New York Stock Exchange opening price on June 26, 2009. The third tranche, consisting of 1,000,095 treasury shares, was transferred on September 15, 2009, for consideration of $39.00 per share, the New York Stock Exchange opening price on September 14, 2009. There were no transfers in 2010. Pension Plans A summary of the significant defined benefit pension plans is as follows: U.S. ArcelorMittal USA’s Pension Plan and Pension Trust is a non-contributory defined benefit plan covering approximately 24% of its employees. Certain non-represented salaried employees hired before 2003 also receive pension benefits. Benefits for most non-represented employees who receive pension benefits are determined un-

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der a “Cash Balance” formula as an account balance which grows as a result of interest credits and of allocations based on a percentage of pay. Benefits for other non-represented salaried employees who receive pension benefits are determined as a monthly benefit at retirement depending on final pay and service. Benefits for wage and salaried employees represented by a union are determined as a monthly benefit at retirement based on fixed rate and service. This plan is closed to new participants. Represented employees hired after November 2005 and for employees at locations which were acquired from International Steel Group Inc. receive pension benefits through a multiemployer pension plan that is accounted for as defined contribution plan. Canada The primary pension plans are those of ArcelorMittal Dofasco and ArcelorMittal Mines Canada. The ArcelorMittal Dofasco pension plan is a hybrid plan providing the benefits of both a defined benefit and defined contribution pension plan. The defined contribution component is financed by both employer and employee contributions. The employer also contributes a percentage of profits in the defined contribution plan. The ArcelorMittal Mines Canada defined benefit plan provides salary related benefits for non-union employees and a flat dollar pension depending on an employee’s length of service. This plan was closed for new hires on December 31, 2009, and replaced by a defined contribution pension plan with contributions related to age and services. The ArcelorMittal Mines Canada hourly workers’ defined benefit plan is a unionized plan and is still open to new hires. Brazil The primary defined benefit plans, financed through trust funds, have been closed to new entrants. Brazilian entities have all established defined contribution plans that are financed by employer and employee contributions. Europe Certain European Operating Subsidiaries maintain primarily unfunded defined benefit pension plans for a certain number of employees. Benefits are based on such employees’ length of service and applicable pension table under the terms of individual agreements. Some of these unfunded plans have been closed to new entrants and replaced by defined contributions pension plans for active members financed by employer and employee contributions. South Africa There are two primary defined benefit pension plans. These plans are closed to new entrants. The assets are held in pension funds under the control of the trustees and both funds are wholly funded for qualifying employees. South African entities have also implemented defined contributions pension plans that are financed by employers’ and employees’ contributions. Other A limited number of funded defined benefit plans are in place in countries where funding of multiemployer pension plans is mandatory. Plan Assets The weighted-average asset allocations for the funded defined benefit pension plans by asset category were as follows:

Equity Securities Fixed Income (including cash) Real Estate Other Total

Equity Securities Fixed Income (including cash) Real Estate Other Total

U.S. 55%

Canada 57%

25% 4% 16% 100%

41% — 2% 100%

U.S. 55%

Canada 56%

25% 4% 16% 100%

42% — 2% 100%

December 31, 2009 Brazil Europe 9% 10% 89% — 2% 100%

79% 1% 10% 100%

December 31, 2010 Brazil Europe 8% 10% 90% — 2% 100%

79% 1% 10% 100%

South Africa 34%

Others 28%

48% 1% 17% 100%

72% — — 100%

South Africa 40%

Others 32%

60% — — 100%

68% — — 100%

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These assets do not include any direct investment in ArcelorMittal or in property or other assets occupied or used by ArcelorMittal except for the transaction explained previously. This does not exclude ArcelorMittal shares included in mutual fund investments. The invested assets produced an actual return of 950 and 699 in 2009 and 2010, respectively. The Finance and Retirement Committees of the Board of Directors for the respective Operating Subsidiaries have general supervisory authority over the respective trust funds. These committees have established the following asset allocation targets. These targets are considered benchmarks and are not mandatory.

Equity Securities Fixed Income (including cash) Real Estate Other Total

U.S. 62%

Canada 59%

24% 5% 9% 100%

41% — — 100%

December 31, 2010 Brazil Europe 11% 10% 84% — 5% 100%

South Africa 48%

Others 35%

52% — — 100%

65% — — 100%

79% 2% 9% 100%

The following tables detail the reconciliation of defined benefit obligation, plan assets and statement of financial position. Year Ended December 31, 2010 U.S.

Canada

Brazil

Europe

South Africa

3,281 53 183 — — — — — (247)

2,275 51 168 6 1 — — 168 (174)

550 10 70 — 2 — (10) 22 (43)

2,316 37 126 35 1 3 (9) 141 (188)

743 — 71 — — — — (4) (90)

867

—

393

198

82

190

4

10,612

3,270

2,888

799

2,544

910

201

1,916 156 265 48 — — (244)

1,786 140 130 202 1 — (173)

589 79 39 13 2 (9) (43)

566 23 42 38 1 6 (55)

826 71 (4) — — — (90)

105 10 (1) 1 1 — (8)

Total Change in benefit obligation Benefit obligation at beginning of the period Service cost Interest cost Plan amendments Plan participants’ contribution Acquisition Curtailments and settlements Actuarial (gain) loss Benefits paid Foreign currency exchange rate differences and other movements Benefit obligation at end of the period Change in plan assets Fair value of plan assets at beginning of the period Expected return on plan assets Actuarial gain (loss) Employer contribution Plan participants’ contribution Settlements Benefits paid Foreign currency exchange rate differences and other movements Fair value of plan assets at end of the period Present value of the wholly or partly funded obligation Fair value of plan assets Net present value of the wholly or partly funded obligation Present value of the unfunded obligation Unrecognized net actuarial loss Unrecognized past service cost Prepaid due to unrecoverable surpluses Net amount recognized

9,359 160 635 46 5 3 (24) 330 (769)

5,788 479 471 302 5 (3) (613)

Others 194 9 17 5 1 — (5) 3 (27)

766

—

310

215

23

218

—

7,195

2,141

2,396

885

644

1,021

108

(9,078) 7,195

(3,236) 2,141

(2,873) 2,396

(799) 885

(910) 1,021

(97) 108

(1,883)

(1,095)

(477)

86

(519)

111

11

(1,534) 1,678 3

(34) 1,242 2

(15) 251 —

— 30 —

(1,381) 127 1

— — —

(104) 28 —

(221) (1,957)

— 115

(3) (244)

(104) 12

(3) (1,775)

(111) —

— (65)

(1,163) 644

Employee Benefits (IAS 19)

343

Year Ended December 31, 2010 Total Net assets related to funded obligations Recognized liabilities Amount included above related to discontinued operations Change in benefit obligation Benefit obligation at beginning of the period Service cost Interest cost Plan amendments Plan participants’ contribution Acquisition Curtailments and settlements Actuarial (gain) loss Benefits paid Foreign currency exchange rate differences and other movements Benefit obligation at end of the period Change in plan assets Fair value of plan assets at beginning of the period Expected return on plan assets Actuarial gain (loss) Employer contribution Plan participants’ contribution Settlements Benefits paid Foreign currency exchange rate differences and other movements Fair value of plan assets at end of the period Present value of the wholly or partly funded obligation Fair value of plan assets Net present value of the wholly or partly funded obligation Present value of the unfunded obligation Unrecognized net actuarial loss Unrecognized past service cost Prepaid due to unrecoverable surpluses Net amount recognized Net assets related to funded obligations Recognized liabilities Amount included above related to discontinued operations

U.S.

Canada

Brazil

Europe

South Africa

Others

— (1,775)

— —

18 (83)

(91)

—

— 201 10 20 22 1 (9) (8) 95 (19)

294 (2,251)

194 (79)

65 (309)

17 (5)

(91)

—

—

—

10,612 158 666 40 4 (9) (9) 642 (757)

3,270 49 180 — — — — 261 (241)

2,888 50 182 15 1 — — 189 (193)

799 11 88 — 2 — — 24 (47)

2,544 38 113 3 — — 2 5 (172)

910 — 83 — — — (3) 68 (85)

64

—

129

25

(201)

118

11,411

3,519

3,261

902

2,141 178 67 166 — — (237)

2,396 184 55 262 1 — (192)

885 97 6 14 2 — (47)

7,195 590 109 484 4 (3) (611)

2,332

(7)

1,091

306

644 23 16 41 — — (45)

1,021 99 (34) — — (3) (85)

108 9 (1) 1 1 — (5)

122

207

—

116

29

(55)

7,975

2,315

2,822

986

624

(9,882) 7,975

(3,486) 2,315

(3,246) 2,822

(902) 986

(1,907)

(1,171)

(424)

84

(439)

(1,529) 1,979 5

(33) 1,318 —

(15) 390 5

— 45 —

(148) (1,600)

— 114

— (44)

317 (1,917)

186 (72)

101 (145)

(83)

—

—

(1,063) 624

(5)

1,120

108

(1,091) 1,120

(94) 108

29

14

(1,269) 111 —

— (4) —

(212) 119 —

(121) 8

(2) (1,599)

(25) 0

— (79)

13 (5)

— (1,599)

— —

17 (96)

(83)

—

—

—

Asset Ceiling The amount not recognized in the fair value of plan assets due to the asset ceiling was 221 and 148 at December 31, 2009 and 2010, respectively. The following tables detail the components of net periodic pension cost:

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344

Year Ended December 31, 2009 Net periodic pension cost Service cost Interest cost Expected return on plan assets Charges due to unrecoverable surpluses Curtailments and settlements Amortization of unrecognized past service cost Amortization of unrecognized actuarial loss Total Amount included above related to discontinued operations Net periodic pension cost Service cost Interest cost Expected return on plan assets Charges due to unrecoverable surpluses Curtailments and settlements Amortization of unrecognized past service cost Amortization of unrecognized actuarial loss Total Amount included above related to discontinued operations

South Africa

Others

37 126 (23)

— 71 (71)

9 17 (10)

10 1

— (11)

— —

— (3)

6

—

35

—

5

184 290

10 98

6 18

— 164

— —

1 19

4

—

—

—

4

—

—

158 666 (590)

49 180 (178)

50 182 (184)

11 88 (97)

38 113 (23)

— 83 (99)

10 20 (9)

(79) 4

— —

(3) —

14 —

— 5

(90) —

— (1)

37

2

10

—

3

—

22

225 421

118 171

1 56

2 18

134

106 —

— 42

4

—

—

—

4

—

—

Total

U.S.

Canada

Brazil

160 635 (479)

53 183 (156)

51 168 (140)

10 70 (79)

13 (13)

— —

3 —

72

26

201 589

Europe

(2)

Other Post-Employment Benefits ArcelorMittal’s principal Operating Subsidiaries in the U.S., Canada and Europe, among certain others, provide other post-employment benefits (“OPEB”), including medical benefits and life insurance benefits, to retirees. Substantially all union-represented ArcelorMittal USA employees are covered under post-employment life insurance and medical benefit plans that require deductible and co-insurance payments from retirees. The post-employment life insurance benefit formula used in the determination of post-employment benefit cost is primarily based on applicable annual earnings at retirement for salaried employees and specific amounts for hourly employees. ArcelorMittal USA does not pre-fund most of these post-employment benefits. Agreements with the USW capped ArcelorMittal USA’s share of health care costs for ArcelorMittal USA retirees at 2008 levels for years 2010 and beyond. The VEBA will be responsible for reimbursing ArcelorMittal USA for any costs in excess of the cap for retirees of ArcelorMittal USA. Because the current labor agreement specifies the level of benefits to be provided and ArcelorMittal USA is the only source of funding, the obligation meets the definition of a defined benefit plan. The current labor agreement between ArcelorMittal USA and the USW, the Company modified payments into an existing Voluntary Employee Beneficiary Association (“VEBA”) trust. The VEBA provided limited healthcare benefits to the retirees of certain companies whose assets were acquired (referred to as Legacy Retirees). Contributions into the trust under the old labor agreement were calculated based on quarterly operating income and on certain overtime hours worked. Benefits paid were based on the availability of funds in the VEBA. Under the current agreement, ArcelorMittal USA contributes a fixed amount of 25 per quarter. An agreement with the union allowed ArcelorMittal USA to defer these payments in 2009 and for the first three quarters of 2010. Payments resumed in the fourth quarter of 2010. These deferred contributions must be paid to the fund by August 12, 2012. Before that date, ArcelorMittal USA will make additional quarterly contributions calculated with the reference to its operating income. The Company has significant assets mostly in the aforementioned VEBA post-employment benefit plans. These assets consist of 99% in fixed income and 1% in cash. The total fair value of the assets in the VEBA trust was 467 as of December 31, 2010.

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345

Summary of changes in the other post employment benefit obligation and changes in plan assets are as follows: Year Ended December 31, 2009 U.S. Canada Brazil Europe

Total Change in post-employment benefit obligation Benefit obligation at beginning of period Service cost Interest cost Plan amendment Actuarial loss (gain) Benefits paid Curtailments and settlements Divestitures Foreign currency exchange rate changes and other movements Benefits obligation at end of period Present value of the wholly or partly funded obligation Fair value of assets Net present value of the wholly or partly funded obligation Present value of the unfunded obligation Unrecognized net actuarial loss (gain) Unrecognized past service cost Net amount recognized Amount included above related to discontinued operations

Others

5,254 60 299 42 46 (327) (70) (4)

3,861 26 217 24 38 (203) — —

667 10 46 — (17) (36) — —

5 — — — (1) — — —

603 19 29 18 32 (68) (70) (4)

118 5 7 — (6) (20) — —

116 5,416

— 3,963

108 778

1 5

5 564

2 106

(1,324) 577

(1,274) 559

— —

— —

(50) 18

— —

(747) (4,092) 401 131 (4,307)

(715) (2,689) 670 129 (2,605)

— (5) — — (5)

(32) (514) (20) 2 (564)

— (106) 10 — (96)

(5)

(57)

—

(62)

—

— (778) (259) — (1,037) —

Year Ended December 31, 2010 Change in post-employment benefit obligation Benefit obligation at beginning of period Service cost Interest cost Participants contribution Plan amendment Actuarial loss (gain) Benefits paid Curtailments and settlements Foreign currency exchange rate changes and other movements Benefits obligation at end of period Present value of the wholly or partly funded obligation Fair value of plan assets Net present value of the wholly or partly funded obligation Present value of the unfunded obligation Unrecognized net actuarial loss (gain) Unrecognized past service cost Net amount recognized Amount included above related to discontinued operations

5,416 61 313 32 82 694 (344) (2)

3,963 24 226 32 — 576 (243) —

778 10 51 — (1) 47 (40) (2)

5 — — — — — (1) —

564 21 29 — 83 55 (46) —

106 6 7 — — 16 (14) —

(6) 6,246

(3) 4,575

42 885

(1) 3

(33) 673

(11) 110

(1,392) 517

(1,302) 502

— —

— —

(90) 15

— —

(875) (4,854) 1,020 128 (4,581)

(800) (3,273) 1,195 58 (2,820)

— (885) (205) — (1,090)

— (3) — — (3)

(75) (583) 7 70 (581)

— (110) 23 — (87)

—

(3)

(55)

—

(58)

—

The following tables detail the components of net periodic other post-employment cost: Total Components of net periodic OPEB cost (benefit) Service cost Interest cost Expected return on plan assets Curtailments and settlements

60 299 (39) (70)

Year Ended December 31, 2009 U.S. Canada Brazil Europe 26 217 (38) —

10 46 — —

— — — —

19 29 (1) (70)

Others 5 7 — —

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Total Amortization of unrecognized past service cost Amortization of unrecognized actuarial (gain) loss Total Amount included above related to discontinued operations Components of net periodic OPEB cost (benefit) Service cost Interest cost Expected return on plan assets Curtailments and settlements Amortization of unrecognized past service cost Amortization of unrecognized actuarial (gain) loss Total Amount included above related to discontinued operations

Year Ended December 31, 2010 U.S. Canada Brazil Europe

Others

110

92

—

—

18

—

35 395

32 329

(16) 40

(1) (1)

19 14

1 13

—

—

(1)

—

—

61 313 (33) (3)

24 226 (32) —

10 51 — (3)

— — — —

21 29 (1) —

6 7 — —

79

71

(1)

—

9

—

56 473

42 331

(18) 39

— —

30 88

2 15

6

—

—

—

6

—

(1)

Weighted-average assumptions used to determine benefit obligations at each of December 31, 2009 and 2010:

Discount rate Rate of compensation increase Expected long-term rate of return on plan assets

Pension Plans 2009 4.97% – 15% 1.71% – 14%

2010 4.75% – 14.0% 2.5% – 13.0%

Other Postemployment Benefits 2009 4.5% – 10.77% 2% – 7.12%

3.52% – 11.26%

3.5% – 10.78%

4.5% – 6.12%

2010 4.50% – 10.77% 2.0% – 6.32% 4.5% – 6.18%

Healthcare Cost Trend Rate Pension Plans Healthcare cost trend rate assumed

2009 3.00% – 5.40%

2010 2.00% – 5.18%

Cash Contributions In 2011, the Company expects its cash contributions to amount to 607 for pension plans, 493 for other post-employment benefits plans and122 for the defined contribution plans. Cash contributions to the defined contribution plans, sponsored by the Company, were 114 in 2010. Statement of Financial Position Total deferred employee benefits including pension or other post-employment benefits, are as follows:

Pension plan benefits Other post-employment benefits Early retirement benefits Other long-term employee benefits Total

December 31, 2009 2,251 4,307 886 139 7,583

December 31, 2010 1,834 4,523 761 62 7,180

Decrease in the pension liability of 2010 is mainly due to the increase in the plan assets as compared to 2009. Other long-term employee benefits represent liabilities related to multi-employer plans and other long term defined contribution plans. Additionally, the long-term employee benefit liabilities held-for distribution amounted to:

Pension plan benefits Other post-employment benefits Early retirement, termination and other benefits Total

December 31, 2010 83 58 40 181

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347

The fair values of the employee benefit liabilities as of December 31 2010 can be derived from the aforementioned amounts by adding the non recognized actuarial losses and deducting the actuarial gains, deferred in accordance with the “corridor” approach, as described in note 2. Accordingly, the fair value of the employee benefit liability held for distribution was 163 as of December 31, 2010. Sensitivity Analysis The following information illustrates the sensitivity to a change in certain assumptions related to ArcelorMittal’s pension plans (as of December 31, 2010, the defined benefit obligation (“DBO”) for pension plans was 11,411):

Change in assumption 100 basis point decrease in discount rate 100 basis point increase in discount rate 100 basis point decrease in rate of compensation 100 basis point increase in rate of compensation 100 basis point decrease in expected return on plan assets 100 basis point increase in expected return on plan assets

Effect on 2011 Pre-Tax Pension Expense (sum of service cost and interest cost)

Effect of December 31, 2010 DBO

(13) 6 (34) 40 (79) 79

1,300 (1,113) (273) 301 0 0

The following table illustrates the sensitivity to a change in the discount rate assumption related to ArcelorMittal’s OPEB plans (as of December 31, 2010 the DBO for post-employment benefit plans was 6,246): Effect on 2011 Pre-Tax Pension Expense (sum of service cost and interest cost) Change in assumption 100 basis point decrease in discount rate 100 basis point increase in discount rate 100 basis point decrease in healthcare cost trend rate 100 basis point increase in healthcare cost trend rate

Effect of December 31, 2010 DBO

(13) 9 (39) 48

770 (640) (576) 684

The above sensitivities reflect the effect of changing one assumption at a time. Actual economic factors and conditions often affect multiple assumptions simultaneously, and the effects of changes in key assumptions are not necessarily linear. Experience Adjustments The five year history of the present value of the defined benefit obligations, the fair value of the plan assets and the surplus or the deficit in the pension plans is as follows:

Present value of the defined benefit obligations Fair value of the plan assets Deficit Experience adjustments: (increase)/decrease plan liabilities Experience adjustments: increase/(decrease) plan assets

December 31, 20061

December 31, 2007

December 31, 2008

December 31, 2009

December 31, 2010

(8,592) 5,729 (2,863)

(10,512) 8,091 (2,421)

(9,359) 5,788 (3,571)

(10,612) 7,195 (3,417)

(11,411) 7,975 (3,436)

—

(195)

(122)

(161)

(11)

—

(201)

(1,712)

471

109

This table illustrates the present value of the defined benefit obligations, the fair value of the plan assets and the surplus or the deficit for the OPEB plans:

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348

December 31, 20061 Present value of the defined benefit obligations Fair value of the plan assets Deficit Experience adjustments: (increase)/decrease plan liabilities Experience adjustments: increase/(decrease) plan assets 1

December 31, 2007

December 31, 2008

December 31, 2009 (5,416) 577 (4,839)

December 31, 2010

(2,614) 48 (2,566)

(2,805) 49 (2,756)

(5,254) 635 (4,619)

(6,246) 517 (5,729)

—

(33)

(142)

14

(64)

—

—

(19)

11

9

Experience adjustments data for 2006 are not available.

BAE Systems Annual Report 2010 (in £ millions) Notes to the Group accounts 1.

Accounting Policies

Basis of Preparation The consolidated financial statements of BAE Systems plc have been prepared on a going concern basis and in accordance with EU-endorsed International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee interpretations (IFRICs) and the Companies Act 2006 applicable to companies reporting under IFRS. Pension obligations Group companies operate various pension plans. The Group has both defined benefit and defined contribution plans. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. For defined benefit retirement plans, the cost of providing benefits is determined periodically by independent actuaries and charged to the income statement in the period in which those benefits are earned by the employees. Actuarial gains and losses are recognised in full in the period in which they occur, and are recognised in the statement of comprehensive income. Past service cost is recognised immediately to the extent the benefits are already vested, or otherwise is recognised on a straight-line basis over the average period until the benefits become vested. Curtailments due to the material reduction of the expected years of future services of current employees or the elimination of the accrual of defined benefits for some or all of the future services for a significant number of employees are recognised immediately as a gain or loss in the income statement. The retirement benefit obligations recognised in the balance sheet represent the present value of the defined benefit obligations as adjusted for unrecognised past service cost and as reduced by the fair value of scheme assets. 7.

Employees and Directors

The weekly average and year-end numbers of employees, excluding those in equity accounted investments, were as follows:

Electronics, Intelligence & Support Land & Armaments Programmes & Support International HQ & Other Businesses

Weekly average 2009 2010 Number Number ‘000 ‘000 31 33 18 21 33 27 11 11 2 2 95 94

At year end 2009 2010 Number Number ‘000 ‘000 31 32 16 20 32 33 11 11 2 2 92 98

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349

The aggregate staff costs of Group employees, excluding employees of equity accounted investments, were: 2010 £m 4,884 409 18 (2) 110 212 2 5,633

Wages and salaries Social security costs Share options granted to directors and employees – equity-settled Share options granted to directors and employees – cash-settled Pension costs – defined contribution plans (note 21) Pension costs – defined benefit plans (note 21) US healthcare plans (note 21)

2009 £m 4,897 400 13 (2) 127 167 3 5,605

The Group considers key management personnel as defined under IAS 24, Related Party Disclosures, to be the members of the Group’s Executive Committee and the Company’s non-executive directors. Fuller disclosures on directors’ remuneration are set out in the Remuneration report on pages 96 to 119. Total emoluments for directors and other key management personnel were: 2010 £’000

Short-term employee benefits 1 Post-employment benefits Share-based payments 1

15,131 1,300 4,033 20,464

2009 £’000

14,761 1,754 4,773 21,288

2009 includes special incentive awards.

21. Retirement Benefit Obligations Pension Plans BAE Systems plc operates pension plans for the Group’s qualifying employees in the UK, US and other countries. The principal plans in the UK and US are funded defined benefit plans, and the assets are held in separate trustee administered funds. The plans in other countries are defined contribution plans. Pension plan valuations are regularly carried out by independent actuaries to determine pension costs for pension funding and to calculate the IAS 19, Employee Benefits, deficit. The disclosures below relate to post-retirement benefit plans in the UK, US and other countries which are accounted for as defined benefit plans in accordance with IAS 19. The valuations used for the IAS 19 disclosures are based on the most recent actuarial valuation undertaken by independent qualified actuaries as updated to take account of the requirements of IAS 19 to assess the deficits of the plans at 31 December each year. Plan assets are shown at the bid value. Post-Retirement Benefits Other Than Pensions The Group also operates a number of non-pension post-retirement benefit plans, under which certain employees are eligible to receive benefits after retirement, the majority of which relate to the provision of medical benefits to retired employees of the Group’s subsidiaries in the US. The latest valuations of the principal plans, covering retiree medical and life insurance plans in certain US subsidiaries, were performed by independent actuaries as at 1 January 2010. These plans were rolled forward to reflect the information at 31 December 2010. The method of accounting for these is similar to that used for defined benefit pension plans. The financial assumptions used to calculate liabilities for the principal plans are:

Discount rate Inflation rate Rate of increase in salaries Rate of increase for pensions in payment 1 Rate of increase for deferred pensions Long-term healthcare cost increases 1

2010 % 5.5 3.4 4.4 2.3 – 3.6 2.8 – 3.4 –

UK 2009 % 5.7 3.5 4.5 2.3 – 3.7 3.5 –

2008 % 6.3 2.9 3.9 2.2 – 3.4 2.9 –

2010 % 5.5 3.0 4.5 – – 5.3

US 2009 % 5.9 3.0 4.5 – – 5.3

2008 % 6.5 3.0 5.5 – – 5.3

The assumption for the rate of deferred pension increases of 2.8% is in respect of those schemes which refer to the Consumer Prices Index as the relevant measure.

350

Wiley International Trends in Financial Reporting under IFRS

The assumptions used are estimates chosen from a range of possible actuarial assumptions which, due to the time scale covered, may not necessarily occur in practice. The bid values of plan assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present values of plan liabilities, which are derived from cash flow projections over long periods and therefore inherently uncertain, as at 31 December are shown in the tables below. Discount rate assumptions are based on third-party AA corporate bond indices and yields that reflect the maturity profile of the expected benefit payments. The inflation rate assumptions are derived by reference to the difference between the yields on index-linked and fixed-interest long-term government bonds, or advice from the local actuary depending on the available information. The inflation assumptions are used to derive the rate of increase for pensions in payment and the rate of increase in deferred pensions where there is such an increase. For its UK pension arrangements the Group has, for the purpose of calculating its liabilities as at 31 December 2010, continued to use PA 00 medium cohort tables based on year of birth (as published by the Institute of Actuaries) for both pensioner and non-pensioner members in conjunction with the results of an investigation into the actual mortality experience of plan members. In addition, this mortality has been subject to a minimum assumed rate of future annual mortality improvements of 1%. For its US pension arrangements, the mortality tables used are RP 2000 projected to 2018 for pensioners and projected to 2025 for non-pensioners. The current life expectancies underlying the value of the accrued liabilities for the main UK and US plans range from 19 to 23 years for current male pensioners at age 65 and 21 to 26 years for current female pensioners at age 65. The Group has a number of healthcare arrangements in the US. The long-term healthcare cost increases shown in the table above are based on the assumptions that the increases are 8.0% in 2011 reducing to 5% by 2017 for pre-retirement and 8.5% in 2011 reducing to 5% by 2018 for post-retirement. A summary of the movements in the retirement benefit obligations is shown below. The full disclosures, as required by IAS 19, are provided in the subsequent information. Summary of movements in retirement benefit obligations

Total IAS 19 deficit at 1 January 2010 Actual return on assets above expected return Decrease/(increase) in liabilities due to changes in assumptions Additional contributions Recurring contributions in excess of service cost Past service cost Curtailment gains Net financing (charge)/credit Exchange translation Movement in US healthcare plans Total IAS 19 deficit at 31 December 2010 Allocated to equity accounted investments and other participating employers Group’s share of IAS 19 deficit excluding Group’s share of amounts allocated to equity accounted investments and other participating employers at 31 December 2010

UK £m (5,006) 917 314 301 193 (39) – (118) – – (3,438) 696

US and other £m (610) 126 (259) – 60 – 2 15 (21) 22 (665) –

Total £m (5,616) 1,043 55 301 253 (39) 2 (103) (21) 22 (4,103) 696

(2,742)

(665)

(3,407)

The decrease in UK liabilities due to changes in assumptions includes a benefit of £348m arising from the change from the Retail Prices Index to the Consumer Prices Index as the measure of price inflation for the purposes of determining minimum statutory pension increases. With the exception of the BAE Systems 2000 Pension Plan (2000 Plan), this change has affected all of the Group’s UK pension schemes for deferred pension increases, but has only affected two of the Group’s smaller schemes for increases to pensions in payment. During the year, the Group contributed an additional £25m into Trust for the benefit of the Group’s main pension scheme (2009 £225m). The cumulative contributions totalling £250m are reported within other investments (£260m after cumulative fair value gains of £11m) and cash and cash equivalents (£1m) at 31 December 2010, and the use of these assets is restricted under the terms of the Trust. The Group considers these contributions to be equivalent to the other lump sum contributions it makes into the Group’s pension schemes and, accordingly, presents below a definition of the pension deficit including them.

Employee Benefits (IAS 19)

351

2010 £m (3,407) 261 (3,146)

Group’s share of IAS 19 deficit, net Assets held in Trust Pension deficit (as defined by the Group)

2009 £m (4,637) 227 (4,410)

Amounts recognised on the balance sheet 2010 UK defined benefit pension plans £m Present value of unfunded obligations Present value of funded obligations Fair value of plan assets Total IAS 19 deficit, net Allocated to equity accounted investments and other employers participating Group’s share of IAS 19 deficit, net Represented by: Pension prepayments (within trade and other receivables) Retirement benefit obligations Group’s share of IAS 19 deficit of equity accounted investments

US and other pension plans £m

2009

US healthcare plans £m

Total £m

UK defined benefit pension plans £m

US and other pension plans £m

US healthcare plans £m

Total £m

(28)

(138)

(11)

(177)

(10)

(115)

(11)

(136)

(17,990) 14,580 (3,438)

(3,002) 2,496 (644)

(137) 127 (21)

(21,129) 17,203 (4,103)

(17,776) 12,780 (5,006)

(2,587) 2,135 (567)

(140) 108 (43)

(20,503) 15,023 (5,616)

696

–

696

979

(2,742)

(644)

(3,407)

(4,027)

–

49

49

–

(2,742) (2,742)

(693) (644)

(3,456) (3,407)

(4,027) (4,027)

(88)

–

(88)

(128)

– (21)

– (21) (21)

–

–

–

(567)

(43)

42

–

(609) (567)

(43) (43)

–

–

979 (4,637)

42 (4,679) (4,637)

(128)

Amounts for the current and previous four years are as follows: Defined benefit pension plans Defined benefit obligations Plan assets at bid value Total deficit before tax and allocation to equity accounted investments and other participating employers Actuarial gain/(loss) on plan liabilities Actuarial gain/(loss) on plan assets at bid value

2010 £m (21,158) 17,076

2009 £m (20,488) 14,915

2008 £m (17,133) 12,978

2007 £m (17,109) 15,110

2006 £m (17,456) 14,289

(4,082) 55 1,043

(5,573) (3,342) 1,258

(4,155) 1,433 (3,724)

(1,999) 952 (156)

(3,167) 473 521

Total cumulative actuarial losses recognised in equity since the transition to IFRS are £2.5bn (2009 £3.4bn). Certain of the Group’s equity accounted investments participate in the Group’s defined benefit plans as well as Airbus SAS, the Group’s share of which was disposed of during 2006. As these plans are multiemployer plans the Group has allocated an appropriate share of the IAS 19 pension deficit to the equity accounted investments and to Airbus SAS based upon a reasonable and consistent allocation method intended to reflect a reasonable approximation of their share of the deficit. The Group’s share of the IAS 19 pension deficit allocated to the equity accounted investments is included in the balance sheet within equity accounted investments. In the event that an employer who participates in the Group’s pension schemes fails or cannot be compelled to fulfill its obligations as a participating employer, the remaining participating employers are obliged to collectively take on its obligations. The Group considers the likelihood of this event arising as remote.

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Assets of defined benefit pension plans 2010

Equities Bonds 1 Property Other Total

UK £m 8,544 4,765 1,084 187 14,580

% 59 33 7 1 100

Expected return % 8.25 4.7 6.0 1.0 6.8

% 64 27 7 2 100

Expected return % 8.25 4.8 6.0 1.0 7.0

US £m 1,690 613 108 85 2,496

% 68 25 4 3 100

Expected return Total % £m 9.0 10,234 6.0 5,378 7.0 1,192 4.0 272 8.0 17,076

% 60 31 7 2 100

% 65 26 5 4 100

Expected return Total % £m 9.25 9,579 6.0 3,962 7.0 1,061 4.0 313 8.1 14,915

% 64 27 7 2 100

2009

Equities Bonds 1 Property Other Total 1

UK £m 8,195 3,411 960 214 12,780

US £m 1,384 551 101 99 2,135

Includes £181m (2009 £168m) of properties occupied by Group companies.

When setting the overall expected rate of return on plan assets, historical markets are studied, and longterm historical relationships between equities and bonds are preserved. This is consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over time. Current market factors such as inflation and interest rates are evaluated before expected return assumptions are determined for each asset class. The overall expected return is established with proper consideration of diversification and rebalancing. Peer data and historical returns are reviewed to check for reasonableness and appropriateness. Changes in the fair value of plan assets are as follows:

Value of plan assets at 1 January 2009 Expected return on assets Actuarial gain Actual return on assets Contributions by employer Contributions by employer in respect of employee salary sacrifice arrangements Total contributions by employer Members’ contributions (including Department for Work and Pensions rebates) Currency loss Benefits paid Value of plan assets at 31 December 2009 Expected return on assets Actuarial gain Actual return on assets Contributions by employer Contributions by employer in respect of employee salary sacrifice arrangements Total contributions by employer Members’ contributions (including Department for Work and Pensions rebates) Currency gain Benefits paid Value of plan assets at 31 December 2010

UK defined benefit pension plans £m 11,159 765 994 1,759 421 107 528 36 (702) 12,780 883 917 1,800 653 108 761 37 (798) 14,580

US and other pension plans £m 1,819 141 264 405 216

US healthcare plans £m 92 6 13 19 13

– 216

– 13

18 (198) (125) 2,135 180 126 306 113

(10) (6) 108 8 8 16 8

– 113 16 65 (139) 2,496

– 8 – 3 (8) 127

Total £m 13,070 912 1,271 2,183 650 107 757 54 (208) (833) 15,023 1,071 1,051 2,122 774 108 882 53 68 (945) 17,203

Employee Benefits (IAS 19)

353

Changes in the present value of the defined benefit obligations before allocation to equity accounted investments and other participating employers are as follows:

Defined benefit obligations at 1 January 2009 Current service cost Contributions by employer in respect of employee salary sacrifice arrangements Total current service cost Members’ contributions (including Department for Work and Pensions rebates) Past service cost Actuarial loss on liabilities Curtailment gains Interest expense Currency gain Benefits paid Defined benefit obligations at 31 December 2009 Current service cost Contributions by employer in respect of employee salary sacrifice arrangements Total current service cost Members’ contributions (including Department for Work and Pensions rebates) Past service cost Actuarial gain/(loss) on liabilities Curtailment gains Interest expense Currency loss Benefits paid Defined benefit obligations at 31 December 2010

US and other pension plans £m (2,902) (70)

UK defined benefit pension plans £m (14,231) (92)

US healthcare plans £m (153) (3)

Total £m (17,286) (165)

(107) (199)

– (70)

– (3)

(107) (272)

(36) (18) (3,120) – (884) – 702 (17,786) (159)

(18) (3) (222) 261 (167) 294 125 (2,702) (53)

– – (8) – (9) 16 6 (151) (2)

(54) (21) (3,350) 261 (1,060) 310 833 (20,639) (214)

(108) (267)

– (53)

– (2)

(108) (322)

(37) (39) 314 – (1,001) – 798 (18,018)

(16) – (259) 2 (165) (86) 139 (3,140)

– – 6 5 (8) (6) 8 (148)

(53) (39) 61 7 (1,174) (92) 945 (21,306)

Contributions The Group contributions made to the defined benefit plans in the year ended 31 December 2010 were £695m (2009 £546m) excluding those amounts allocated to equity accounted investments and participating employers (£71m). This includes contributions of £157m into the UK schemes relating to the £500m share buyback programme completed in July 2010 and £51m into the 2000 Plan following the triennial actuarial valuation of that scheme. In 2011, the Group expects to make regular contributions at a similar level to those made in 2010. The Group incurred a charge in respect of the cash contributions of £110m (2009 £127m) paid to defined contribution plans for employees. It expects to make contributions of £108m to these plans in 2011. The amounts recognised in the income statement after allocation to equity accounted investments and other participating employers are as follows: 2010 UK defined benefit pension plans £m Included in operating costs: Current service cost Past service cost Included in other income: Pension curtailment gains US healthcare curtailment gains

(130) (29) (159)

US and other pension plans £m (53) – (53)

2009 US health care plans £m

Total £m

UK defined benefit pension plans £m

(2) – (2)

(185) (29) (214)

US and other pension plans £m

US health care plans £m

Total £m

(80) (14) (94)

(70) (3) (73)

(3) – (3)

(153) (17) (170)

–

2

–

2

–

261

–

261

– –

– 2

5 5

5 7

– –

– 261

– –

– 261

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354

2010 UK defined benefit pension plans £m Included in finance costs: Expected return on plan assets Interest on obligations Included in share of results of equity accounted investments: Group’s share of equity accounted investments’ operating costs Group’s share of equity accounted investments’ finance costs

728 (823) (95)

US and other pension plans £m 180 (165) 15

2009 US health care plans £m

Total £m

UK defined benefit pension plans £m

8 (8) –

916 (996) (80)

US and other pension plans £m

US health care plans £m

Total £m

630 (724) (94)

141 (167) (26)

6 (9) (3)

777 (900) (123)

(8)

–

–

(8)

(9)

–

–

(9)

(3)

–

–

(3)

(3)

–

–

(3)

A one percentage point change in assumed healthcare cost trend rates would have the following effects: One percentage point increase £m (0.2) (2.4)

(Increase)/decrease in the aggregate of service cost and interest cost (Increase)/decrease in defined benefit obligations

One percentage point decrease £m 0.1 1.7

A 0.5 percentage point change in net discount rates used to value liabilities would have the following effect:

Decrease/(increase) in defined benefit obligations

0.5 percentage point increase £bn 1.7

0.5 percentage point decrease £bn (1.7)

Holcim Limited Annual Report 2010 (in millions CHF) Notes to the consolidated financial statements Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Employee Benefits—Defined Benefit Plans Some Group companies provide defined benefit pension plans for employees. Professionally qualified independent actuaries value the defined benefit obligations on a regular basis. The obligation and costs of pension benefits are determined using the projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. Past service costs are recognized on a straight-line basis over the average period until the amended benefits become vested. Gains or losses on the curtailment or settlement of pension benefits are recognized when the curtailment or settlement occurs. Actuarial gains or losses are amortized based on the expected average remaining working lives of the participating employees, but only to the extent that the net cumulative unrecognized amount exceeds 10 percent of the greater of the present value of the defined benefit obligation and the fair value of plan assets at the end of the previous year. The pension obligation is measured at the present value of estimated future cash flows using a discount rate that is similar to the interest rate on high quality corporate bonds

Employee Benefits (IAS 19)

355

where the currency and terms of the corporate bonds are consistent with the currency and estimated terms of the defined benefit obligation. A net pension asset is recorded only to the extent that it does not exceed the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan and any unrecognized net actuarial losses and past service costs. Employee Benefits—Defined Contribution Plans In addition to the defined benefit plans described above, some Group companies sponsor defined contribution plans based on local practices and regulations. The Group’s contributions to defined contribution plans are charged to the statement of income in the period to which the contributions relate. Employee Benefits—Other Long-Term Employment Benefits Other long-term employment benefits include long-service leave or sabbatical leave, medical aid, jubilee or other long service benefits, long-term disability benefits and, if they are not due to be settled within twelve months after the year end, profit sharing, variable and deferred compensation. The measurement of these obligations differs from defined benefit plans in that all actuarial gains and losses are recognized immediately and no corridor approach is applied. Employee Benefits—Equity Compensation Plans The Group operates various equity-settled share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options or shares is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the equity instruments granted. The amounts are charged to the statement of income over the relevant vesting periods and adjusted to reflect actual and expected levels of vesting (note 34). 34. Employee Benefits Personnel expenses Million CHF Production and distribution Marketing and sales Administration Total

2010 2,759 415 861 4,035

2009 2,687 407 845 3,939

Personnel Expenses and Number of Personnel The Group’s total personnel expenses, including social charges, are recognized in the relevant expenditure line by function of the consolidated statement of income and amounted to CHF 4,035 million (2009: 3,939). As at December 31, 2010, the Group employed 80,310 people (2009: 81,498). Defined Benefit Pension Plans Some Group companies provide pension plans for their employees which under IFRS are considered as defined benefit pension plans. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependent’s pensions. The benefits offered vary according to the legal, fiscal and economic conditions of each country. Benefits are dependent on years of service and the respective employee’s compensation and contribution. A net pension asset is recorded only to the extent that it does not exceed the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan and any unrecognized actuarial losses and past service costs. The obligation resulting from the defined benefit pension plans is determined using the projected unit credit method. Unrecognized gains and losses resulting from changes in actuarial assumptions are recognized as income (expense) over the expected average remaining working lives of the participating employees, but only to the extent that the net cumulative unrecognized amount exceeds 10 percent of the greater of the present value of the defined benefit obligation and the fair value of plan assets at the end of the previous year. Other Post-Employment Benefit Plans The Group operates a number of other post-employment benefit plans. The method of accounting for these provisions is similar to the one used for defined benefit pension schemes. A number of these plans are not externally funded, but are covered by provisions in the statements of financial position of the respective Group companies. The following table reconciles the funded, partially funded and unfunded status of defined benefit pension plans and other post-employment benefit plans to the amounts recognized in the statement of financial position.

356

Wiley International Trends in Financial Reporting under IFRS

Reconciliation of retirement benefit plans to the statement of financial position Million CHF Net liability arising from defined benefit pension plans Net liability arising from other post-employment benefit plans Net liability Reflected in the statement of financial position as follows: Other long-term assets Defined benefit obligations Net liability

2010 222 69 291

2009 287 74 361

(26) 317 291

(15) 376 361

Summary of changes in the other post-employment benefit obligation and changes in plan assets are as follows:

Million CHF Present value of funded obligations Fair value of plan assets Plan deficit of funded obligations Present value of unfunded obligations Unrecognized actuarial losses Unrecognized past service costs Unrecognized plan assets Net liability from funded and unfunded plans Amounts recognized in the statement of income are as follows: Current service costs Interest expense on obligations Expected return on plan assets Amortization of actuarial losses Past service costs Losses (gains) on curtailments and settlements Limit of asset ceiling Others Total (included in personnel expenses) Actual return on plan assets Present value of funded and unfunded obligations Opening balance as per January 1 Current service costs Employees’ contributions Interest cost Actuarial losses (gains) Currency translation effects Benefits paid Past service costs Change in structure Curtailments Settlements Closing balance as per December 31 Fair value of plan assets Opening balance as per January 1 Expected return on plan assets Actuarial (losses) gains Currency translation effects Contribution by the employer Contribution by the employees Benefits paid Change in structure Settlements Closing balance as per December 31

Defined benefit pension plans 2010 2009 2,786 2,793 -2,405 -2,541 381 252 225 235 -379 -237 -6 -16 1 53 222 287

Other post-employment benefit plans 2010 2009 0 0 0 0 0 0 83 89 -14 -15 0 0 0 0 69 74

78 149 -137 62 1 0 -50 -4 99 51

76 147 -122 34 4 3 -27 2 117 196

1 4 0 0 0 0 0 0 5 0

2 5 0 0 0 -3 0 0 4 0

3,028 78 22 149 147 -211 -183 9 -9 -10 -9 3,011

2,731 76 24 147 193 76 -263 4 43 -2 -1 3,028

89 1 0 4 -1 -5 -5 0 0 0 0 83

95 2 0 5 -1 -1 -8 0 0 -3 0 89

2,541 137 (86) (148) 109 22 (166) 0 (4) 2,405

2,375 122 73 85 79 24 (243) 27 (1) 2,541

0 0 0 0 4 0 (4) 0 0 0

0 0 0 0 7 0 (7) 0 0 0

Employee Benefits (IAS 19)

357

Defined benefit pension plans 2010 2009

Million CHF Plan assets consist of: Equity instruments of Holcim Ltd or subsidiaries Equity instruments of third parties Debt instruments of Holcim Ltd or subsidiaries Debt instruments of third parties Land and buildings occupied or used by third parties Other Total fair value of plan assets Principal actuarial assumptions used at the end of the reporting period Discount rate Expected return on plan assets Future salary increases Medical cost trend rate

1 846 23 592 330 613 2,405

Other post-employment benefit plans 2010 2009

2 754 25 1,031 321 408 2,541

4.4% 5.4% 2.9%

4.9% 5.1% 2.8%

0 0 0 0 0 0 0

0 0 0 0 0 0 0

4.9%

5.4%

7.2%

8.1%

The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date applicable to the period over which the obligation is to be settled. Experience Adjustments Million CHF Present value of defined benefit obligation Fair value of plan assets Deficit Experience adjustments: On plan liabilities On plan assets

Defined benefit pension plans 2009 2008 2007

2006

3,011

3,028

2,731

3,292

3,435

83

89

95

112

143

(2,405) 606

(2,541) 487

(2,375) 356

(3,068) 224

(2,939) 496

0 83

0 89

0 95

(12) 100

(28) 115

24 (341)

(17) 13

(3) 0

(6) 0

(3) 0

2010

(33) (86)

0 73

Other post-employment benefit plans 2010 2009 2008 2007 2006

57 76

3 0

0 0

Change in Assumed Medical Cost Trend Rate

A 1 percentage point change in the assumed medical cost trend rate would have the following effects: – On the aggregate of the current service cost and interest cost components of net periodic post-employment medical costs – On the accumulated post-employment benefit obligations for medical costs

Increase Million CHF 2010

Increase Million CHF 2009

Decrease Million CHF 2010

Decrease Million CHF 2009

0

0

0

0

5

4

4

3

Expected contributions by the employer to be paid to the post-employment benefit plans during the annual period beginning after the end of the reporting period are CHF 119 million (2009: 111).

Telstra Corporation Limited and Controlled Entities Annual Report 2010 (in $ millions) Notes to the financial statements 1.

Basis of Preparation

1.1 Basis of Preparation of the Financial Report This financial report is a general purpose financial report prepared in accordance with the requirements of the Australian Corporations Act 2001 and Accounting Standards applicable in Australia. This financial report also complies with International Financial Reporting Standards and Interpretations published by the International Accounting Standards Board.

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2.

Summary of Accounting Policies

2.20 Post-Employment Benefits (a) Defined Contribution Plans Our commitment to defined contribution plans is limited to making contributions in accordance with our minimum statutory requirements. We do not have any legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to current and past employee services. Contributions to defined contribution plans are recorded as an expense in the income statement as the contributions become payable. We recognise a liability when we are required to make future payments as a result of employee services provided. (b) Defined Benefit Plans We currently sponsor a number of post-employment benefit plans. As these plans have elements of both defined contribution and defined benefit, these hybrid plans are treated as defined benefit plans. At reporting date, where the fair value of the plan assets is less than the present value of the defined benefit obligations, the net deficit is recognised as a liability. If the fair value of the plan assets exceeds the present value of the defined benefit obligations, the net surplus is recognised as an asset. We recognise the asset as we have the ability to control this surplus to generate future funds that are available to us in the form of reductions in future contributions or as a cash refund. Fair value is used to determine the value of the plan assets at reporting date and is calculated by reference to the net market values of the plan assets. Defined benefit obligations are based on the expected future payments required to settle the obligations arising from current and past employee services. This obligation is influenced by many factors, including final salaries and employee turnover. We engage qualified actuaries to calculate the present value of the defined benefit obligations. These obligations are measured gross of tax. The actuaries use the projected unit credit method to determine the present value of the defined benefit obligations of each plan. This method determines each year of service as giving rise to an additional unit of benefit entitlement. Each unit is measured separately to calculate the final obligation. The present value is determined by discounting the estimated future cash outflows using rates based on government guaranteed securities with similar due dates to these expected cash flows. We recognise all our defined benefit costs in the income statement with the exception of actuarial gains and losses that are recognized directly in other comprehensive income via retained profits. Components of defined benefit costs include current and past service cost, interest cost and expected return on assets. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. Actuarial gains and losses are based on an actuarial valuation of each defined benefit plan at reporting date. Actuarial gains and losses represent the differences between previous actuarial assumptions of future outcomes and the actual outcome, in addition to the effect of changes in actuarial assumptions. We apply judgement in estimating the following key assumptions used in the calculation of our defined benefit liabilities and assets at reporting date: • • •

Discount rates; Salary inflation rate; and Expected return on plan assets.

The estimates applied in the actuarial calculation have a significant impact on the reported amount of our defined benefit plan liabilities and assets. If the estimates prove to be incorrect, the carrying value may be materially impacted in the next reporting period. Additional volatility may also potentially be recorded in retained profits to reflect differences between actuarial assumptions of future outcomes applied at the current reporting date and the actual outcome in the next annual reporting period. Refer to note 24 for details on the key estimates used in the calculation of our defined benefit liabilities and assets.

Employee Benefits (IAS 19)

359

24. Post-Employment Benefits The employee superannuation schemes that we participate in or sponsor exist to provide benefits for our employees and their dependants after finishing employment with us. It is our policy to contribute to the schemes at rates specified in the governing rules for defined contribution schemes, or at rates determined by the actuaries for defined benefit schemes. The defined contribution divisions receive fixed contributions and our legal or constructive obligation is limited to these contributions. The present value of our obligations for the defined benefit plans are calculated by an actuary using the projected unit credit method. This method determines each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to calculate the final obligation. Details of the defined benefit plans we participate in are set out below. Telstra Superannuation Scheme (Telstra Super) On 1 July 1990, Telstra Super was established and the majority of Telstra staff transferred into Telstra Super. The Telstra Entity and some of our Australian controlled entities participate in Telstra Super. Telstra Super has both defined benefit and defined contribution divisions. The defined benefit divisions of Telstra Super are closed to new members. The defined benefit divisions provide benefits based on years of service and final average salary. Postemployment benefits do not include payments for medical costs. Contribution levels made to the defined benefit divisions are designed to ensure that benefits accruing to members and beneficiaries are fully funded as the benefits fall due. The benefits received by members of each defined benefit division take into account factors such as the employees’ length of service, final average salary, employer and employee contributions. An actuarial investigation of this scheme is carried out at least every three years. HK CSL Retirement Scheme Our controlled entity, Hong Kong CSL Limited (HK CSL), participates in a superannuation scheme known as the HK CSL Retirement Scheme. This scheme was established under the Occupational Retirement Schemes Ordinance (ORSO) and is administered by an independent trustee. The scheme has three defined benefit sections and one defined contribution section. Actuarial investigations are undertaken annually for this scheme. The benefits received by members of the defined benefit schemes are based on the employees’ remuneration and length of service. Measurement Dates For Telstra Super actual membership data as at 30 April was used to value precisely the defined obligations as at that date. Details of assets, benefit payments and other cash flows as at 31 May and contributions as at 30 June were also provided in relation to Telstra Super. These April and May figures were then rolled up to 30 June to allow for changes in the membership and actual asset return. Actual membership data and asset values as at 31 May were used to precisely measure the defined benefit liability as at that date for the HK CSL Retirement Scheme. Details of contributions, benefit payments and other cash flows as at 30 June were also provided in relation to the HK CSL Retirement Scheme. The fair value of the defined benefit plan assets and the present value of the defined benefit obligations as at the reporting date are determined by our actuary. The details of the defined benefit divisions are set out in the following pages. Other Defined Contribution Schemes A number of our subsidiaries also participate in defined contribution schemes which receive employer and employee contributions based on a percentage of the employees’ salaries. We made contributions to these schemes of $10 million for fiscal 2010 (2009: $26 million). (a) Net Defined Benefit Plan (Liability)/Asset—Historical Summary Our net defined benefit plan (liability)/asset recognised in the statement of financial position for the current and previous periods is determined as follows:

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360

(b)

Fair value of defined benefit plan assets (c) Present value of the defined benefit obligation Net defined benefit (liability)/asset before adjustment for contributions tax Adjustment for contributions tax Net defined benefit (liability)/asset at 30 June comprised of: Defined benefit asset Defined benefit liability Experience adjustments: Experience adjustments arising on defined benefit plan assets - (loss)/ gain Experience adjustments arising on defined benefit obligations - gain/ (loss)

2010 $m 2,546 2,934

Telstra Group As at 30 June 2009 2008 2007 $m $m $m 2,503 3,205 4,342 2,847 3,048 3,646

2006 $m 4,553 3,675

(388) (69) (457) 7 (464) (457)

(344) (62) (406) 8 (414) (406)

157 25 182 182 182

696 118 814 814 814

878 151 1,029 1,029 1,029

(56)

(593)

(525)

261

480

64

72

41

69

(206)

(b) Reconciliation of Changes in Fair Value of Defined Benefit Plan Assets

Fair value of defined benefit plan assets at beginning of year Expected return on plan assets Employer contributions Contributions tax Member contributions Notional transfer of funds for defined contribution benefits (i) Benefits paid Actuarial loss Plan expenses after tax Foreign currency exchange differences Fair value of defined benefit plan assets at end of year

Telstra Group As at 30 June 2010 $m 2009 $m 2,503 3,205 195 252 185 99 (28) (15) 53 44 (45) (288) (450) (56) (593) (12) (7) (6) 13 2,546 2,503

The actual return on defined benefit plan assets was 4.9% (2009: -11.6%) for Telstra Super and 10.4% (2009: -11.7%) for HK CSL Retirement Scheme (c) Reconciliation of Changes in Present Value of Wholly Funded Defined Benefit Obligation

Present value of defined benefit obligation at beginning of year Current service cost Interest cost Member contributions (i) Benefits paid Actuarial (gain)/loss Curtailment loss Foreign currency exchange differences Present value of wholly funded defined benefit obligation at end of year (i)

Telstra Group As at 30 June 2010 2009 $m $m 2,847 3,048 124 143 158 167 42 31 (288) (450) 46 (121) 10 14 (5) 15 2,934 2,847

Benefits paid include $267 million (2009: $425 million) of entitlements (to exiting defined benefit members) which have been retained in Telstra Super but transferred to the defined contribution scheme.

For fiscal 2011, we expect to pay total benefit payments of $325 million (including benefits retained) to defined benefit members of Telstra Super.

Employee Benefits (IAS 19)

361

(d) Amounts Recognised in the Income Statement and in Other Comprehensive Income Telstra Group As at 30 June 2010 2009 Note $m $m The components of defined benefit plan expense recognised in the income statement within labour expenses are as follows: Current service cost Interest cost Expected return on plan assets Member contributions Curtailment loss Plan expenses after tax Notional transfer of funds for defined contribution benefits Adjustment for contributions tax Employer contributions - defined contribution divisions Total expense recognised in the income statement Actuarial loss recognised directly in other comprehensive income Cumulative actuarial losses recognised directly in other comprehensive income

7

124 158 (195) (10) 10 12 17 116 133 249

143 167 (252) (13) 14 7 45 21 132 97 229

(158) (250)

(553) (92)

(e) Categories of Plan Assets The weighted-average asset allocation as a percentage of the fair value of total plan assets as at 30 June are as follows:

Asset Allocation Equity instruments Debt instruments Property Cash Private equity Infrastructure International hedge funds

Telstra Super As at 30 June 2010 2009 % % 53 32 2 5 22 25 1 3 14 22 3 5 5 8 100 100

HK CSL Retirement Scheme As at 30 June 2010 2009 % % 50 59 48 36 2 5 100 100

Telstra Super’s investments in debt and equity instruments include bonds issued by and shares in Telstra Corporation Limited. (f) Principal Actuarial Assumptions We used the following major assumptions to determine our defined benefit plan expense for the year ended 30 June:

Discount rate Expected rate of return on plan assets (i) Expected rate of increase in future salaries

Telstra Super As at 30 June 2010 2009 % % 5.1 5.5 8.0 8.0 4.0 4.0

HK CSL Retirement Scheme As at 30 June 2010 2009 % % 3.0 3.8 6.3 6.3 1.0-4.0 4.5

We used the following major assumptions to determine our defined benefit obligations at 30 June:

(ii)

Discount rate (iii) Expected rate of increase in future salaries

Telstra Super As at 30 June 2010 2009 % % 5.1 5.5 4.0 2.9 - 4.0

HK CSL Retirement Scheme As at 30 June 2010 2009 % % 2.4 3.0 2.5 - 4.0 1.0 - 4.0

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(i)

(ii)

(iii)

The expected rate of return on plan assets has been based on historical and future expectations of returns for each of the major categories of asset classes over the subsequent 10-year period, or longer. Estimates are based on a combination of factors including the current market outlook for interest rates, inflation, earnings growth and currency strength. To determine the aggregate return, the expected future return of each plan asset class is weighted according to the strategic asset allocation of total plan assets. The present value of our defined benefit obligations is determined by discounting the estimated future cash outflows using a discount rate based on government guaranteed securities with similar due dates to these expected cash flows. For Telstra Super we have used the 10-year Australian government bond rate as it has the closest term from the Australian bond market to match the term of the defined benefit obligations. We have not made any adjustment to reflect the difference between the term of the bonds and the estimated term of liabilities due to the observation that the current government bond yield curve is reasonably flat, implying that the yields from government bonds with a term less than 10 years are expected to be very similar to the extrapolated bond yields with a term of 12 to 13 years. For the HK CSL Retirement Scheme we have extrapolated the 7-year and 10-year yields of the Hong Kong Exchange Fund Notes to 16 years to match the term of the defined benefit obligations. Our assumption for the salary inflation rate for Telstra Super is 4% which is reflective of our long term expectation for salary increases. The salary inflation rate for HK CSL Retirement Scheme is 2.5% in fiscal 2011, 2.75% in fiscal 2012 and 3.25% in fiscal 2013 and 4.0% thereafter which reflects the long term expectations for salary increases.

(g) Employer Contributions Telstra Super

The funding deed we have with Telstra Super requires contributions to be made when the average vested benefits index (VBI) in respect of the defined benefit membership (the ratio of defined benefit plan assets to defined benefit members’ vested benefits) of a calendar quarter falls to 103% or below. For the quarter ended 30 June 2010, the VBI was 86% (30 June 2009: 82%). In accordance with the funding deed we have paid contributions totalling $460 million for the year ended 30 June 2010 (30 June 2009: $260 million). This includes employer contributions to the accumulation divisions and employee preand post-tax salary sacrifice contributions, which are excluded from the employer contributions in the reconciliations above. The current contribution rate for the defined benefit divisions of Telstra Super, effective June 2010, is 27% (June 2009: 27%). The vested benefits, which forms the basis for determining our contribution levels under the funding deed, represents the total amount that Telstra Super would be required to pay if all defined benefit members were to voluntarily leave the fund on the valuation date. The VBI assesses the short term financial position of the plan. On the other hand the liability recognised in the statement of financial position is based on the projected benefit obligation (PBO), which represents the present value of employees’ benefits assuming that employees will continue to work and be part of the fund until their exit. The PBO takes into account future increases in an employee’s salary and provides a longer term financial position of the plan. We will continue to monitor the performance of Telstra Super and reassess our employer contributions in light of actuarial recommendations. We expect to contribute approximately $460 million in fiscal 2011. HK CSL Retirement Scheme

The contributions payable to the defined benefit divisions are determined by the actuary using the attained age normal funding actuarial valuation method. Employer contributions made to the HK CSL Retirement Scheme for the financial year ended 30 June 2010 was $2 million (2009: $2 million). We expect to contribute $2 million to our HK CSL Retirement Scheme in fiscal 2011. Annual actuarial investigations are currently undertaken for this scheme by Mercer Hong Kong Limited.

Chapter 26 SHARE-BASED PAYMENTS (IFRS 2)

1.

OBJECTIVE

1.1 This Standard prescribes the method of measuring and disclosing share-based compensation and recording such amounts as expense over the employees’ service years. 2.

SYNOPSIS OF THE STANDARD

This summary of the Standard specifies the financial reporting required by an entity when it undertakes a share-based payment transaction. 2.1 This Standard covers the shares or options issued to employees in exchange for services and all exchange of shares or options for goods or services received from nonemployees. 2.2 The Standard does not cover share-based payments that are part of a business combination. It also does not cover acquisition of treasury shares or the issuance of shares in exchange for financial instruments, which are addressed by IAS 32, Financial Instruments: Presentation, or by IAS 39, Financial Instruments: Recognition and Measurement. 2.2.1 A share-based payment transaction is a transaction in which the entity acquires goods or services by incurring a liability to transfer cash or other assets to the provider of those goods or services for amounts that are tied to the value of the entity’s own shares. 2.3 This Standard addresses both equity-settled share-based payment transactions and cashsettled share-based payment transactions. 2.3.1 Equity-settled share-based payment transactions are transactions where the entity receives goods and services in exchange for the equity instruments it has issued. 2.3.2 Cash-settled share-based payments are transactions where the entity acquires goods or services from suppliers by incurring liabilities to them at amounts that are based on the value of the entity’s shares. 2.4 All share-based payment transactions should be recognized in the financial statements when the goods or services are received. An entity should recognize assets or expenses (when goods or services do not qualify for recognition as assets) with the corresponding credit to recognize an increase in 363

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• Equity if the goods or services are received in an equity-settled share-based payment transaction or • Liability if goods or services are received in a cash-settled share-based payment transaction. 2.5 In equity-settled share-based payments to employees, the fair value method of measurement for shares and options granted should be adopted. The value of the share options on the date of the grant should be considered for measurement. 2.5.1 If equity-settled share-based payments to other than employees are for goods or services, the share-based payment should be measured by reference to the fair value of goods and services. 2.5.2 The value of the share option as determined in 2.5 and 2.5.1 above should be expensed over the service period the employees are expected to work. 2.5.3 In case the share option is conditional upon certain vesting conditions, initial estimated compensation expenses should be adjusted periodically. By the end of the vesting period, the final expense recorded should equal the value of the share options that ultimately are vested. 2.5.4 Vesting is one’s right to receive cash, other assets, or equity instrument when preexistence conditions are met, such as length of employment or reaching income or share price targets. 2.6 In cash-settled share-based payments, the entity should record the services received and a liability to pay for these services as the employee provides these services. An example of such a transaction is when the company grants its employees share appreciation rights (SARs) as part of their compensation package, whereby the employees will become entitled to a future cash payment (rather than an equity instrument), based on the increase in the entity’s share price from a specified level over a specified period of time. 2.7 The liability should be measured initially and at the end of each reporting period until settled, at the fair value of the SARs, by applying an option pricing model that takes into account the terms and conditions on which the SARs were granted and the extent the employees have rendered service to date. In many ways, cash-settled transactions are very similar to share-based compensation. The key difference is that one is settled by payment of cash while the other is settled by issuing shares. 2.8 If the entity issues SARs that can be settled either by payment of cash or by issuing shares, the equity component should be measured at the grant date only, but the cash component is measured at each reporting date. 3.

DISCLOSURE REQUIREMENTS Disclosures are to be made under three categories:

3.1 Disclosure about the nature and extent of share-based payment arrangements that existed during the reporting period. This disclosure should at least include • A description of types of share-based payment plans including the general terms and conditions of the plans, vesting conditions, and method of settlement (e.g., cash or equity). • The number of options outstanding at the beginning and end of the year, and the number of options that are granted, forfeited, exercised, and expired during the year. • The weighted-average share price at the date of exercise. • For share options outstanding at the end of the period, the range of exercise prices and weighted-average remaining contractual life. 3.2 Information about how the value of the goods or services received or the value of the option price is determined. Such disclosure should include description of the option pricing model used.

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3.3 Sufficient disclosure about the effect of share-based payment transactions on the entity’s net profit or loss for the period. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

ArcelorMittal and Subsidiaries Annual Report 2010 (millions of U.S. dollars, except share and per share data) Notes to the Consolidated Financial Statements Note 1: Nature of Business, Basis of Presentation and Consolidation Basis of Presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollars with all amounts rounded to the nearest million, except for share and per share data. Note 2: Summary of Significant Accounting Policies Stock Option Plan/Share-Based Payments ArcelorMittal issues equity-settled share-based payments to certain employees. Equity-settled sharebased payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a graded vesting basis over the vesting period, based on the Company’s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations. Note 17: Equity Employee Share Purchase Plan At the Annual General Shareholders’ meeting held on May 11, 2010 the shareholders of ArcelorMittal adopted an Employee Share Purchase Plan (“ESPP”) as part of a global employee engagement and participation policy. Similar to the previous ESPP implemented in 2009, and authorized at the Annual General Shareholders’ meeting of May 12, 2009, the plan’s goal is to strengthen the link between the Company and its employees and to align the interests of ArcelorMittal employees and shareholders. The main features of the 2009 and 2010 plans are the following: •

•

•

In 2009, the plan was offered to 204,072 employees in 22 jurisdictions. ArcelorMittal offered a maximum total number of 2,500,000 treasury shares (0.2% of the current issued shares on a fully diluted basis). A total of 392,282 shares were subscribed (of which 1,300 shares by Members of the Group Management Board and the Management Committee of the Company). The subscription price was $36.56 before discounts. The subscription period ran from November 10, 2009 until November 19, 2009 and was settled with treasury shares on January 21, 2010. In 2010, the plan was offered to 183,560 employees in 21 jurisdictions. ArcelorMittal offered a maximum total number of 2,500,000 treasury shares (0.2% of the current issued shares on a fully diluted basis). A total of 164,171 shares were subscribed (of which 1,500 shares by Members of the Group Management Board and the Management Committee of the Company). The subscription price was $34.62 before discounts. The subscription period ran from November 16, 2010 until November 25, 2010 and was settled with treasury shares on January 10, 2011. Pursuant to the plans, eligible employees could apply to purchase a number of shares not exceeding that number of whole shares equal to the lower of (i) 200 shares and (ii) the number of whole shares that may be purchased for fifteen thousand U.S. dollars (rounded down to the neared whole number of shares).

For 2009 and 2010 plans, the purchase price is equal to the average of the opening and the closing prices of the Company shares trading on the New York Stock Exchange on the exchange day immediately preceding the opening of the relevant subscription period, which is referred to as the “reference price,” less a discount equal to:

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a) 15% of the reference price for a purchase order not exceeding the lower of (i) 100 shares, and (ii) the immediately lower whole number of shares corresponding to an investment of seven thousand five hundred U.S. dollars, and thereafter; b) 10% of the reference price for any additional acquisition of shares up to a number of shares (including those in the first cap) not exceeding the lower of (i) 200 shares, and (ii) the immediately lower whole number of shares corresponding to an investment of fifteen thousand U.S. dollars. All shares purchased under the ESPP are currently held in custody for the benefit of the employees in global accounts opened by BNP Paribas Securities Services, except for shares purchased by Canadian and U.S. employees, which are held in custody in one global account by Mellon Investors LLC Services. Shares purchased under the plans are subject to a three-year lock-up period, except for the following exceptions: permanent disability of the employee, termination of the employee’s employment with the Company or death of the employee. At the end of this lock-up period, the employees will have a choice either to sell their shares, subject to compliance with the Company’s insider dealing regulations, or keep their shares and have them delivered to their personal securities account or make no election, in which case shares will be automatically sold. Shares may be sold or released within the lock-up period in the case of early exit events. During this period, and subject to the early exit events, dividends paid on shares are held for the employee’s account and accrue interest. Employee shareholders are entitled to any dividends paid by the Company after the settlement date and they are entitled to vote their shares. With respect to the spin-off of ArcelorMittal’s stainless steel business, an addendum to the charter of the 2009 and 2010 ESPPs was adopted providing, among other measures, that: • •

The spin-off shall be deemed an early exit event for the participants who will be employees of one of the entities that will be exclusively controlled by Aperam, except in certain jurisdictions where termination of employment is not an early exit event, and The Aperam shares to be received by ESPP participants will be blocked in line with the lock-up period applicable to the ArcelorMittal shares in relation to which the Aperam shares are allocated based on a ratio of one Aperam share for 20 ArcelorMittal shares.

Stock Option Plans Under the terms of the ArcelorMittal Global Stock Option Plan 2009-2018 (which replaced the ArcelorMittal Shares plan that expired in 2009), ArcelorMittal may grant options to purchase common stock to senior management of ArcelorMittal and its associates for up to 100,000,000 shares of common stock. The exercise price of each option equals not less than the fair market value of ArcelorMittal stock on the grant date, with a maximum term of 10 years. Options are granted at the discretion of ArcelorMittal’s Appointments, Remuneration and Corporate Governance Committee, or its delegate. The options vest either ratably upon each of the first three anniversaries of the grant date, or, in total, upon the death, disability or retirement of the participant. On August 4, 2009, ArcelorMittal granted 6,128,900 options under the ArcelorMittal Global Stock Option Plan 2009-2018 to a group of key employees at an exercise price of $38.30. The options expire on August 4, 2019. On August 3, 2010, ArcelorMittal granted 5,864,300 options under the ArcelorMittal Global Stock Option Plan 2009-2018 to a group of key employees at an exercise price of $32.27. The options expire on August 3, 2020. The fair values for options and other share-based compensation is recorded as an expense in the consolidated statement of operations over the relevant vesting or service periods, adjusted to reflect actual and expected levels of vesting. The fair value of each option grant to purchase ArcelorMittal common shares is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions (based on year of grant): Year of grant Exercise price Dividend yield Expected annualized volatility Discount rate—bond equivalent yield Weighted average share price Expected life in years Fair value per option

2009 $38.30 1.96% 62% 3.69% $38.30 6 $19.64

2010 $32.27 2.32% 52% 2.92% $32.27 6 $13.56

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The expected life of the options is estimated by observing general option holder behavior and actual historical lives of ArcelorMittal stock option plans. In addition, the expected annualized volatility has been set by reference to the implied volatility of options available on ArcelorMittal shares in the open market, as well as, historical patterns of volatility. The compensation expense recognized for stock option plans was 176 and 133 for each of the years ended December 31, 2009, and 2010, respectively. Option activity with respect to ArcelorMittal Shares and ArcelorMittal Global Stock Option Plan 20092018 is summarized below as of and for each of the years ended December 31, 2009, and 2010:

Outstanding, December 31, 2008 Granted Exercised Cancelled Expired Outstanding, December 31, 2009 Granted Exercised Cancelled Expired Outstanding, December 31, 2010 Exercisable, December 31, 2010 Exercisable, December 31, 2009

Number of Options 19,558,466 6,128,900 (456,251) (539,023) (644,712) 24,047,380 5,864,300 (371,200) (223,075) (644,431) 28,672,974 16,943,555 11,777,703

Range of Exercise Prices (per option) 2.26 – 82.57 38.30 2.26 – 33.76 33.76 – 82.57 2.26 – 82.57 2.26 – 82.57 32.27 2.26 – 33.76 28.75 – 82.57 2.26 – 82.57 2.26 – 82.57 2.26 – 82.57 2.26 – 82.57

Weighted Average Exercise Price (per option) 60.01 38.30 24.56 70.02 52.20 55.22 32.27 21.27 53.42 49.55 50.95 56.59 52.46

The following table summarizes information about total stock options of the Company outstanding as of December 31, 2010:

Exercise Prices (per option) 82.57 74.54 64.30 40.25 38.30 33.76 32.27 28.75 23.75 22.25 15.33 2.26 $2.26 – 82.57

Number of options 6,645,814 13,000 5,066,070 1,297,181 5,978,100 2,232,037 5,826,800 1,359,834 32,000 20,585 17,625 183,928 28,672,974

Weighted average contractual life (in years) 7.60 6.95 6.59 2.50 8.60 5.67 9.60 4.65 7.96 7.87 0.50 1.26 7.47

Options exercisable (number of options) 4,648,764 13,000 5,066,070 1,297,181 2,090,394 2,232,037 5,000 1,359,834 16,000 13,722 17,625 183,928 16,943,555

Maturity August 5, 2018 December 11, 2017 August 2, 2017 June 30, 2013 August 4, 2019 September 1, 2016 August 3, 2020 August 23, 2015 December 15, 2018 November 10, 2018 June 30, 2011 April 5, 2012

BAE Systems Annual Report 2010 (in £ millions) Notes to the Group accounts 1.

Accounting Policies

Basis of Preparation The consolidated financial statements of BAE Systems plc have been prepared on a going concern basis and in accordance with EU-endorsed International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee interpretations (IFRICs) and the Companies Act 2006 applicable to companies reporting under IFRS.

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Share-Based Payment Compensation The Group issues equity-settled and cash-settled share options to employees. In accordance with the requirements of IFRS 2, Share-Based Payment, the Group has applied IFRS 2 to all equity-settled share options granted after 7 November 2002 that were unvested as of 1 January 2005 and all cash-settled options outstanding at the balance sheet date. As explained in note 25, equity-settled share options are measured at fair value at the date of grant using an option pricing model. The fair value is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will actually vest. Cash-settled share options are measured at fair value at the balance sheet date using an option pricing model. The Group recognises a liability at the balance sheet date based on these fair values, and taking into account the estimated number of the options that will actually vest and the relative completion of the vesting period. Changes in the value of this liability are recognised in the income statement for the year. 25. Share-Based Payments Executive Share Option Scheme (ExSOS) Equity-settled options 2010

Outstanding at the beginning of the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year

2009 Weighted average exercise price £ 3.48 2.26 4.13 3.67 3.67

Number of shares ‘000 18,230 (3,242) (2,381) 12,607 12,607

Weighted average exercise price £ 3.49 2.40 4.14 3.48 3.09

Number of shares ‘000 23,731 (1,931) (3,570) 18,230 13,506

Cash-settled share appreciation rights 2010

Outstanding at the beginning of the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year

Number of shares ‘000 10,088 (1,531) (2,700) 5,857 5,857

Range of exercise price of outstanding options (£) Weighted average remaining contracted life (years) Expense/(credit) recognised for the year (£m)

2009 Weighted average exercise price £ 2.62 2.25 3.74 2.20 2.20

Number of shares ‘000 12,667 (1,420) (1,159) 10,088 10,088

Weighted average exercise price £ 2.65 2.15 3.54 2.62 2.62

2010 2009 EquityCashEquityCashsettled settled settled settled 1.72 – 4.79 1.72 –3.56 1.72 – 4.79 1.72 – 3.98 5 3 6 3 2 (2) 2 (2)

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Performance Share Plan (PSP) Equity-settled options 2010 Number of shares ‘000 26,195 11,167 (3,123) (5,962) 28,277 1,029

Outstanding at the beginning of the year Granted during the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year

2009 Number of shares ‘000 20,880 12,701 (4,445) (2,941) 26,195 2,212

Cash-settled share appreciation rights 2010 Number of shares ‘000 817 (780) (12) 25 25

Outstanding at the beginning of the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year

2010 Weighted average remaining contracted life (years) Weighted average fair value of options granted (£) Expense recognised for the year (£m) The exercise price for the PSP is £nil (2009 £nil).

Equitysettled 5 3.00 14

Cash-settled 1 – –

2009 Number of shares ‘000 3,143 (2,291) (35) 817 – 2009 EquityCashsettled settled 5 2 2.81 – 8 1

Restricted Share Plan (RSP) All awards are equity-settled. 2010 Number of shares ‘000 Outstanding at the beginning of the year Exercised during the year Outstanding at the end of the year Expense recognised for the year (£m) The exercise price for the RSP is £nil (2009 £nil).

– – – 2010 –

2009 Number of shares ‘000 216 (216) – 2009 –

Share Matching Plan (SMP) All awards are equity-settled

Outstanding at the beginning of the year Granted during the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year Weighted average remaining contracted life (years) Weighted average fair value of options granted (£) Expense recognised for the year (£m) The exercise price for the SMP is £nil (2009 £nil).

2010 Number of shares ‘000 8,680 5,881 (307) (1,229) 13,025 – 2010 2 3.80 2

2009 Number of shares ‘000 1,811 7,661 (94) (698) 8,680 – 2009 2 3.43 3

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Save-As-You-Earn (SAYE) Equity-settled options

Outstanding at the beginning of the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year

2010 Weighted average exercise Number of price shares £ ‘000 4 1.56 (4) 1.56 – – – – – –

2009 Weighted average exercise price £ 1.56 1.56 1.54 1.56 1.56

Number of shares ‘000 4,636 (4,550) (82) 4 4

Cash-settled share appreciation rights

Outstanding at the beginning of the year Exercised during the year Expired during the year Outstanding at the end of the year

Range of exercise price of outstanding options (£) Credit recognised for the year (£m)

2010 Weighted average exercise Number of price shares £ ‘000 – – – – – – – – 2010 Equitysettled – –

Cash-settled – –

2009 Number of shares ‘000 2,895 (349) (2,546) –

Weighted average exercise price £ 3.56 3.56 3.56 –

2009 Equitysettled 1.56 –

Cash-settled – (1)

Details of Options Granted in the Year The fair value of both equity-settled awards granted in the year has been measured using the weighted average inputs below and the following valuation models: PSP – Monte Carlo SMP – Dividend valuation model Range of share price at date of grant (£) Exercise price (£) Expected option life (years) Volatility Spot dividend yield Risk free interest rate

2010 3.23 – 3.80 – 3–4 33 – 34% – 1.0 – 1.8%

2009 3.23 – 3.43 – 3–4 34% 4.2 – 4.6% 1.7 – 1.8%

Volatility was calculated with reference to the Group’s weekly share price volatility, after allowing for dividends and stock splits, for the greater of 30 weeks or for the period until vest date. The average share price in the year was £3.42 (2009 £3.44). The liability in respect of the cash-settled elements of the schemes shown above and reported within liability provisions at 31 December 2010 is £5m (2009 £12m). The intrinsic value of cash-settled options that have vested at 31 December 2010 is £6m (2009 £10m). Share Incentive Plan The Group also incurred a charge of £29m (2009 £31m) in respect of the all-employee free shares element of the Share Incentive Plan.

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Holcim Limited Annual Report 2010 (in millions CHF) Notes to Consolidated Financial Statements Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Employee Benefits—Equity Compensation Plans The Group operates various equity-settled share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options or shares is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the equity instruments granted. The amounts are charged to the statement of income over the relevant vesting periods and adjusted to reflect actual and expected levels of vesting. 35 Share Compensation Plans Employee Share Purchase Plan Holcim has an employee share ownership plan for all employees of Swiss subsidiaries and some executives from Group companies. This plan entitles employees to acquire a limited amount of discounted Holcim shares generally at 70 percent of the market value based on the prior-month average share price. The shares cannot be sold for a period of two years from the date of purchase. The total expense arising from this plan amounted to CHF 1.7 million in 2010 (2009: 2). Share Plan for Management of Group Companies Part of the variable, performance-related compensation for management of Group companies is paid in Holcim shares, which are granted based on the market price of the share in the following year. The shares cannot be sold by the employee for the next three years. The total expense arising from this share plan amounted to CHF 6.4 million in 2010 (2009: 5.8). Senior Management Share Plans Part of the variable, performance-related compensation of senior management is paid in Holcim shares, which are granted based on the market price of the share in the following year. The shares cannot be sold nor pledged by the employee for the next five years. The total expense arising from these shares plans amounted to CHF 2 million in 2010 (2009: 2.6). No dilution of Holcim shares occurs as all shares granted under these plans are purchased from the market. Share Option Plans Two types of share options are granted to senior management of the Holcim Group, the ones, which are granted as part of the annual variable compensation and those, which are allotted to the Executive Committee upon appointment. In both cases, each option represents the right to acquire one registered share of Holcim Ltd at the market price of the shares at the date of grant. The contractual term of the first type of option plan is eight years, with immediate vesting but exercise restrictions for a period of three years following the grant date. The contractual term of the second type of option plan is twelve years and the options have a vesting period (service related only) of nine years from the date of grant with sale and pledge restriction. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

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January 1 Granted and vested (individual component of variable compensation) Granted and vested (single allotment) Forfeited Exercised Lapsed December 31 Of which exercisable at the end of the year 1

1

Weighted average 1 exercise price CHF 62.55

Number 2010 1,054,493

CHF CHF

71.15 78.43

CHF

33.85

CHF

64.37

131,631 67,100 0 2,865 0 1,250,359 259,921

1

Number 2009 676,127 385,124 0 0 6,758 0 1,054,493 213,112

Adjusted to reflect former share splits and/or capital increases.

Share options outstanding at the end of the year have the following expiry dates and give the right to acquire one registered share of Holcim Ltd at the exercise prices as listed below: Option grant date

Expiry date

2002 2003 2003 2004 2004 2005 2006 2007 2008 2008 2009 2010 2010 2010

2014 20122 20152 20132 20162 20142 2014 2015 2016 2020 2017 2018 2022 2022

Exercise price CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF

Total 1 2

3

1

67.15 33.85 67.153 63.35 67.153 74.54 100.69 125.34 104.34 67.153 38.26 71.15 75.40 81.45

1

Number 2010 201,300 45,910 33,550 34,341 33,550 71,423 58,573 49,674 71,083 67,100 385,124 131,631 33,550 33,550 1,250,359

1

Number 2009 201,300 48,775 33,550 34,341 33,550 71,423 58,573 49,674 71,083 67,100 385,124

1,054,493

Adjusted to reflect former share splits and/or capital increases. Due to trade restrictions in 2008, the expiry date of the annual options granted for the years 2003 to 2005 has been extended by one year. Valued according to the single allocation in 2002.

In 2010, options exercised resulted in 2,865 shares being issued at an exercise price of CHF 33.85. In 2009, options exercised resulted in 6,758 shares having been issued at an exercise price of CHF 63.35. The fair value of options granted for the year 2010 using the Black Scholes valuation model is CHF 16.59 (2009: 17.62). The significant inputs into the model are the share price and an exercise price at the date of grant, an expected volatility of 31.6 percent (2009: 30), an expected option life of six years, a dividend yield of 2.2 percent (2009: 1.9) and an annual risk free interest rate of 1.3 percent (2009: 1.2). Expected volatility was determined by calculating the historical volatility of the Group’s share price over the respective vesting period. All shares granted under these plans are either purchased from the market or derived from treasury shares. The total personnel expense arising from the grant of options based on the individual component of variable compensation amounted to CHF 2.4 million in 2010 (2009: 2.3).

SECTION VIII STANDARDS APPLICABLE TO PUBLIC LISTED COMPANIES

Chapter 27: Earnings Per Share (IAS 33) Chapter 28: Interim Financial Reporting (IAS 34) IFRIC 10, Interim Financial Reporting and

Impairment Chapter 29: Operating Segments (IFRS 8)

373

Chapter 27 EARNINGS PER SHARE (IAS 33)

1.

OBJECTIVE

1.1 This Standard prescribes the methodology for the determination and presentation of earnings per share to improve the interentity performance comparisons in the same period and intraperiod performance for the same entity. 2.

SYNOPSIS OF THE STANDARD

This Standard aims at improving the performance comparisons between different entities and within the same entity and is summarized here. 2.1

This Standard is applicable to separate or consolidated financial statements of the issuer • Whose ordinary shares or potential ordinary shares are traded in a public market; or • That files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing ordinary shares in a public market.

2.2 If an entity publishes both separate and consolidated financial statements, earnings per share disclosures are required only for consolidated financial statements. 2.3 An entity should present both basic earnings per share and diluted earnings per share amounts for profit or loss attributable to ordinary equity holders of the parent entity and, if presented, the profit or loss from continuing operations that are attributable to those equity holders. 2.3.1 The basic earnings per share shall be calculated by dividing the profit or loss attributable to ordinary equity holders of the parent entity and, if presented, the profit or loss from continuing operations attributable to those equity holders, by the weighted-average number of ordinary shares outstanding during the period. 2.3.2 For calculating diluted earnings per share, profit or loss attributable to ordinary equity holders of the parent and the weighted-average number of shares outstanding shall be adjusted for the effects of all dilutive potential ordinary shares.

375

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2.3.3 The profit or loss attributable to ordinary equity holders of the parent entity means profit or loss of the consolidated entity after adjusting for noncontrolling interests. 2.3.4 In case potential equity shares do not have the effect of reducing the earnings per shares or increasing the loss per share, it is called “antidilution.” 2.4 In the case of a bonus issue, the comparative earnings per share presented shall be restated assuming the bonus issue in those periods as well. 2.4.1 The number of ordinary shares outstanding before the bonus issue should be adjusted for the proportionate change in the number of ordinary shares outstanding as if the bonus issue had occurred at the beginning of the earliest period presented. 2.5 In case the exercise price in a rights issue is less than the fair value of the shares, a bonus element is included. 2.5.1 If a rights issue is offered to all existing shareholders, the number of ordinary shares to be used in calculating basic and diluted earnings per share for all periods before the rights issue is the number of ordinary shares outstanding before the issue, multiplied by the factors based on the fair value per share immediately before the exercise of rights and the theoretical ex-rights fair value per share. 2.5.2 Where the rights are to be publicly traded separately from the shares before the exercise date, fair value for the purposes of this calculation is established at the close of the last day on which the shares are traded together with the rights. 2.6 In case an entity issues preference shares at a low initial dividend that is compensated by issuing the shares at a discount or by paying a redemption premium, such shares are referred to as “increasing rate preference shares.” 2.6.1 Any original issue discount or premium on increasing rate preference shares shall be amortized to retained earnings using the effective interest method and treated as a preference dividend for the purposes of calculating earnings per share. 3.

DISCLOSURE REQUIREMENTS

3.1 loss

This Standard requires an entity to present basic and diluted earnings per share for profit or • From continuing operations attributable to the ordinary equity holders of the parent entity, and • Attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares that has a different right to share in profit for the period presented.

3.2 An entity that reports a discontinued operation shall disclose the basic and diluted amounts per share for the discontinued operation either in the statement of comprehensive income or in the notes. 3.3

The next disclosures shall also be made in the financial statements: • The amounts used as the numerators in calculating basic and diluted earnings per share, and a reconciliation of those amounts to profit or loss attributable to the parent entity for the period. The reconciliation shall include the individual effect of each class of instrument that affects earnings per share. • The weighted-average number of ordinary shares used as the denominator in calculating basic and diluted earnings per share, and a reconciliation of these denominators to each other. The reconciliation shall include the individual effect of each class of instrument that affects earnings per share.

Earnings Per Share (IAS 33)

377

• Instruments (including contingently issuable shares) that could potentially dilute basic earnings per share in the future but were not because such instruments are antidilutive for the period(s) presented. • Possible effect analysis. A description of ordinary share transactions or potential ordinary share transactions, other than those accounted for in accordance with this Standard, that occur after the reporting period and that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the reporting period. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

ArcelorMittal and Subsidiaries Annual Report 2010 (millions of U.S. dollars, except share and per share data) Consolidated Statements of Operations (Relevant extract) Year ended 2 31 December 2009 Earnings per common share (in U.S. dollars) Basic common shares Diluted common shares¹ Earnings per common share—continuing operations (in U.S. dollars) Basic common shares Diluted common shares¹ Earnings per common share—discontinued operations (in U.S. dollars) Basic common shares Diluted common shares¹ Weighted average common shares outstanding (in millions) (note 17) Basic common shares Diluted common shares¹

Year ended 31 December 2010

0.11 0.11

1.93 1.72

0.15 0.15

2.15 1.92

(0.04) (0.04)

(0.22) (0.31)

1,445 1,446

1,512 1,600

¹ Diluted common shares relate to the effect of stock options and in 2010 the conversion of convertible debt (note 17). ² As required by IFRS 3, the 2009 information has been adjusted retrospectively for the finalization in 2010 of the allocation of purchase price of acquisitions made in 2009 (see note 3). The accompanying notes are an integral part of these consolidated financial statements.

Notes to the consolidated financial statements Note 1: Nature of Business, Basis of Presentation and Consolidation Basis of Presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollars with all amounts rounded to the nearest million, except for share and per share data. Note 2: Summary of Significant Accounting Policies Earnings per Common Share Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing income available to equity holders and assumed conversion by the weighted average number of common shares and potential common shares from outstanding stock options as well as potential common shares from the conversion of certain convertible bonds whenever the conversion results in a dilutive effect. Potential common shares are calculated using the treasury stock method and represent incremental shares issuable upon exercise of the Company’s outstanding stock options.

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378

Note 17: Equity Earnings per Common Share The following table provides the numerators and a reconciliation of the denominators used in calculating basic and diluted earnings per common share for the years ended December 31, 2009 and 2010:

Net income attributable to equity holders of the parent Weighted average common shares outstanding (in millions) for the purposes of basic earnings per share Incremental shares from assumed conversion of stock options (in millions) Incremental shares from assumed conversion of the Convertible Bonds issued in 2009 (in millions) Weighted average common shares assuming conversions (in millions) used in the calculation of diluted earnings per share

Year ended December 31, 2009 157

Year ended December 31, 2010 2,916

1,445 1

1,512 —

—

88

1,446

1,600

For the purpose of calculating earnings per common share, diluted weighted average common shares outstanding excludes 26 million and 17 million potential common shares from stock options outstanding for the years ended December 31, 2009 and 2010, respectively, because such stock options are antidilutive. Diluted weighted average common shares outstanding also excludes 64 million potential common shares from the Convertible Bonds described in note 15 for the year ended December 31, 2009 because the potential common shares are anti-dilutive.

Anglo American plc Annual Report 2010 (in US $ millions) Notes to the Financial Statements 1.

Accounting Policies

Basis of Preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations as adopted for use by the European Union, with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and with the requirements of the Disclosure and Transparency rules of the Financial Services Authority in the United Kingdom as applicable to periodic financial reporting. 13. Earnings per Share US$ Profit for the financial year attributable to equity shareholders of the company Basic earnings per share Diluted earnings per share (1) Headline earnings for the financial year Basic earnings per share Diluted earnings per share (1) Underlying earnings for the financial year Basic earnings per share Diluted earnings per share (1)

2010

2009

5.43 5.18

2.02 1.98

4.27 4.09

2.46 2.40

4.13 3.96

2.14 2.10

Basic and diluted earnings per share are shown based on Headline earnings, a Johannesburg stock exchange (JSE Limited) defined performance measure, and Underlying earnings, which the directors consider to be a useful additional measure of the Group’s performance. Both earnings measures are further explained below.

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings Per Share (IAS 33)

US$ million (unless otherwise stated) Earnings Basic earnings, being profit for the financial year attributable to equity shareholders of the Company Effect of dilutive potential ordinary shares Interest payable on convertible bond (net of tax) Unwinding of discount on convertible bond (net of tax) Diluted earnings number of shares (million) (1) Basic number of ordinary shares outstanding (2) Effect of dilutive potential ordinary shares Share options and awards Convertible bond (1) Diluted number of ordinary shares outstanding (1)

(2)

379

2010

2009

6,544

2,425

49 47 6,640

32 28 2,485

1,206

1,202

14 61 1,281

11 40 1,253

Basic and diluted number of ordinary shares outstanding represent the weighted average for the year. The average number of ordinary shares in issue excludes shares held by employee benefit trusts and Anglo American plc shares held by Group companies. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares.

In the year ended 31 December 2010 there were no share options which were anti-dilutive. In the year ended 31 December 2009 there were 231,351 share options which were potentially dilutive but were not included in the calculation of diluted earnings per share because they were anti-dilutive. In April 2009 the Group issued $1.7 billion of senior convertible notes. The senior convertible notes were issued with a coupon of 4%, a conversion price of £18.6370 and unless redeemed, converted or cancelled, will mature in 2014. The Group will have the option to call the senior convertible notes after three years from the issuance date subject to certain conditions. The impact of this potential conversion has been included in diluted earnings and diluted number of ordinary shares outstanding. Underlying earnings is presented after non-controlling interests and excludes special items and remeasurements (see note 5). Underlying earnings is distinct from ‘Headline earnings,’ which is a JSE Limited defined performance measure. The calculation of basic and diluted earnings per share, based on Headline and Underlying earnings, uses the following earnings data: US$ million Profit for the financial year attributable to equity shareholders of the company Operating special items Operating special items – tax Operating special items – non-controlling interests Net profit on disposals Net profit on disposals – tax Net profit on disposals – non-controlling interests Financing special items Headline earnings for the financial year (1) Operating special items Operating remeasurements (2) Net loss on disposals Financing remeasurements Special items and remeasurements tax Non-controlling interests on special items and remeasurements Underlying earnings for the financial year (1)

(2)

2010 6,544 14 – (3) (1,684) 123 138 13 5,145 239 (382) 86 (106) (11) 5 4,976

2009 2,425 2,180 (67) (102) (1,632) 76 66 7 2,953 394 (734) – 128 (146) (26) 2,569

Year ended 31 December 2010: includes restructuring costs, accelerated depreciation and related charges (2009: includes restructuring costs). Year ended 31 December 2010: includes amounts related to the Anglo American Inyosi Coal BEE transaction.

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380

BP Group Annual Report 2010 (in US $ millions) Group Income Statement (Relevant Extract) For the year ended 31 December Note Profit (loss) for the year Attributable to BP shareholders Minority interest Earnings per share – cents Profit (loss) for the year attributable to BP shareholders Basic Diluted

21 21

2010 (3,324)

2009 16,759

$ million 2008 21,666

(3,719) 395 (3,324)

16,578 181 16,759

21,157 509 21,666

(19.81) (19.81)

88.49 87.54

112.59 111.56

Notes on financial statements: 1.

Significant Accounting Policies

Basis of Preparation The consolidated financial statements have been prepared in accordance with IFRS and IFRS Interpretations Committee (IFRIC) interpretations issued and effective for the year ended 31 December 2010, or issued and early adopted. 21. Earnings per Ordinary Share

Basic earnings per share Diluted earnings per share

2010 (19.81) (19.81)

cents per share 2009 88.49 87.54

2008 112.59 111.56

Basic earnings per ordinary share amounts are calculated by dividing the profit or loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. The average number of shares outstanding excludes treasury shares and the shares held by the Employee Share Ownership Plans (ESOPs) and includes certain shares that will be issuable in the future under employee share plans. For the diluted earnings per share calculation, the weighted average number of shares outstanding during the year is adjusted for the number of shares that are potentially issuable in connection with employee share-based payment plans using the treasury stock method. If the inclusion of potentially issuable shares would decrease the loss per share, the potentially issuable shares are excluded from the diluted earnings per share calculation.

Profit (loss) attributable to BP shareholders Less dividend requirements on preference shares Profit (loss) for the year attributable to BP ordinary shareholders

Basic weighted average number of ordinary shares Potential dilutive effect of ordinary shares issuable under employee share schemes

2010 (3,719) 2

2009 16,578 2

$ million 2008 221,17 2

(3,721)

16,576

21,155

2010 18,785,912

2009 18,732,459

Shares thousand 2008 18,789,82

211,895 18,997,807

203,232 18,935,691

172,690 18,962,517

The number of ordinary shares outstanding at 31 December 2010, excluding treasury shares and the shares held by the ESOPs, and including certain shares that will be issuable in the future under employee share plans was 18,796,497,760. Between 31 December 2010 and 18 February 2011, the latest practicable date before the completion of these financial statements, there was a net increase of 2,303,313 in the number of ordinary shares outstanding as a result of share issues in relation to employee share

Earnings Per Share (IAS 33)

381

schemes. The number of potential ordinary shares issuable through the exercise of employee share schemes was 208,667,985 at 31 December 2010. There has been a decrease of 35,044,060 in the number of potential ordinary shares between 31 December 2010 and 18 February 2011. On 14 January 2011, BP entered into a share swap agreement with Rosneft Oil Company that, subject to the outcome of the court application referred to in Note 6, would result in BP issuing 988,694,683 new ordinary shares to Rosneft when the transaction completes. See Note 6 for further information regarding this transaction.

Holcim Limited Annual Report 2010 (in millions CHF) Consolidated statement of income of Group Holcim Million CHF Net income Attributable to Shareholders of Holcim Ltd Non-controlling interest Earnings per share in CHF 1 Earnings per share 1 Fully diluted earnings per share 1

Notes

16 16

2010 1,621

2009 1,958

±% –17.2

1,182 19.6 439

1,471 487

–19.6 –9.9

3.69 3.69

4.93 4.93

–25.2 –25.2

EPS calculation based on net income attributable to shareholders of Holcim Ltd weighted by the average number of shares.

Notes to the consolidated financial statements Accounting Policies Basis of Preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). 16 Earnings per Share Earnings per share in CHF Net income – shareholders of Holcim Ltd – as per statement of income (in million CHF) Weighted average number of shares outstanding Fully diluted earnings per share in CHF Net income used to determine diluted earnings per share (in million CHF) Weighted average number of shares outstanding Adjustment for assumed exercise of share options Weighted average number of shares for diluted earnings per share

2010 3.69 1,182

2009 4.93 1,471

319,980,805 3.69 1,182 319,980,805 225,319 320,206,124

298,137,630 4.93 1,471 298,137,630 153,751 298,291,381

In conformity with the decision taken at the annual general meeting on May 6, 2010, a cash dividend related to 2009 of CHF 1.50 per registered share has been paid. This resulted in a total ordinary dividend payment of CHF 480 million. A cash payment out of the capital contribution reserve in respect of the financial year 2010 of CHF 1.50 per registered share, amounting to a total payout of CHF 480 million, is to be proposed at the annual general meeting of shareholders on May 5, 2011. These consolidated financial statements do not reflect this cash payment, since it will be effective in 2011 only.

Wiley International Trends in Financial Reporting under IFRS

382

Lufthansa Annual Report 2010 (in € millions) Consolidated income statement for the financial year 2010 In € million Profit / loss after income taxes Profit / loss attributable to minority interests Net profit / loss attributable to shareholders of Deutsche Lufthansa AG Basic earnings per share in € Diluted earnings per share in €

Notes

15 15

2010 1,143 12 1,131 2.47 2.47

2009 – 22 – 12 – 34 – 0.07 – 0.07

Notes to consolidation and accounting policies: 15 Earnings per Share Basic earnings per share are calculated by dividing consolidated net profit by the weighted average number of shares in circulation during the financial year. To calculate the average number of shares, the shares bought back and reissued for the employee share programmes are included pro rata temporis. To calculate diluted earnings per share, the maximum number of common shares which can be issued when conversion rights from the convertible bond issued by Deutsche Lufthansa AG on 4 January 2002 are exercised are also added to the average. At the same time, the net profit or loss for the period is increased by the costs incurred for the convertible bond. Following the partial redemption of the convertible bond in 2010, the maximum number of shares that could arise on conversion was 336,404 as of year-end (previous year: 2,524,622). Basic earnings per share Consolidated net profit / loss Weighted average number of shares Diluted earnings per share Consolidated net profit / loss + Interest expenses on the convertible bond – Current and deferred taxes Adjusted net profit / loss for the period Weighted average number of shares *

€ €m € €m €m €m €m

2010 2.47 1,131 457,934,014 2.47 1,131 * 0 * 0 1,131 458,270,418

2009 – 0.07 – 34 457,875,372 – 0.07 – 34 +3 –1 – 32 460,399,994

Rounded below EUR 1m.

Due to the amendment of IAS 39 and the ensuing adjustment of the figures for the previous year, earnings per share for 2009 (basic and diluted) were restated from EUR – 0.24 per share to EUR – 0.07 per share. As the parent company of the Group, Deutsche Lufthansa AG reported distributable earnings of EUR 275m for the 2010 financial year. The Executive Board and Supervisory Board will table a proposal at the Annual General Meeting to be held on 3 May 2011 to pay a dividend of EUR 0.60 per share from this distributable profit. No dividend was paid in 2010 for the 2009 financial year.

Chapter 28 INTERIM FINANCIAL REPORTING (IAS 34)

1.

OBJECTIVE

1.1 This Standard prescribes the minimum content of an interim financial report and the principles for recognition and measurement in the complete or condensed financial statements for an interim financial report. 1.2 This Standard does not prescribe the periodicity of an interim financial report (i.e., quarterly or half yearly). 2.

SYNOPSIS OF THE STANDARD

A summary of this Standard, which addresses interim financial reporting, is presented next. 2.1 An interim financial report is a financial report containing either a complete set of financial statements (as described in International Accounting Standard (IAS) 1, Presentation of Financial Statements), or a set of condensed financial statements (as described in this Standard) for an interim period. 2.1.1 An interim financial report is not described as complying with International Financial Reporting Standards (IFRS) unless it complies with all of the requirements of IFRS. 2.1.2 In case an entity is required or elects to publish an interim financial report in accordance with the Standard, it shall make a special disclosure that the interim financial report of the entity complies with this Standard. 2.2 An interim financial report is either a complete set of financial statements or a set of condensed financial statements for a period that is less than a full financial year. 2.2.1 A complete set of financial statements shall be prepared in accordance with the requirements of IAS 1. 2.2.2 A condensed set of financial statements shall be comprised of • A condensed statement of financial position 383

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• A condensed statement of comprehensive income, presented either as a condensed single statement or a condensed separate income statement and a condensed statement of comprehensive income • A condensed statement of changes in equity • A condensed statement of cash flows • Selected explanatory notes 2.3 The periods (current and comparative) for which interim financial reports (condensed or complete) shall be prepared are • Statement of financial position as of the end of current interim period and a comparative statement of financial position as of the end of the immediately preceding financial year. • Statement of comprehensive income for the current interim period and cumulatively for the current financial year to date, with the comparative statements of comprehensive income for the comparable interim periods (current and year to date) of the immediately preceding financial year. • Statement of changes of equity cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year. • Statement of cash flows cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year. 2.4 Notes to interim financial report are regarded as updates from the previous annual financial report. Therefore, the notes to an interim financial report should provide an explanation of the events and transactions that are significant to understanding the changes since the end of the last annual reporting period. 2.4.1 The next additional explanatory notes shall also be made in the interim financial report: • A statement of compliance that the same accounting policies and methods of computation have been followed in the interim financial statements as in the most recent annual financial statements. In case there is a change in accounting policy, a description of the nature and effect of the change is to be disclosed. • The nature and amount of unusual items that affect assets, liabilities, equity, net income, or cash flows due to their nature, size, or incidence. • The nature and amount of material changes in estimates of amounts reported in prior interim periods of the current financial year or material changes in estimates of amounts reported in prior financial years. • Issuances, repurchases, and repayments of debt and equity securities. • Dividends paid (aggregate or per share) separately for ordinary shares and other shares. • Segment reporting information if the entity is required to prepare segment information as per IFRS 8, Operating Segments. • Material events that occurred after the interim period. • The effect of changes in the composition of the entity. • Changes in contingent liabilities or contingent assets since the end of the last annual reporting period. 2.5 The materiality of an item is assessed in relation to the interim period financial data and not with reference to the whole year data. 2.6 In an interim financial report, a full set of accounting policies is not required to be disclosed. If there is a change in the accounting policy, a description of the nature and effect of the change is to be disclosed by restating the financial statements of the previously reported interim period.

Interim Financial Reporting (IAS 34)

385

2.7 The interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings. The applicable tax rate is taken as the estimated average annual effective income tax rate applied to the pretax income of the interim period. 3.

IFRIC 10, INTERIM FINANCIAL REPORTING AND IMPAIRMENT

International Financial Reporting Interpretations Committee (IFRIC) Interpretation 10, Interim Financial Reporting and Impairment, states that when an impairment loss is recognized in an interim period in respect of goodwill or investment in equity or investment in a financial asset that is carried at cost, it should not be reversed in subsequent interim financial statements or in annual financial statements. It also states that an entity shall not extend this consensus by analogy to other areas of potential conflict between this Standard, IAS 34, and other Standards. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

ArcelorMittal and Subsidiaries Annual Report 2010 (millions of U.S. dollars, except share and per share data) Condensed Consolidated Statements of Financial Position (in millions of U.S. dollars) (unaudited) (Half yearly) December 31, 2009 ASSETS Current assets: Cash and cash equivalents Restricted cash Assets held for sale (note 5) Trade accounts receivable and other Inventories (note 4) Prepaid expenses and other current assets Total current assets Non-current assets: Goodwill and intangible assets Property, plant and equipment Investments in associates and joint ventures (note 8) Other investments Deferred tax assets Other assets Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities: Short-term debt and current portion of long-term debt (note 9) Trade accounts payable and other Short-term provisions Liabilities held for sale (note 5) Accrued expenses and other liabilities Income tax liabilities Total current liabilities Non-current liabilities: Long-term debt, net of current portion (note 9) Deferred tax liabilities Deferred employee benefits Long-term provisions Other long-term obligations Total non-current liabilities Total liabilities Equity (note 6): Equity attributable to the equity holders of the parent Non-controlling interests Total equity Total liabilities and equity

June 30, 2010

5,919 90 1 5,750 16,835 4,212 32,807

2,408 170 1 7,366 19,458 4,192 33,595

17,034 60,385 9,628 424 4,838 2,581 94,890 127,697

15,720 54,715 9,282 412 5,073 1,946 87,148 120,743

4,135 10,676 1,433 11 6,961 314 23,530

5,599 12,774 995 41 6,728 394 26,531

20,677 5,144 7,583 2,121 3,244 38,769 62,299

17,234 4,846 7,095 1,904 2,259 33,338 59,869

61,045 4,353 65,398 127,697

57,077 3,797 60,874 120,743

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Condensed Consolidated Statements of Operations (in millions of U.S. dollars except share and per share data) (unaudited) (Half yearly) Sales (including 1,293 and 2,092 of sales to related parties for 2009 and 2010, respectively) Cost of sales (including depreciation and impairment of 2,346 and 2,481 and purchases from related parties of 670 and 1,072 for 2009 and 2010, respectively) Gross margin Selling, general and administrative Operating (loss) income (Loss) income from investments in associates and joint ventures Financing costs – net (Loss) income before taxes Income tax benefit (note 7) Net (loss) income (including non-controlling interests) Net (loss) income attributable to: Equity holders of the parent Non-controlling interests Net (loss) income (including non-controlling interests) (Loss) earnings per common share (in U.S. dollars): Basic common shares Diluted common shares Weighted average common shares outstanding (in millions): Basic common shares Diluted common shares

Six months ended June 30, 2009 2010 30,298 40,303 30,915 (617) 2,050 (2,667) (142) (1,505) (4,314) 2,327 (1,987)

36,103 4,200 1,791 2,409 277 (608) 2,078 424 2,502

(1,855) (132) (1,987)

2,383 119 2,502

(1.34) (1.34)

1.58 1.10

1,381 1,381

1,510 1,599

Condensed Consolidated Statements of Comprehensive (Loss) Income (in millions of U.S. dollars except share and per share data) (unaudited)

Net income (loss) (including non-controlling interests) Available-for-sale investments: Gain arising during the period (net of tax expense of nil and 11 for 2009 and 2010, respectively) Reclassification adjustments for gain included in the statements of operations (net of tax expense of nil for 2009 and 2010, respectively) Derivative financial instruments: Gain arising during the period (net of tax expense of 21 and 72 for 2009 and 2010, respectively) Reclassification adjustments for gain included in the statements of operations (net of tax expense of 205 and 45 for 2009 and 2010, respectively) Exchange differences arising primarily on translation of foreign operations (net of tax expense of 168 and 117 for 2009 and 2010, respectively) Share of other comprehensive income (loss) related to associates and joint ventures Total other comprehensive income (loss) Total other comprehensive income (loss) attributable to: Equity holders of the parent Non-controlling interests Total comprehensive (loss) income Total comprehensive (loss) income attributable to: Equity holders of the parent Non-controlling interests Net comprehensive (loss) income *

Six months ended June 30, 2009* 2010 (1,987) 2,502 25

27

(8) 17

— 27

33

197

(539) (506)

(118) 79

1,795

(5,516)

261 1,567

(187) (5,597)

1,235 332

(5,391) (206) 1,567 (420)

5,557 (5,597) (3,095)

(620) 200 (420)

(3,008) (87) (3,095)

As required by IFRS, the information for the six month period ended June 30, 2009 has been adjusted retrospectively for the finalization in 2009 of the purchase price of acquisitions made in 2008.

Condensed Consolidated Statements of Changes in Equity Six months ended June 30, 2009 and 2010 (Unaudited)

(in millions of U.S. dollars, except share and per share data) Balance at December 31, 2008 Net loss Other comprehensive income (loss) Total comprehensive income (loss) Recognition of share based payments Treasury shares Dividend (0.75 per share) Offering of common shares Dilution of interest in consolidated subsidiary and others Balance at June 30, 2009* Balance at December 31, 2009 Net income Other comprehensive income (loss) Total comprehensive income (loss) Recognition of share based payments Dividend (0.75 per share) Acquisition of non-controlling interests Other movements Balance at June 30, 2010 1 2 *

Shares 1,366 — — — 1 — — 2 141

Share capital 9,269 — — — — — — 681

Treasury Shares (5,800) — — — 30 11 — 2,890

Additional Paid-in Capital 20,575 — — — 144 (11) — 264

Retained Earnings 30,470 (1,855) — (1,855) — — (1,084) —

Reserves Foreign Currency Translation Adjustments (1,473) — 1,728 1,728 — — — —

— 1,508 1,510 — — — 1 — — — 1,511

— 9,950 9,950 — — — — — — — 9,950

— (2,869) (2,823) — — — 30 — — — (2,793)

— 20,972 20,808 — — — 67 — — — 20,875

18 27,549 29,738 2,383 — 2,383 — (1,132) 78 (3) 31,064

— 255 1,642 — (5,467) (5,467) — — — — (3,825)

1

Unrealized Gains (Losses) on Derivative Financial Instruments 1,488 — (510) (510) — — — — — 978 953 — 77 77 — — — — 1,030

Unrealized Gains (Losses) on Available for Sale Securities 729 — 17 17 — — — — — 746 777 — (1) (1) — — — — 776

Equity attributable Nonto the equity holders of the controlling Interests parent 55,258 4,059 (1,855) (132) 1,235 332 (620) 200 174 — — — (1,084) (180) 3,835 — 18 57,581 61,045 2,383 (5,391) (3,008) 97 (1,132) 78 (3) 57,077

(254) 3,825 4,353 119 (206) (87) — (26) (461) 18 3,797

Total Equity 59,317 (1,987) 1,567 (420) 174 — (1,264) 3,835 (236) 61,406 65,398 2,502 (5,597) (3,095) 97 (1,158) (383) 15 60,874

Excludes treasury shares, presented in millions of shares Includes the issuance of 29 million treasury shares As required by IFRS, the information for the six month period ended June 30, 2009 has been adjusted retrospectively for the finalization in 2009 of the purchase price of acquisitions made in 2008.

Wiley International Trends in Financial Reporting under IFRS

388

Condensed Consolidated Statements of Cash Flows (in millions of U.S. dollars) (unaudited) Six months ended June 30, 2009 2010 Operating activities: Net (loss) income Adjustments to reconcile net income to net cash provided by operations and payments: Depreciation and impairment Net realizable value and onerous supply contract Recycling of deferred gain on raw material hedges Change in fair value of conversion options on Convertible Bonds Unrealized foreign exchange effects, provisions and other non-cash operating expenses (net) Changes in operating assets and liabilities, net of effects from acquisitions: Trade accounts receivable Inventories Trade accounts payable Other working capital movements Net cash provided by (used in) operating activities Investing activities: Purchase of property, plant and equipment Acquisition of net assets of subsidiaries, net of cash acquired of nil and nil, respectively, and non-controlling interests* Investments in associates and joint ventures accounted for under equity method Other investing activities (net) Net cash used in investing activities Financing activities: Offering of common shares Proceeds from short-term and long-term debt Payments of short-term and long-term debt Dividends paid Acquisition of non-controlling interests* Other financing activities (net) Net cash used in financing activities Net decrease in cash and cash equivalents Effect of exchange rate changes on cash Cash and cash equivalents: At the beginning of the period At the end of the period

(1,987)

2,502

2,346 2,147 (742) 357

2,481 526 (181) (696)

(2,230)

(751)

940 5,620 (2,697) (1,679) 2,075

(2,244) (4,853) 3,051 (169) (334)

(1,418)

(1,182)

(67)

(13)

— 210 (1,275)

(261) 31 (1,425)

3,153 9,939 (13,320) (697) — (252) (1,177) (377) 46

— 4,227 (4,623) (591) (383) (39) (1,409) (3,168) (343)

7,576 7,245

5,919 2,408

*

Due to the adoption of IFRS 3 (revised) and IAS 27 (revised), acquisition of non-controlling interests after January 1, 2010 have been classified as equity transactions and are presented within financing activities. See note 1 for further information.

Notes to the Condensed Consolidated Financial Statements for the six months ended June 30, 2010 Note 1 Basis of Presentation and Accounting Policies Preparation of the Condensed Consolidated Financial Statements The condensed consolidated financial statements of ArcelorMittal and Subsidiaries (“ArcelorMittal” or the “Company”) as of and for the six months ended June 30, 2009 and 2010 (the “Interim Financial Statements”) have been prepared in accordance with International Accounting Standard (“IAS”) No. 34, “Interim Financial Reporting”. They should be read in conjunction with the annual consolidated financial statements and the notes thereto in the Company’s Annual Report for the year ended December 31, 2009 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and as adopted by the European Union.

Interim Financial Reporting (IAS 34)

389

Holcim Limited Annual Report 2010 (in millions CHF) Consolidated statement of income of Group Holcim (Third quarter) Notes Million CHF Net sales Production cost of goods sold Gross profit Distribution and selling expenses Administration expenses Operating profit Other (expenses) income Share of profit of associates Financial income Financial expenses Net income before taxes Income taxes Net income Attributable to: Shareholders of Holcim Ltd Minority interests Earnings per share in CHF 1 Basic earnings per share Fully diluted earnings 1 per share Million CHF 2 Operating EBITDA 3 EBITDA 1 2

3

5

7 8 9 10

6

Jan–Sept 2010 Unaudited 16,568

Jan–Sept 2009 Unaudited 15,774

±% +5.0

July–Sept 2010 Unaudited 5,666

-9,372 7,196

-8,816 6,958

+3.4

-3,256 2,410

-3,050 2,642

-3,988 -1,030 2,178 -6

-3,582 -1,039 2,337 128

-1,338 -310 762 -35

-1,269 -342 1,031 110

119 237 -682 1,846 -623 1,223

225 134 -667 2,157 -580 1,577

–22.4

42 220 -216 773 -161 612

85 44 -232 1,038 -248 790

875 348

1,200 377

–27.1 –7.7

544 68

673 117

–19.2 –41.9

2.73

4.1

–33.4

1.7

2.12

–19.8

2.73

4.09

–33.3

1.7

2.12

–19.8

3,577 3,897

3,614 4,033

–1.0 –3.4

1,234 1,466

1,471 1,684

–16.1 –12.9

–6.8

–14.4

July–Sept 2009 Unaudited 5,692

±% –0.5 –8.8

–26.1

–25.5 –22.5

EPS calculation based on net income attributable to shareholders of Holcim Ltd weighted by the average number of shares. Operating profit CHF 2,178 million (2009: 2,337) before depreciation, amortization and impairment of operating assets CHF 1,399 million (2009: 1,277). Net income CHF 1,223 million (2009: 1,577) before interest earned on cash and marketable securities CHF 65 million (2009: 71), financial expenses CHF 682 million (2009: 667), income taxes CHF 623 million (2009: 580) and depreciation, amortization and impairment CHF 1,434 million (2009: 1,280)

Consolidated statement of comprehensive earnings of Group Holcim (Third quarter)

Million CHF Net income Other comprehensive earnings Currency translation effects – Tax income (expense) Available-for-sale financial assets – Change in fair value – Realized through statement of income – Tax expense

Jan–Sept 2009 Unaudited 1,577

July–Sept 2010 Unaudited 612

July–Sept 2009 Unaudited 790

-1,027 1

266

-1,316 -1

-746

423

-9

424

13

-174

9

-174

86

Jan–Sept 2010 Unaudited 1,223

Wiley International Trends in Financial Reporting under IFRS

390

Million CHF Cash flow hedges – Change in fair value – Realized through statement of income – Tax expense Net investment hedges – Change in fair value – Tax expense Total other comprehensive earnings Total comprehensive earnings

Jan–Sept 2010 Unaudited

Attributable to: Shareholders of Holcim Ltd Minority interests

Jan–Sept 2009 Unaudited

12

July–Sept 2010 Unaudited

July–Sept 2009 Unaudited

-14

-4 -765 458

248 1,825

-1,067 -455

-719 71

196 262

1,465 360

-344 -111

62 9

Consolidated statement of financial position of Group Holcim Notes Million CHF Cash and cash equivalents Marketable securities Accounts receivable Inventories Prepaid expenses and other current assets Assets classified as held for sale Total current assets Long-term financial assets Investments in associates Property, plant and equipment Intangible assets Deferred tax assets Other long-term assets Total long-term assets Total assets

10

11 12

13

Trade accounts payable Current financial liabilities Current income tax liabilities Other current liabilities Short-term provisions Total current liabilities Long-term financial liabilities Defined benefit obligations Deferred tax liabilities Long-term provisions Total long-term liabilities Total liabilities Share capital Capital surplus Treasury shares Reserves Total equity attributable to shareholders of Holcim Ltd Minority interests Total shareholders’ equity Total liabilities and shareholders’ equity

14

30.9.2010 Unaudited 3,641 27 3,796 2,224 468 36 10,192 549 1,425 24,144 9,487 263 603 36,471 46,663

31.12.2009 Audited 4,474 33 3,401 2,162 493 234 10,797 677 1,529 25,493 9,983 412 315 38,409 49,206

30.9.2009 Unaudited 5,681 5 3,828 2,211 513 229 12,467 721 1,457 23,702 9,550 330 3,231 36,083 48,550

2,035 3,764 680 1,805 266 8,550

2,223 4,453 531 1,821 252 9,280

1,935 4,414 486 1,833 289 8,957

12,600 346 2,232 1,130 16,308 24,858 654 9,369 (478) 9,169

13,854 376 2,389 1,263 17,882 27,162 654 9,368 (455) 9,466

14,172 374 2,195 1,253 17,994 26,951 654 9,365 (452) 9,225

18,714 3,091 21,805 46,663

19,033 3,011 22,044 49,206

18,792 2,807 21,599 48,550

Statement of changes in consolidated equity of Group Holcim

Million CHF Equity as at January 1, 2009 Share capital increase Dividends Change in treasury shares Share-based remuneration Capital paid-in by minority interests Change in participation in existing Group companies Total comprehensive earnings Equity as at September 30, 2009 (unaudited) Equity as at January 1, 2010 Share capital increase Dividends Change in treasury shares Share-based remuneration Capital paid-in by minority interests Change in participation in existing Group companies Total comprehensive earnings Equity as at September 30, 2010 (unaudited)

Share capital 527 100 27

Capital surplus 6,870 1,940 552 3

654 654

654

Treasury shares (401) (60) 9

9,365 9,368

(452) (455)

1

(30) 7

9,369

(478)

Total equity AvailableTotal attributable to for-sale Cash flow Currency shareholders Minority shareholders’ Total hedging translation equity Retained equity reserve adjustments reserves of Holcim Ltd interests reserve earnings 17,974 (3) 17 (5,830) 8,362 15,358 2,616 14,178 2,040 2,040 (594) (594) (15) (174) (189) (8) (8) (68) (68) 12 1 13 1 1 1,200

(1)

(14)

14,776 15,019

(4) (2)

3 (2)

280 (5,550) (5,549)

(480) 3

1,465

1,465

3 360

3 1,825

9,225 9,466

18,792 19,033

2,807 3,011

21,599 22,044

(480) 3

(480) (27) 8

(210) 3 22

(690) (27) 11 22 (13) 458

(10) 875

249

12

(6) (940)

(16) 196

(16) 196

3 262

15,407

247

10

(6,495)

9,169

18,714

3,091

21,805

Wiley International Trends in Financial Reporting under IFRS

392

Consolidated statement of cash flows of Group Holcim Notes Million CHF Net income before taxes Other expenses (income) Share of profit of associates Financial expenses (income) net Operating profit Depreciation, amortization and impairment of operating assets Other non-cash items Change in net working capital Cash generated from operations Dividends received Interest received Interest paid Income taxes paid (received) Other (expenses) income Cash flow from operating activities (A) Purchase of property, plant and equipment Disposal of property, plant and equipment Acquisition of participation in Group companies Disposal of participation in Group companies Purchase of financial assets, intangible and other assets1 Disposal of financial assets, intangible and other assets1 Cash flow used in investing activities (B) Dividends paid on ordinary shares Dividends paid to minority interests Capital increase Capital paid-in by minority interests Movements of treasury shares Proceeds from current financial liabilities Repayment of current financial liabilities Proceeds from long-term financial liabilities Repayment of long-term financial liabilities Increase in participation in 1 existing Group companies Decrease in participation in 1 existing Group companies Cash flow (used in) from financing activities (C) (De)Increase in cash and cash equivalents (A+B+C) Cash and cash equivalents as at the beginning of the period (De)Increase in cash and cash equivalents Currency translation effects Cash and cash equivalents as at 2 the end of the period (net)

8, 9

15

Jan–Sept 2010 Unaudited 1,846 6 -119 445 2,178

Jan–Sept ±% 2009 Unaudited 2,157 –14.4 -128 -225 533 2,337 –6.8

1,399 223 -1,101 2,699 175 115 -623 -286 -27

1,277 237 -792 3,059 97 108 -536 -546 10

2,053

2,192

-1,174

July–Sept 2010 Unaudited 773 35 -42 -4 762

July–Sept ±% 2009 Unaudited 1,038 –25.5 -110 -85 188 1,031 –26.1

472 86 -75 1,245 8 47 -142 7 -18

440 133 17 1,621 40 25 -167 -141 9

1,147

1,387

-1,768

-414

-528

90

127

23

24

-60

-77

0

-17

0

139

0

162

-312

-482

-193

-36

638

107

538

-8

-818 -480

-1,954 0

-46 0

-403 0

-218 0

-173 2,040

-86 0

-73 2,040

22 -27

1 -68

2 -4

1 -51

4,622

5,124

1,492

1,694

-5,208

-6,862

-1,560

-2,277

2,453

9,243

426

3,897

-3,307

-7,499

-1,215

-4,010

-46

-166

-3

0

30

0

0

0

-2,159

1,640

-948

1,221

-924

1,878

153

2,205

4,261

3,611

3,237

3,412

-924 -121

1,878 -20

153 -174

2,205 -148

3,216

5,469

3,216

5,469

–11.8

–6.3

+58.1

–231.6

–23.2

–17.3

+88.6

–177.6

Interim Financial Reporting (IAS 34)

1

2

393

Based on an amendment in IAS 7, cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control are classified as cash flows from financing activities, and this is to be applied retrospectively. Cash and cash equivalents at the end of the period include bank overdrafts of CHF 425 million (2009: 212), disclosed in current financial liabilities.

Notes to the Consolidated financial Statements 1

Basis of Preparation

The unaudited consolidated third quarter interim financial statements (hereafter “interim financial statements”) are prepared in accordance with IAS 34 Interim Financial Reporting. The accounting policies used in the preparation and presentation of the interim financial statements are consistent with those used in the consolidated financial statements for the year ended December 31, 2009 (hereafter “annual financial statements”) except for the adoption as of January 1, 2010 of IAS 27 (revised) Consolidated and Separate Financial Statements, IFRS 3 (revised) Business Combinations and IFRS 2 (amended) Share-based Payment. According to IAS 27 (revised), changes in the ownership interest of a subsidiary that do not result in a loss of control will now be accounted for as an equity transaction. The amendment to IFRS 3 (revised) introduces several changes such as the choice to measure a minority interest in the acquiree either at fair value or at its proportionate interest in the acquiree’s identifiable net assets, the accounting for step acquisitions requiring the remeasurement of a previously held interest to fair value through profit or loss as well as the expensing of acquisition costs directly to the statement of income. The effect of applying IFRS 2 (amended) clarifying the accounting of group cash-settled sharedbased payment transactions has no impact on the Group. The interim financial statements should be read in conjunction with the annual financial statements as they provide an update of previously reported information. The preparation of interim financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and disclosure of contingent liabilities at the date of the interim financial statements. If in the future such estimates and assumptions, which are based on management’s best judgment at the date of the interim financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate during the period in which the circumstances change. In the context of the current economic environment, Holcim assessed whether there are any indications of impairment relating to goodwill allocated to the respective group of cash generating units. Based on this review, Holcim concluded that there is no need for goodwill impairment as at September 30, 2010.

Ericsson Annual Report 2010 (SEK million) Consolidated Income Statement (Fourth quarter) Oct—Dec

SEK million Net sales Cost of sales Gross income Gross margin (%) Research and development expenses Selling and administrative expenses Operating expenses Other operating income and expenses Operating income before shares in earnings of JV and associated companies Operating margin before shares in earnings of JV and associated companies (%) Shares in earnings of JV and associated companies

Jan—Dec

2009 58,333 (39,335) 18,998 32.6% (9,306) (7,323) (16,629) 878

2010 62,783 (40,995) 21,788 34.7% (8,592) (7,131) (15,723) 581

Change 8% 4% 15%

3,247

6,646

5.6%

10.6%

(1,461)

(402)

2010 203,348 (129,094) 74,254 36.5% (31,558) (27,072) (58,630) 2,003

Change -2% -5% 6%

-8% -3% -5% -34%

2009 206,477 (136,278) 70,199 34.0% (33,055) (26,908) (59,963) 3,082

105%

13,318

17,627

32%

6.5%

8.7%

(7,400)

(1,172)

-5% 1% -2% -35%

Wiley International Trends in Financial Reporting under IFRS

394

SEK million Operating income Financial income Financial expenses Income after financial items Taxes Net income Net income attributable to: - Stockholders of the Parent Company - Non-controlling interests Other information Average number of shares, basic 1) (million) Earnings share, basic SEK)1) 1) Earnings share, diluted SEK)

Oct—Dec 2009 1,786 314 (719) 1,381 (656) 725

2010 6,244 131 (383) 5,992 (1,611) 4,381

Change

Jan—Dec 2009 5,918 1,874 (1,549) 6,243 (2,116) 4,127

2010 16,455 1,047 (1,719) 15,783 (4,548) 11,235

314

4,324

3,672

11,146

411

57

455

89

3,194

3,200

3,190

3,197

0.10 0.10

1.35 1.34

1.15 1.14

3.49 3.46

Change

Statement of Comprehensive Income (Fourth quarter) SEK million Net income Other comprehensive income Actuarial gains and losses, and the effect of the asset ceiling, related to pensions Revaluation of other investments in shares and participations Fair value remeasurement Cash flow hedges Gains/losses during the period Reclassification arising adjustments for gains /losses included in profit or loss Adjustments for amounts transferred to initial carrying amount of hedged items Changes in the cumulative translation adjustments Share of other comprehensive income on JV and associated companies Tax on items relating to components of other comprehensive income. Total other comprehensive income Total comprehensive income Total comprehensive income attributable to: Stockholders of the Parent Company Non-controlling interests 1)

2010 4,381

Jan—Dec 2009 4,127

2010 11,235

-249

3,991

-633

3,892

-1

-1

-2

7

-547

-706

665

966

(1,299)

-641

3,850

-238

232 1,938 372

659 368

(1,029) (1,067) -259

-136 (3,259) -434

525

-576

(1,040)

(1,120)

971 1,696

3,094 7,475

485 4,612

-322 10,913

1,248 448

7,372 103

4,211 401

10,814 99

Oct—Dec 2009 725

Based on Net income attributable to stockholders of the Parent Company

Consolidated Balance Sheet SEK million ASSETS Non-current assets Intangible assets Capitalized development expenses Goodwill Intellectual property rights, brands and other intangible assets Property, plant and equipment Financial assets Equity in JV and associated companies Other investments in shares and participations Customer financing, non-current Other financial assets, non-current Deferred tax assets

Dec 31 2009

Sep 30 2010

Dec 31 2010

2,079 27,375 18,739 9,606

2,868 26,346 17,191 9,290

3,010 27,151 16,658 9,434

11,578 256 830 2,577 14,327 87,367

10,079 276 1,246 2,466 14,208 83,970

9,803 219 1,281 3,079 12,737 83,372

Interim Financial Reporting (IAS 34)

SEK million Current assets Inventories Trade receivables Customer financing, current Other current receivables Short-term investments Cash and cash equivalents

395

Dec 31 2009

Sep 30 2010

Dec 31 2010

22,718 66,410 1,444 15,146 53,926 22,798 182,442 269,809

30,304 57,831 2,251 18,705 54,977 21,197 185,265 269,235

29,897 61,127 3,123 17,146 56,286 30,864 198,443 281,815

139,870 1,157 141,027

137,395 1,674 139,069

145,106 1,679 146,785

8,533 461 2,270 29,996 2,035 43,295

8,075 408 2,432 28,016 3,178 42,109

5,092 353 2,571 26,955 3,296 38,267

11,970 2,124 18,864 52,529 85,487 269,809

10,529 4,353 20,724 52,451 88,057 269,235

9,391 3,808 24,959 58,605 96,763 281,815

40,653 36,071 550 1,245

40,444 35,730 598 920

35,855 51,295 658 875

Total assets EQUITY AND LIABILITIES Equity Stockholders’ equity Minority interests in equity of subsidiaries Non-current liabilities Post-employment benefits Provisions, non-current Deferred tax liabilities Borrowings, non-current Other non-current liabilities Current liabilities Provisions, current Borrowings, current Trade payables Other current liabilities Total equity and liabilities Of which interest-bearing liabilities and post-employment benefits Net cash Assets pledged as collateral Contingent liabilities

Consolidated Statement of Cash Flows SEK million Operating activities Net income Adjustments to reconcile net income to cash Taxes Earnings/dividends in JV and associated companies Depreciation, amortization and impairment losses Other Net income affecting cash Changes in operating net assets Inventories Customer financing, current and non-current Trade receivables Trade payables Provisions and post-employment benefits Other operating assets and liabilities, net Cash flow from operating activities Investing activities Investments in property, plant and equipment Sales of property, plant and equipment Acquisitions/divestments of subsidiaries and other operations, net Product development Other investing activities Short-term investments Cash flow from investing activities Cash flow before financing activities

Oct—Dec 2009 2010

Jan—Dec 2009 2010

725

4,381

4,127

11,235

1,394 1,282 3,892 -52 7,241

1,303 676 2,246 2,352 10,958

-1,011 6,083 12,124 -340 20,983

351 1,476 9,953 710 23,725

5,303 472 -2,814 1,797 -157 684 5,285 12,526

773 -882 -3,175 4,194 -743 4,052 4,219 15,177

5,207 598 7,668 -3,522 -2,950 -3,508 3,493 24,476

-7,917 -2,125 4,406 5,964 -2,739 5,269 2,858 26,583

-1,109 296

-984 15

-4,006 534

-3,686 124

-8,245 -662 -666 678 -9,708 2,818

-325 -325 -710 -1,753 -4,082 11,095

-18,082 -1,443 2,606 -17,071 -37,462 -12,986

-2,832 -1,644 -1,487 -3,016 -12,541 14,042

Wiley International Trends in Financial Reporting under IFRS

396

SEK million Financing activities Dividends paid Other financing activities Cash flow from financing activities Effect of exchange rate changes on cash Net change in cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period

Oct—Dec 2009 2010 -342 -5,803 -6,145 441 -2,887 25,685 22,798

-38 -1,631 -1,669 241 9,667 21,197 30,864

Jan—Dec 2009 2010 -6,318 4,617 -1,701 -328 -15,015 37,813 22,798

-6,677 1,007 -5,670 -306 8,066 22,798 30,864

Consolidated Statement of Changes in Equity SEK million Opening balance Total comprehensive income Stock issue Sale / Repurchase of own shares Stock purchase and stock option plans Dividends paid Business combinations Closing balance

Jan –Dec 2009 142,084 4,612 135 -60 658 -6,318 -84 141,027

Jan – Dec 2010 141,027 10,913 52 762 -6,677 708 146,785

Accounting Policies The consolidated financial statements for the year ended December 31, 2010, have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU and RFR 1 “Additional rules for Group Accounting”, related interpretations issued by the Swedish Financial Reporting Board and the Swedish Annual Accounts Act. The Group This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee. The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2009, and should be read in conjunction with that annual report.

Chapter 29 OPERATING SEGMENTS (IFRS 8)

1.

OBJECTIVE

1.1 This Standard applies to the consolidated financial statements of a group with a parent and to the separate or individual financial statements of an entity • Whose debt or equity instruments are traded in a public market or • That files, or is in the process of filing its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market. 1.2 This Standard clarifies that when both the parent’s separate (stand-alone) financial statements and its consolidated financial statements are presented in the same financial report, segment information as required by this Standard needs to be presented only for the consolidated financial statements. 2.

SYNOPSIS OF THE STANDARD

This Standard sets out the requirements for disclosure of information about an entity’s operating segments and also about the entity’s products and services, the geographical areas in which it operates and its major customers. A summary of this Standard follows. 2.1 An entity should disclose information to enable users of its financial statements to evaluate the nature and financial effects of the types of business activities in which it engages and the economic environments in which it operates. 2.2

An operating segment is a component of an entity • That engages in business activities from which it may earn revenues and incur expenses; • Whose operating results are reviewed regularly by the entity’s chief operating decision maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance; and • For which discrete financial information is available.

2.2.1 A component of an entity that sells primarily or exclusively to other operating segments of the entity is included in the definition of an operating segment provided the entity is managed in that manner. 397

Wiley International Trends in Financial Reporting under IFRS

398

2.3 The emphasis in the Standard is on disclosing segmental information for external reporting purposes based on internal reporting within the entity to its CODM. 2.3.1 The CODM may be the chief operating officer, the chief executive, or the board of directors. It depends on who within the organization is responsible for the allocation of resources and assessing the performance of the entity’s operating segments. 2.4 This Standard requires entities to report segmental information using a management approach; that is, the aim is to allow financial statement users to review segmental information from the eyes of the management as opposed to a risks-and-rewards approach under the erstwhile Standard (International Accounting Standard [IAS] 14, which is superseded by the issuance of this Standard). 2.4.1 The cost and time needed to produce such segmental information is greatly reduced since most, if not all, of this information is already available with the entity. For public companies that are required to report on a quarterly basis, such availability of information is a distinct advantage. 2.5 An entity should report financial and descriptive information about its reportable segments. Not all operating segments automatically qualify as reportable segments. The Standard prescribes criteria for an operating segment to qualify as a reportable segment; these alternative quantitative thresholds are set out next. • Its reported revenue, from both external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments; or • The absolute measure of its reported profit or loss is 10% or more of the greater, in absolute amount, of (1) the combined reported profit of all operating segments that did not report a loss and (2) the combined reported loss of all operating segments that reported a loss; or • Its assets are 10% or more of the combined assets of all operating segments. 2.5.1 If the total revenue attributable to all operating segments (as identified by applying the “alternative quantitative thresholds criteria” (set out in para 2.5 above) constitutes less than 75% of the entity’s total revenue as per its financial statements, the entity should look for additional operating segments until it is satisfied that at least 75% of its revenue is captured through such a segmental reporting. 2.5.2 In identifying the additional operating segments as reportable segments (i.e., for the purposes of meeting the 75% threshold), the Standard has relaxed its requirements of meeting the “alternative quantitative thresholds” criteria. In other words, an entity has to keep identifying more segments even if they do not meet the “alternative quantitative thresholds” test (set out in para 2.5 above) until at least 75% of the entity’s revenue is included in reportable segments. 3.

DISCLOSURE REQUIREMENTS This Standard prescribes extensive segmental reporting disclosures.

3.1

The required disclosures include • General information about how the entity identified its operating segments and the types of products and services from which each operating segment derives its revenues • Information about the reported segment profit or loss, including certain specified revenues and expenses included in segment profit or loss, segment assets and segment liabilities, and the basis of measurement • Reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets, segment liabilities, and other material items to corresponding items in the entity’s financial statements

Operating Segments (IFRS 8)

399

3.2 This Standard clarifies that certain entity-wide disclosures are required even when an entity has only one reportable segment. These disclosures include information about each product and service or groups of products and services. The additional disclosures required under this Standard include

3.3

• Analyses of revenues and certain noncurrent assets by geographical area, with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of identification of the operating segments • Information about transactions with “major customers” (i.e., those customers that individually account for revenues of 10% or more of the entity’s revenues) 3.4 This Standard also provides the disclosure requirements in the entity’s interim financial statements in cases where the disclosures under this Standard are required to be made in the entity’s annual financial statements (IAS 34, Interim Financial Reporting). EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Alliance Boots Annual Report 2010/11 Notes to the consolidated financial statements for the year ended 31 March 2011 4.

Segmental information

The Group’s externally reportable operating segments reflect the internal reporting structure of the Group, which is the basis on which resource allocation decisions are made by the executive Directors in the attainment of strategic objectives. Inter-segment pricing is determined on an arm’s length basis. The Group comprises the following operating segments: Health & Beauty Division Comprises all of the pharmacy-led health and beauty retail businesses across the Group. These businesses are located in the UK, Norway, the Republic of Ireland, The Netherlands, Thailand, Lithuania and Russia. There was also an operation in Italy, which was discontinued during the year. Pharmaceutical Wholesale Division Comprises all of the pharmaceutical wholesaling and distribution businesses across the Group. These businesses are located in France, the UK, Turkey, Spain, Germany, Russia, The Netherlands, Czech Republic, Norway, Egypt, Romania and Lithuania. There was also an operation in Italy, which was discontinued during the year. All other segments comprise the activities of Contract Manufacturing and Corporate. These did not meet the quantitative thresholds for determining reportable operating segments in 2011 or 2010. Information regarding the results from continuing operations of each reportable segment is included below. Segment performance measures are revenue and trading profit/(loss) as included in the internal management reports that are reviewed by the executive Directors. These measures are used to monitor performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Definitions of the non-GAAP profit measures set out in the tables below are provided in the accounting policies.

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Health & Pharmaceutical Beauty Wholesale All other Division Division segments 2011 £million £million £million External revenue 7,621 12,478 119 Intra-group revenue 5 1,464 134 Total revenue 7,626 13,942 253 EBITDA 962 364 (26) Underlying depreciation and amortisation (195) (44) (10) Trading profit/(loss) 767 320 (36) Share of underlying post tax earnings of associates and joint ventures Underlying net finance costs Underlying tax charge Underlying profit

4.

Eliminations £million — (1,603) (1,603) — — —

Total £million 20,218 — 20,218 1,300 (249) 1,051 74 (381) (137) 607

Segmental Information

2010 Re-presented External revenue Intra-group revenue Total revenue EBITDA Underlying depreciation and amortisation Trading profit/(loss) Share of underlying post tax earnings of associates and joint ventures Underlying net finance costs Underlying tax charge Underlying profit

Health & Pharmaceutical Beauty Wholesale Division Division £million £million 7,495 9,971 — 1,312 7,495 11,283 931 276 (204) (41) 727 235

All other segments Eliminations Total £million £million £million 105 — 17,571 147 (1,459) — 252 (1,459) 17,251 (34) — 1,173 (8) — (253) (42) — 920 100 (9,425) (92) 593

The reconciliation of trading profit to profit before tax is set out below:

Trading profit Amortisation of customer relationships and brands Exceptional items Profit from operations before associates and joint ventures Share of post tax earnings of associates and joint ventures Impairment of investments in associates Net gain on acquisitions of controlling interests in associates Profit from operations Net finance costs Profit before tax

2011 £million 1,051 (114) 7 944 73 (4) 19 1,032 (395) 637

2010 Re-presented £million 920 (93) (160) 667 98 — — 765 (305) 460

The share of post tax earnings of associates and joint ventures of £73 million (2010: £98 million) is stated after the Group’s share of exceptional items of associates and joint ventures of £1 million (2010: £2 million). The reconciliation of underlying profit to statutory profit for the year is set out below:

Underlying profit Amortisation of customer relationships and brands Net exceptional items before tax Timing differences within net finance costs Tax credit on items not in underlying profit Exceptional tax credit Profit for the year from continuing operations Profit for the year from discontinued operations Profit for the year

2011 £million 607 (114) 36 (29) 40 72 612 3 615

2010 Re-presented £million 593 (93) (34) (8) 49 89 596 8 604

Operating Segments (IFRS 8)

Health & Beauty Division Pharmaceutical Wholesale Division All other segments Eliminations Allocated segment assets/(liabilities) Unallocated: Investments in associates and joint ventures Available-for-sale investments Retirement benefit obligations Assets classified as held for sale Net current and deferred tax Net cash/(borrowings)

401

Assets £million 10,864 7,506 290 (281)

2011 Liabilities £million (1,374) (3,794) (108) 281

18,379

(4,995)

838 67 — 3 17 950 20,254

— — (223) — (1,119) (8,793) (15,130)

2010 Assets Liabilities £million £million 10,828 (1,240) 5,862 (2,512) 169 (75) (277) 277

Net £million 9,588 3,350 94 —

13,384

16,582

(3,550)

13,032

838 67 (223) 3 (1,102) (7,843) 5,124

1,143 80 — 9 227 703 18,744

— — (462) — (1,300) (9,092) (14,404)

1,143 80 (462) 9 (1,073) (8,389) 4,340

Net £million 9,490 3,712 182 —

Allocated segment assets at the year end comprised goodwill of £4,815 million (2010: £4,649 million), other intangible assets of £5,630 million (2010: £5,456 million), property, plant and equipment of £2,069 million (2010: £2,091 million), non-current other receivables of £266 million (2010: £153 million), inventories of £2,069 million (2010: £1,623 million), and trade and other receivables of £3,530 million (2010: £2,610 million). Allocated segment liabilities at the year end comprised trade and other payables of £4,603 million (2010: £3,377 million), current provisions of £59 million (2010: £37 million), non-current other payables of £275 million (2010: £92 million) and non-current provisions of £58 million (2010: £44 million). Eliminations included inter-segmental trading accounts between subsidiary undertakings. Other information in respect of the Group’s segments (including discontinued operations) was:

2011 Amortisation of other intangible assets Depreciation of property, plant and equipment Additions to non-current assets: – goodwill – other intangible assets – property, plant and equipment

2010 Amortisation of other intangible assets Depreciation of property, plant and equipment Additions to non-current assets: – goodwill – other intangible assets – property, plant and equipment

Health & Beauty Division £million 75 160

Pharmaceutical Wholesale Division £million 85 34

All other segments £million — 10

Total £million 160 204

— 72 138

217 13 33

— — 2

217 85 173

Health & Beauty Division £million 76 176

Pharmaceutical Wholesale Division £million 63 36

All other segments £million — 9

Total £million 139 220

— 1 4

18 57 188

18 40 158

— 16 26

Segmental revenue based on the geographical location of customers was:

UK France Other Intra-group

No revenues arose in Switzerland, the Company’s country of domicile.

2011 £million 8,202 4,550 7,532 (66) 20,218

2010 Re-presented £million 8,370 4,780 4,495 (74) 17,571

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Segmental non-current, non-financial assets, excluding deferred tax assets, based on the geographical location of the assets were: 2011 £million 10,043 635 585 2,089 13,352

UK France Other Intra-group

2010 Re-presented £million 10,119 661 509 2,050 13,339

Segment non-current, non-financial assets at the year end comprised goodwill of £4,815 million (2010: £4,649 million), other intangible assets of £5,630 million (2010: £5,456 million), property, plant and equipment of £2,069 million (2010: £2,091 million) and investments in associates and joint ventures of £838 million (2010: £1,143 million). The Group’s external revenues for groups of similar products and services were: 2011 £million

2010 Re-presented £million

2,829 4,420 329 48 7,626

2,763 4,412 320 — 7,495

13,942 13,942 (1,350) 20,218

11,283 11,283 (1,207) 17,571

Health & Beauty Division Dispensing and Related Income Retail Optical Other Pharmaceutical Wholesale Division Wholesale and Related Services All other segments and eliminations

Anglo American plc Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 21 Segmental Information (1)

US$ million Platinum Copper Nickel Iron Ore and Manganese Metallurgical Coal Thermal Coal Other Mining and Industrial Exploration Corporate Activities and Unallocated Costs

Segment assets 2010 2009 14,701 13,082 7,300 5,643 2,443 1,888 12,333 10,758 4,711 4,176 2,897 2,343 4,596 6,231 3 4 402 49,386

311 44,436

(2)

Segment liabilities 2010 2009 (1,223) (941) (1,009) (880) (109) (101) (632) (388) (793) (769) (786) (636) (789) (1,202) (12) (2) (377) (5,730)

(409) (5,328)

Net segment assets 2010 2009 13,478 12,141 6,291 4,763 2,334 1,787 11,701 10,370 3,918 3,407 2,111 1,707 3,807 5,029 (9) 2 25 43,656

(98) 39,108

Operating Segments (IFRS 8)

403

US$ million Platinum Palladium Rhodium Diamonds Copper Nickel Iron ore Manganese ore and alloys Metallurgical coal Thermal coal Heavy building materials Zinc Steel products Other

2010 4,053 697 782 2,644 4,782 824 5,234 983 2,711 3,707 2,376 584 1,568 1,984 32,929

2009 3,101 361 527 1,728 3,783 625 2,330 603 1,693 3,197 2,870 445 1,371 2,003 24,637

Geographical Analysis Revenue by Destination and Non-Current Segment Assets by Location The Group’s geographical analysis of segment revenue (including attributable share of revenue from associates) allocated based on the country in which the customer is located, and non-current segment assets, allocated based on the country in which the assets are located, is as follows: Revenue US$ million South Africa Other Africa Brazil Chile Other South America North America Australia China India Japan Other Asia United Kingdom (Anglo American plc’s country of domicile) Other Europe (1)

2010 3,307 502 1,135 1,940 207 1,805 474 5,075 2,021 4,198 2,818

2009 2,567 139 662 1,229 190 1,297 427 3,469 1,222 2,697 1,874

3,980 5,467 32,929

3,850 5,014 24,637

Non-current segment (1) assets 2010 2009 17,389 15,157 373 599 11,159 10,105 5,628 4,280 589 574 540 698 4,022 3,584 5 4 – – – – 42 46 2,331 48 42,126

2,686 241 37,974

Non-current segment assets are non-current operating assets and consist of intangible assets and property, plant and equipment.

Revenue and Operating Profit by Origin Segment revenue and operating profit before special items and remeasurements by origin (including attributable share of revenue and operating profit from associates) has been provided for information:

Revenue US$ million South Africa Other Africa South America North America Australia and Asia Europe

2010 15,711 2,329 7,492 679 4,141 2,577 32,929

2009 10,293 1,539 6,040 510 3,279 2,976 24,637

Operating profit/(loss) before special items and remeasurements 2010 2009 5,001 2,023 501 78 3,416 2,310 14 (20) 911 620 (80) (54) 9,763 4,957

Segment Assets and Liabilities by Location The Group’s geographical analysis of segment assets and liabilities, allocated based on where assets and liabilities are located, has been provided for information:

Wiley International Trends in Financial Reporting under IFRS

404

(1)

Segment assets 2010 2009 21,294 18,309 377 664 18,982 16,528 611 805 4,849 4,310 3,273 3,820 49,386 44,436

US$ million South Africa Other Africa South America North America Australia and Asia Europe (1)

Segment liabilities 2010 2009 (2,815) (2,148) (26) (66) (1,384) (1,262) (38) (132) (851) (813) (616) (907) (5,730) (5,328)

Net segment assets 2010 2009 18,479 16,161 351 598 17,598 15,266 573 673 3,998 3,497 2,657 2,913 43,656 39,108

Investments in associates are not included in segment assets. The geographical distribution of these investments, based on the location of the underlying assets, is disclosed in note 17.

BAE Systems Annual Report 2010 Notes to the Group accounts for the year ended 31 December 3.

Segmental Analysis

The Group reports on five operating groups which are organised around a combination of the different products and services they provide, and the geographical areas in which they operate: •

BAE Systems, Inc.: •

•

• • •

Electronics, Intelligence & Support, based primarily in the US, provides a wide range of electronic systems and subsystems for military and commercial applications, technical and professional services for US national security and federal markets, and ship repair and modernisation services. It comprises four businesses: Electronic Solutions, Intelligence & Security, Platform Solutions and Support Solutions; Land & Armaments, based primarily in the US, designs, develops, produces, supports and upgrades armoured combat vehicles, tactical wheeled vehicles, naval guns, missile launchers, artillery systems, munitions and law enforcement products;

Programmes & Support primarily comprises the Group’s UK-based air, maritime and Cyber & Intelligence activities; International comprises the Group’s businesses in Australia, India and Saudi Arabia, together with interests in the pan-European MBDA joint venture and Air Astana; and HQ & Other Businesses comprises the regional aircraft asset management and support activities, head office and UK shared services activity, including research centres and property management.

The Group has not aggregated any segments in arriving at the analysis. Management monitors the results of these operating groups to assess performance and make decisions about the allocation of resources. Segment performance is evaluated based on underlying EBITA1. This is reconciled below to the operating group result and the operating profit in the consolidated financial statements. Finance costs and taxation expense are managed on a Group basis. Analysis by Operating Group—Continuing Operations Combined sales of Group and equity accounted investments 2 Restated 2010 2009 £m £m Electronics, Intelligence & Support Land & Armaments Programmes & Support International HQ & Other Businesses Intra-operating group sales/revenue

Less: sales by equity accounted investments 2 Restated 2010 2009 £m £m

Add: sales to equity accounted investments 2 Restated 2010 2009 £m £m

Revenue 2010 £m

2009 £m

5,653 5,930 6,680 4,534 278 23,075

5,637 6,738 6,298 3,828 254 22,755

(49) (42) (1,445) (1,221) – (2,757)

– (6) (1,779) (1,088) – (2,873)

49 – 1,339 – – 1,388

– – 1,166 – – 1,166

5,653 5,888 6,574 3,313 278 21,706

5,637 6,732 5,685 2,740 254 21,048

(683) 22,392

(765) 21,990

21 (2,736)

16 (2,857)

53 1,441

75 1,241

(609) 21,097

(674) 20,374

Operating Segments (IFRS 8)

405

Intra-operating group revenue 2010 2009 £m £m 130 138 106 45 274 431 7 12 92 48 609 674

Electronics, Intelligence & Support Land & Armaments Programmes & Support International HQ & Other Businesses

Capital expenditure 2010 2009 £m £m 123 116 84 99 109 119 142 61 64 42 522 437

Electronics, Intelligence & Support Land & Armaments Programmes & Support International HQ & Other Businesses 1

2

3

Revenue from external customers 2010 2009 £m £m 5,523 5,499 5,782 6,687 6,300 5,254 3,306 2,728 186 206 21,097 20,374 3

Depreciation and 3 amortization 2010 2009 £m £m 125 134 244 348 116 140 55 61 64 48 604 731

Earnings before amortisation and impairment of intangible assets, finance costs and taxation expense (EBITA) excluding nonrecurring items (see page 37). Restated following the sale of half of the Group’s 20.5% shareholding in Saab AB and subsequent classification as a discontinued operation (see note 9). Includes intangible assets, property, plant and equipment, and investment property.

Electronics, Intelligence & Support Land & Armaments Programmes & Support International HQ & Other Businesses

Underlying 1 EBITA 2 Restated 2010 2009 £m £m 575 668 604 529

604 670

– 1

59 68

(281) (58)

(177) (49)

(25) (85)

(927) (34)

478 (65)

419 (71)

– (18)

– (278)

(25) (1)

(32) (1)

(7) –

(4) –

(15)

51

(392)

(286)

(125)

(973)

2,214 Financial (expense)/ income of equity accounted investments Taxation expense of equity accounted investments Operating profit Finance costs Profit before taxation Taxation expense Profit/(loss) for the year – continuing operations

Non-recurring Amortisation of Impairment of Operating group 3 4 5 items result intangible assets intangible assets 2 Restated 2010 2009 2010 2009 2010 2009 2010 2009 £m £m £m £m £m £m £m £m 202 (27) (8) 742 2 (27) (8) 635

2,197

298 387

(441) 655

446 (84)

383 (350)

1,682

989

(2)

(2)

(44) 1,636 (192)

(25) 966 (700)

1,444 (417)

266 (327)

1,027

(61)

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Analysis of Non-Current Assets by Geographical Location Carrying value of noncurrent assets 6 Restated 2009 2010 £m £m 2,582 2,587 1,105 1,190 734 729 10,022 9,838 621 589 31 47 15,095 14,980 354 310 644 887 3,559 3,764 19,652 19,941 1,211 1,563 49 42 3,118 3,943 24,030 25,489

Asset location United Kingdom Rest of Europe Saudi Arabia United States Asia and Pacific Africa, Central and South America Non-current operating group assets Financial instruments Inventories Trade and other receivables Total operating group assets Tax Retirement benefit obligations (note 21) Cash (as defined by the Group) (note 27) Consolidated total assets 1

2

3

4 5 6

Earnings before amortisation and impairment of intangible assets, finance costs and taxation expense (EBITA) excluding nonrecurring items (see page 37). Restated following the sale of half of the Group’s 20.5% shareholding in Saab AB and subsequent classification as a discontinued operation (see note 9). Non-recurring items comprise profit on disposal of businesses of £1m (2009 £68m), pension curtailment gains of £2m (2009 £261m) and regulatory penalties of £18m (2009 £278m). See note 11. The analysis by operating group of the share of results of equity accounted investments is provided in note 14. Restated following finalisation of the fair values recognised on acquisition of the 45% shareholding in BVT Surface Fleet Limited (see note 29).

Analysis of Sales and Revenue by Geographical Location—Continuing Operations

Customer location United Kingdom Rest of Europe Saudi Arabia Rest of Middle East United States Canada Australia Rest of Asia and Pacific Africa, Central and South America 1

Sales 1 Restated 2009 2010 £m £m 4,148 4,306 2,559 2,793 2,779 3,186 105 217 10,921 10,129 119 77 675 1,028 261 339 423 317 21,990 22,392

Revenue 2010 £m 4,161 2,036 2,994 162 10,126 77 1,027 257 257 21,097

2009 £m 3,562 1,811 2,607 64 10,902 119 672 226 411 20,374

Restated following the sale of half of the Group’s 20.5% shareholding in Saab AB and subsequent classification as a discontinued operation (see note 9).

Analysis of Revenue by Category—Continuing Operations

Sale of goods Construction contracts Provision of services Lease income Royalty income

2010 £m 5,793 11,757 3,480 60 7 21,097

2009 £m 6,777 10,274 3,239 73 11 20,374

Operating Segments (IFRS 8)

407

Analysis of Revenue by Major Customer—Continuing Operations Revenue from the Group’s three principal customers, which individually represent over 10% of total revenue, is as follows:

1

UK Ministry of Defence US Department of Defense Kingdom of Saudi Arabia Ministry of Defence and Aviation 1

2010 £m 5,060 7,696 2,870

2009 £m 4,101 8,381 2,602

Revenue from the UK Ministry of Defence includes £1.3bn (2009 £1.1bn) generated under the Typhoon workshare agreement with Eurofighter GmbH. This revenue is included within Rest of Europe in the analysis by geographical location above.

Revenue from the UK Ministry of Defence and the US Department of Defense was generated by all four principal operating groups. Revenue from the Kingdom of Saudi Arabia Ministry of Defence and Aviation was generated by the International operating group.

Crédit Agricole S.A. Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Note 5 Segment Reporting Definition of Operating Segments According to IFRS 8, information disclosed is based on the internal reporting that is used by the Executive Committee to manage the Crédit Agricole S.A. Group, to assess performance and to make decisions about resources to be allocated to the identified operating segments. Operating segments according to the internal reporting consist of the business lines of the Group Crédit Agricole S.A.’s activities are organised into seven operating segments: •

Six business lines: • • • • • •

•

French retail banking – Regional Banks, French retail banking – LCL Network, International retail banking, Specialised financial services, Asset management, insurance and private banking, Corporate and investment banking;

Plus the “Corporate centre”.

Presentation of Business Lines 1. French Retail Banking—Regional Banks This business line comprises the Regional Banks and their subsidiaries. The Regional Banks provide banking services for individual customers, farmers, small businesses, corporates and local authorities, with a very strong local presence. The Crédit Agricole Regional Banks provide a full range of banking and financial services, including savings products (money market, bonds, equity), life insurance, lending (particularly mortgage loans and consumer finance), and payment services. In addition to life insurance, they also provide a broad range of property & casualty and death & disability insurance. 2. French Retail Banking—LCL Network This business line comprises the LCL branch network in France, which has a strong focus on urban areas and a segmented customer approach (individual customers, small businesses and small and mediumsized enterprises). LCL offers a full range of banking products and services, together with asset management, insurance and wealth management products. 3. International Retail Banking International retail banking encompasses foreign subsidiaries and investments—fully consolidated or equity-accounted entities – that are mainly involved in retail banking.

Wiley International Trends in Financial Reporting under IFRS

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These subsidiaries and investments are mostly in Europe (Emporiki Bank in Greece, Cariparma and FriulAdria in Italy, Lukas Bank in Poland, Banco Espirito Santo in Portugal, Bankoa and Bankinter in Spain, Crédit Agricole Belge in Belgium, Index Bank in Ukraine, Crédit Agricole Banka Srbija a.d. Novi Sad in Serbia) and, to a lesser extent, in the Middle East and Africa (Crédit du Maroc and Crédit Agricole Egypt, etc.). The foreign subsidiaries in consumer finance, financial leasing and factoring (subsidiaries of Crédit Agricole Consumer Finance, of CAL&F and EFL in Poland, etc.) are however not included in this division but are reported in the “Specialised financial services” segment. 4. Specialised Financial Services Specialised financial services comprises the Group subsidiaries that provide banking products and services to individual customers, small businesses, corporates and local authorities in France and abroad. These include •

•

Consumer finance companies belonging to Crédit Agricole Consumer Finance in France and held through its subsidiaries or partnerships in countries other than France (Agos-Ducato, Forso,Credit-Plus, Ribank, Credibom, Dan Aktiv, Interbank Group, Emporiki Credicom, FGA Capital S.p.A.); Specialised financial services for companies such as factoring and lease finance (CAL&F group, EFL).

5. Asset Management, Insurance and Private Banking This business line encompasses: • • • • • •

The asset management activities of the Amundi group and BFT Gestion, offering savings solutions for individuals and investment solutions for institutions; Investor services: CACEIS Bank for custody and CACEIS Fastnet for fund administration; Personal insurance (Predica and Médicale de France in France, CA Vita in Italy and BES Vida in Portugal); Casualty insurance (Pacifica, and BES Seguros in Portugal); Creditor insurance activities (conducted by Crédit Agricole Creditor Insurance); Private banking activities conducted mainly by Banque de Gestion Privée Indosuez (BGPI) and by Crédit Agricole CIB subsidiaries (Crédit Agricole Suisse, Crédit Agricole Luxembourg and Crédit Foncier de Monaco, etc.).

6. Corporate and Investment Banking Corporate and investment banking operations are divided into two main activities, most of them carried out by Crédit Agricole CIB: • •

Capital markets and investment banking, encompassing all capital markets activities, equity and futures brokerage, primary equity markets and mergers & acquisitions; Financing activities, encompassing traditional commercial banking and structured finance: project, asset, real-estate and hotel finance, as well as management of Crédit Agricole CIB’s portfolio of impaired assets.

7. Corporate Centre This business segment encompasses mainly Crédit Agricole S.A.’s central body function, asset and liability management and management of debt connected with acquisitions of subsidiaries or equity investments. It also includes the results of the private equity business and results of various other Crédit Agricole S.A. Group’s companies (Uni-éditions, Foncaris, etc.). This segment also includes the income from resource pooling companies, real-estate companies holding properties used in operations by several business lines and activities undergoing reorganisation. Lastly, it also includes the net impact of group tax consolidation for the Crédit Agricole S.A. Group, as well as differences between the “standard” tax rates for each business line and the actual tax rates applied to each subsidiary. 5.1 Operating Segment Information Transactions between operating segments are effected at arm’s length. Segment assets are calculated on the basis of accounting items comprising the balance sheet for each operating segment.

Operating Segments (IFRS 8)

409

31/12/2010 Retail Banking in France

In millions of euros Net banking income Operating expenses Gross operating income Cost of risk Operating income Share of profit in equity-accounted entities Net gains (losses) on other assets Change in value of goodwill Pre-tax income Income tax expense Net gains (losses) on discontinued operations Net income for the period Minority interests NET INCOME – GROUP SHARE Segment assets Of which investments in equity-accounted entities Of which goodwill TOTAL ASSETS

Asset management, Specialised insurance and Regional LCL International financial private Banks network retail banking services banking 3,945 2,975 3,945 4,984 (2,575) (1,951) (1,734) (2,490) 1,370 (359) 1,011 957

957

1,024 (1,444) (420) 108

(92)

8

1,009 (303)

(445) (749) (183)

2,211 (1,298) 913

2,494 (25) 2,469 3

12

925 (330)

Corporate and investment banking 5,315 (3,507)

Corporate centre (1,035) (930)

Total 20,129 (13,187)

1,808 (623) 1,185

(1,965) (28) (1,993)

6,942 (3,777) 3,165

139

(1,154)

65

(8)

(6)

(169)

(177)

2,464 (801)

1,318 (305)

(3,316) 1,045

(445) 2,608 (877)

1

21

(1)

21

957

706 35

(911) 17

595 59

1,664 155

1,013` 38

(2,272) 185

1,752 489

957

671

(928)

536

1,509

975

(2,457)

1,263

5,263 116,326

2,567 3,308 95,425

163 3,363 124,868

17 4,549 351,654

1,095 2,405 890,489

13,635 13,635

534 72 1,152

18,111 18,960 1,593,529

(1)

31/12/2009 Retail Banking in France

In millions of euros Net banking income Operating expenses Gross operating income Cost of risk Operating income Share of profit in equity-accounted entities Net gains (losses) on other assets Change in value of goodwill Pre-tax income Income tax expense Net gains (losses) on discontinued operations Net income for the period Minority interests NET INCOME – GROUP SHARE

Regional Banks

Asset management, Specialised insurance and LCL International financial private network retail banking services banking 3,849 2,931 3,679 3,910 (2,551) (1,988) (1,705) (1,980) 1,298 (435) 863

822

822 (92)

863 (259)

943 (1,089) (1,146)

1,974 (1,320) 654

145

10

45

1

(485) (441) (180)

665 (136)

1,930 (6) 1,924 3

Corporate and investment Corporate banking centre 4,156 (583) (3,181) (777) 975 (1,769) (794) 115 12

1,927 (533)

(667) 355

(1,360) (70) (1,430) (248) 9 (1) (1,670) 634

Total 17,942 (12,182) 8,760 (4,689) 1,071 847 67 (486) 1,499 (211) 158

158 730

604 30

(463) (5)

529 72

1,394 37

(312) 8

(1,036) 179

1,446 321

730

574

(458)

457

1,357

(320)

(1,215)

1,125

Wiley International Trends in Financial Reporting under IFRS

410

(1)

31/12/2009 Retail Banking in France

In millions of euros Segment assets Of which investments in equity-accounted entities Of which goodwill TOTAL ASSETS (1)

Regional Banks

Asset management, Specialised insurance and LCL International financial private network retail banking services banking

12,840

2,588 3,745 91,537

5,263 12,840 110,961

125 3,326 117,342

11 4,615 326,249

Corporate and investment Corporate banking centre

880 2,407 845,811

3,582 76 52,602

Total

20,026 19,432 1,557,342

Following the creation of Amundi, BFT (Banque Financement et Trésorerie) is now included in the “Corporate centre” business line instead of “Asset management, insurance and private banking”. Results by business line for 2009 have been restated to reflect that transfer.

5.2 Segment Information: Geographical Analysis The geographical analysis of segment assets and results is based on the place where operations are booked for accounting purposes. 31/12/2009

31/12/2010

In millions of euros France (including overseas departments and territories ) Other European Union countries Rest of Europe North America Central and South America Africa and Middle East Asia-Pacific (excl. Japan) Japan TOTAL (1)

Net income Group share

O/w net banking income

Segment assets

O/w goodwill

Net income Group share

571

10,290

1,238,305

12,960

(177) 111 247

6,402 702 952

204,063 18,571 62,509

5,179 559 26

14

62

1,799

22

212

486

13,086

175

1,033 202 20,129

34,572 20,624 1,593,529

2 37 18,960

288 (3) 1,263

(1)

O/w net banking income

Segment assets

O/w goodwill

638

8,759

1,226,462

13,066

(92) 156 (10)

6,342 757 516

199,206 16,651 53,339

5,563 559 24

19

109

1,377

18

211

467

12,263

172

923 69 17,942

28,581 19,463 1,557,342

0 30 19,432

257 (54) 1,125

By application of IFRS 8, regional segment reporting is presented following elimination of intra-group transactions. Figures for 2009 have therefore been restated.

Danske Bank Group Annual Report 2010 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010 2 Business Segmentation and Business Model The Danske Bank Group is Denmark’s leading financial services provider and one of the largest in the Nordic region. The Group offers customers a wide range of services in the fields of banking, mortgage finance, insurance, real-estate brokerage, asset management and trading in fixed income products, foreign exchange and equities. Danske Bank is an international retail bank operating in 15 countries, mainly the Nordic region. Danske Bank is market leader in Denmark, among the largest banks in Northern Ireland and Finland and a market challenger in Sweden, Norway, Ireland and the Baltics. Danica Pension carries out the Group’s activities in the life insurance and pensions markets.

Operating Segments (IFRS 8)

411

The Group consists of a number of business units and resource and support functions. The Group’s activities are segmented into business units according to legislative requirements and product and service characteristics. Banking Activities caters to all types of retail and corporate customers. The finance centres serve large businesses and private banking customers. Mortgage finance operations in Denmark are carried out through Realkredit Danmark. Real-estate agency operations are conducted by the “home”, Skandia Mäklarna and Fokus Krogsveen real-estate agency chains. All property finance operations are part of Banking Activities. At 1 January 2009, the activities of Banking Activities Russia were transferred from Banking Activities Finland to Other Banking Activities. Danske Markets is responsible for the Group’s activities in the financial markets. Trading activities include trading in fixed-income products, foreign exchange and equities. Danske Markets provides financial products, advisory services on mergers and acquisitions and on equity and debt issues in the international financial markets to large corporate customers and institutional clients. Group Treasury is responsible for the Group’s strategic fixed-income, foreign exchange and equity portfolios and serves as the Group’s internal bank. Internal income is allocated on an arm’s-length basis. Surplus liquidity is settled primarily on the basis of short-term money market rates, whereas other intra-group balances are settled on an arm’s-length basis. Internal fees and commissions are settled on an arm’s-length basis or allocated to the business units at an agreed ratio. Institutional banking covers exposure to international financial institutions outside the Nordic region. Exposures to Nordic financial institutions are part of Banking Activities. Danske Capital develops and sells asset and wealth management products and services. They are marketed through the banking units and directly to businesses, institutional clients and external distributors. Danske Capital also supports the advisory and asset management activities of the banking units. Through Danske Bank International in Luxembourg, Danske Capital provides international private banking services to clients outside the Group’s home markets. Danske Capital is represented in Denmark, Sweden, Norway, Finland, Estonia, Lithuania and Luxembourg. Danica Pension carries out the Group’s activities in the life insurance and pensions market. Danica Pension targets both personal and corporate customers. Its products are marketed through a range of distribution channels within the Group, primarily banking units and Danica Pension’s own insurance brokers and advisers. Danica Pension offers two market based Products Danica Balance and Danica Link. These products allow customers to select their own investment profiles, and the return on savings depends on market trends. Danica Pension also offers Danica Traditional. This product does not offer individual investment profiles, and Danica Pension sets the rate of interest on policyholders’ savings. Other Activities encompasses expenses for the Group’s support functions and real property activities. Other Activities also covers eliminations, including the elimination of returns on own shares. Furthermore, Other Activities includes the Group’s capital centre and specifies the difference between allocated capital and shareholders’ equity. Capital is allocated to the individual business unit at a rate of 5.5% of its average risk-weighted assets (2009: 5.5%). The allocation is based on the individual unit’s share of the Group’s average risk-weighted assets calculated prior to the transition to the Capital Requirements Directive. Insurance companies are subject to special statutory capital requirements. Consequently, the shareholders’ equity allocated to the insurance business equals the statutory minimum requirement plus 5.5% of the difference between Danica’s equity and the minimum requirement. A calculated income equal to the risk-free return on its allocated capital is apportioned to each business unit. This income is calculated on the basis of the short-term money market rate and allocated from Other Activities. The segment disclosures state interest amounts on a net basis. Expenses are allocated to the business units at market price level. Other Activities supplies services to business units, and transactions are settled at unit prices or on an arm’s-length basis, if possible, on the basis of consumption and activity. Assets and liabilities used for the operating activities of a business unit are presented in the financial statements of that unit. Capitalised goodwill is allocated to the business units that recognise the income from the acquisitions made. The financing of goodwill is included in the Group’s capital centre under Other Activities.

Wiley International Trends in Financial Reporting under IFRS

412

Business segments 2010 DKK millions Net interest income Net fee income Net trading income Other income Net premiums Net insurance benefits Income from equity investments Net income from insurance business Total income Expenses Profit before loan impairment charges Loan impairment charges Profit before tax Loans and advances, excluding reverse transactions Other assets Total assets Deposits, excluding repo deposits Other liabilities Allocated capital Total liabilities and equity Internal income Amortisation and depreciation charges Impairment charges for intangible and tangible assets Reversals of impairment charges Pre-tax profit as % of allocated capital (avg.) Cost/income ratio (%) Full-time-equivalent staff (avg.)

Banking activities 23,541 6,840 1,100 3,060 -

Danske Markets 5,765 341 -2 46 -

Danske Capital 120 1,707 39 5 -

Danica Other Pansion activities 6,202 181 -762 -37 5,112 -7 491 1,299 18,253 26,172 -

Eliminations 174 -258 -103 -

Total 35,983 8,089 5,984 4,798 18,253 26,172

Reclassification -12,140 421 1,937 -941 -18,253 -26,172

Highlights 23,843 8,510 7,921 3,857 -

-

723

2

20

-2

-

743

-743

-

34,541 21,840

6,873 2,780

1,873 1,040

3,144 998

1,434 856

-187 -103

47,678 27,411

2,146 -1,401 -1,401

2,146 46,277 26,010

12,701

4,093

833

2,146

578

-84

20,267

-

20,267

14,421 -1,720

-617 4,710

13 820

2,146

578

-84

13,817 6,450

-

13,817 6,450

1,637,714 491,682 2,129,396

45,786 4,710,655 4,756,441

6,260 10,025 16,285

274,443 274,443

1,584 203,103 204,687

-11,379 -4,155,987 -4,167,366

1,679,965 1,533,921 3,213,886

-

1,679,965 1,533,921 3,213,886

696,145 1,365,857 67,394

102,777 4,648,698 4,966

5,869 10,125 291

268,711 5,732

3,474 174,854 26,359

-7,652 -4,159,714 -

800,613 2,308,531 104,742

-

800,613 2,308,531 104,742

2,129,396

4,756,441

16,285

274,443

204,687

-4,167,366

3,213,886

-

3,213,886

4,140

15,814

117

2,153

-22,224

-

-

2,341

7

40

16

931

-

3,335

-

-

-

-

62

-

62

-

-

-

-

-

-

-

-2.6 63.2

94.8 40.4

281.8 55.5

37.4 31.7

2.2 59.7

-

6.2 57.5

13,616

883

538

894

5,867

-

21,798

In its financial highlights, the Group recognises earnings contributed by Danske Markets as net trading income and earnings contributed by Danica Pension as net income from insurance business. Other income includes earnings contributed by fully consolidated subsidiaries taken over by the Group under non-performing loan agreements and held for sale. The Reclassification column shows the adjustments made to the detailed figures in the calculation of the highlights. Internal income and expenses are allocated to the individual segments on an arm’s-length basis. Liquidity expenses are allocated on the basis of a maturity analysis of loans and deposits. Prices are based on interbank rates and funding spreads.

Operating Segments (IFRS 8)

413

Business segments 2009 DKK millions Net interest income Net fee income Net trading income Other income Net premiums Net insurance benefits Income from equity investments Net income from insurance business Total income Expenses Profit before loan impairment charges Loan impairment charges Profit before tax Loans and advances, excluding reverse transactions Other assets Total assets Deposits, excluding repo deposits Other liabilities Allocated capital Total liabilities and equity Internal income Amortisation and depreciation charges Impairment charges for intangible and tangible assets Reversals of impairment charges Pre-tax profit as % of allocated capital (avg.) Cost/income ratio (%) Full-time-equivalent staff (avg.)

Banking activities 27,102 6,419 1,115 2,758 -

Danske Markets 12,919 120 3,854 16 -

Danske Capital 298 1,297 59 72 -

Danica Pansion 6,877 -556 9,463 827 17,051 29,821

Other activities 124 -38 154 318 -

Eliminations 222 -544 -72 -

Total 47,542 7,242 14,101 3,919 17,051 29,821

Reclassification -20,018 436 4,143 -836 -17,051 -29,821

Highlights 27,524 7,678 18,244 3,083 -

-

329

2

-43

7

-2

293

-293

-

37,394 24,213

17,238 2,886

1,728 1,014

3,798 988

565 866

-396 -72

60,327 29,895

2,810 -988 -988

2,810 59,339 28,907

13,181

14,352

714

2,810

-301

-324

30,432

-

30,432

22,486 -9,305

3,237 11,115

-46 760

2,810

-301

-324

25,677 4,755

-

25,677 4,755

1,627,698 446,934 2,074,632

42,158 4,647,071 4,689,229

9,725 9,303 19,028

252,674 252,674

17,667 148,836 166,503

-27,696 -4,075,893 -4,103,589

1,669,552 1,428,925 3,098,477

-

1,669,552 1,428,925 3,098,477

648,140 1,356,308 70,184

151,613 4,533,372 4,244

6,235 12,419 374

246,943 5,731

21,638 124,739 20,126

-23,694 -4,079,895 -

803,932 2,193,886 100,659

-

803,932 2,193,886 100,659

2,074,632

4,689,229

19,028

252,674

166,503

-4,103,589

3,098,477

-

3,098,477

6,846

19,076

263

2,478

-28,663

-

-

2,274

3

41

19

1,022

-

3,359

1,458

-

-

-

163

-

1,621

-

-

-

-

-

-

-

261.9 16.7

203.2 58.7

49.0 26.0

-1.5 153.3

-

4.7 49.6

887

554

951

6,864

-

22,794

-13.3 64.8 13,538

DKK millions Income broken down by type of product Corporate banking Home finance and savings Trading Day-to-day banking Wealth management Leasing Insurance Other Total

2010

2009

13,655 9,978 8,819 4,665 3,053 3,047 3,214 1,247 47,678

13,495 13,381 19,155 4,845 2,660 2,752 3,870 169 60,327

Corporate banking comprises interest and fee income from transactions with corporate customers. Home comprises interest and fee income from home financing and home savings products. Trading comprises income from fixed-income and foreign exchange products, including brokerage. Day-to-day banking comprises income from personal banking products in the form of personal loans, cards and deposits. Wealth management comprises income from the management of assets, including pooled assets and assets in unit trusts. Leasing encompasses income from both finance and operating leases sold by Danske Bank’s leasing operations. Insurance comprises income from Danica Pension and services sold to customers through the banking units.

Wiley International Trends in Financial Reporting under IFRS

414

In accordance with IFRSs, the Danske Bank Group is required to disclose business with a single customer that generates 10% or more of total income. The Group has no such customers. Geographical Segmentation Income from external customers is broken down by the customer’s country of residence, except trading income, which is broken down by the country in which activities are carried out. Assets (comprising intangible assets, investment property, tangible assets and holdings in associated undertakings) are broken down by location. Goodwill is allocated to the country in which activities are carried out. Geographical segmentation of income and assets is shown in compliance with IFRSs and does not reflect the Group’s management structure. The management believes that business segmentation provides a more informative description of the Group’s activities. Income External customers 2010 2009 26,682 36,678 5,005 5,541 5,162 5,246 4,622 3,932 1,649 2,099 924 936 2,407 4,563 295 306 281 373 129 128 45 47 477 478 47,678 60,327

Denmark Finland Sweden Norway Ireland Baltics UK Germany Luxembourg Poland US Other Total

Assets 2010 15,196 15,034 577 705 208 2,167 2,594 24 130 1 36,636

2009 16,563 15,111 195 701 290 2,158 2,448 1 29 374 1 37,871

Lufthansa Annual Report 2010 Segment information by operating segment for 2010 Reconciliation

in €m External revenue of which traffic revenue Inter-segment revenue Total revenue Other operating income Total operating income Operating expenses of which cost of materials and services of which staff costs of which depreciation and amortization of which other operating expenses 1) Operating result Other segment income Other segment expenses of which impairment losses Result of investments accounted for using the equity method 3) Segment result

Total Reportable operating IT 2) 2) MRO segments Services Catering 2,373 232 1,716 27,324

Passage Airline 2) Group 20,233

Logistics 2,770

19,186 679 20,912 1,174

2,633 25 2,795 95

– 1,645 4,018 211

– 363 595 32

– 533 2,249 67

21,819 3,245 30,569 1,579

– – – 1,232

449 – – –

– –3,245 –3,245 –592

22,268 – 27,324 2,219

22,086 21,650

2,890 2,580

4,229 3,961

627 617

2,316 2,240

32,148 31,048

1,232 1,458

– –

–3,837 –3,839

29,543 28,667

13,250 3,829

1,846 338

2,056 1,101

75 247

997 811

18,224 6,326

100 320

– –

–2,954 –6

15,370 6,640

1,261

107

94

34

59

1,555

44

–

10

1,609

3,310

289

710

261

373

4,943

994

–

–889

5,048

436 244

310 9

268 34

10 1

76 2

1,100 290

–226 49

– 387

2 –125

876 601

98

12

2

17

5

134

19

139

–55

237

65

9

–

14

0*

88

0*

–

–

88

Not ConsolidaOther allocated tion – – –

Group 27,324

–10

23

19

–

14

46

0*

–

–

46

572

330

319

–6

87

1,302

–196

248

–68

1,286

Operating Segments (IFRS 8)

415

Reconciliation

in €m Other financial result Profit before income taxes 4) Segment assets of which from investment measured at equity 5) Segment liabilities Segment capital 6) expenditure of which from investment measured at equity Employees on balance sheet date Average number of employees * 1) 2) 3) 4)

5)

6)

Passage Airline 2) Group

Logistics

IT Services

2)

MRO

Catering

Total Reportable operating segments

2)

Not Consolidaallocated tion

Other

Group –308

14,839

805

3,030

222

1,215

20,111

1,337

14,691

–6,819

978 29,320

112 9,416

46 431

155 1,376

– 221

67 479

380 11,923

5 1,196

– 10,632

– –2,771

385 20,980

2,047

21

67

36

38

2,209

17

998

–951

2,273

–

–

–

–

–

–

–

–

–

–

57,157

4,517

20,159

2,935

28,499

113,267

3,752

–

–

117,019

57,226

4,469

20,297

2,974

28,369

113,335

3,731

–

–

117,066

Rounded below EUR 1m. See page 67 of the management report for reconciliation between operating result and profit from operating activities. Previous year’s figures only partially comparable due to changes in the group of consolidated companies. Profit from operating activities including result of investments measured at equity. Intangible assets, property, plant and equipment, investments accounted for using the equity method, inventories, trade receivables and other assets – total assets are presented under the heading “Group”. All liabilities with the exception of financial debt, liabilities to Group companies, derivative financial instruments, other deferred income and tax obligations – total liabilities are presented under the heading “Group”. Capital expenditure on intangible assets, property, plant and equipment, and investments accounted for using the equity method.

Segment information by operating segment for 2009

in €m External revenue of which traffic revenue Inter-segment revenue Total revenue Other operating income Total operating income Operating expenses of which cost of materials and services of which staff costs of which depreciation and amortization of which other operating expenses 1) Operating result Other segment income Other segment expenses of which impairment losses Result of investments accounted for using the equity method 3) Segment result

Passenger Airline 2) 2) Group Logistics 16,225 1,928

MRO 2,297

IT 2) Services Catering 244 1,589

Total reportable operation segments 22,283

Reconciliation Other –

Not allocated –

Consolidation –

Group 22,283

15,430 573 16,798

1,844 23 1,951

– 1,666 3,963

– 361 605

– 513 2,102

17,274 3,136 25,419

– – –

330 – –

– –3,136 –3,136

17,604 – 22,283

1,265

111

157

38

125

1,696

1,230

–

–454

2,472

18,063 18,071

2,062 2,233

4,120 3,804

643 627

2,227 2,155

27,115 26,890

1,230 1,364

– –

–3,590 –3,629

24,755 24,625

10,904 3,330

1,511 311

1,979 1,059

81 233

941 775

15,416 5,708

89 299

– –

–2,805 –5

12,700 6,002

1,032

123

87

37

58

1,337

44

–

6

1,387

2,805 –8 183

288 –171 15

679 316 18

276 16 1

381 72 3

4,429 225 220

932 –134 69

– – 487

–825 39 –492

4,536 130 284

88

1

2

1

8

100

29

432

–418

143

80

–

–

–

8

88

–

–

–

88

–9 78

5 –152

–1 331

– 16

8 75

3 348

– –94

– 55

– –35

3 274

Wiley International Trends in Financial Reporting under IFRS

416

in €m Other financial result Profit before income taxes 4) Segment assets of which from investment measured at equity 5) Segment liabilities Segment capital 6) expenditure of which from investment measured at equity Employees on balance sheet date Average number of employees 1) 2) 3) 4)

5)

6)

Passenger Airline 2) 2) Group Logistics

MRO

IT 2) Services Catering

Total reportable operation segments

Other

Not allocated

Consolidation

Reconciliation Group –503

13,612

798

2,843

241

1,184

18,678

1,372

11,366

–5,024

–229 26,392

127 8,840

30 454

110 1,318

– 199

49 466

316 11,277

4 1,187

– 11,099

– –3,373

320 20,190

1,898

25

121

52

58

2,154

65

387

–201

2,405

65

5

–

–

–

70

–

–

–

70

58,083

4,488

19,796

3,027

28,390

113,784

3,737

–

–

117,521

52,317

4,568

19,758

3,041

28,935

108,619

3,701

–

–

112,320

See page 67 of the management report for reconciliation between operating result and profit from operating activities. Previous year’s figures only partially comparable due to changes in the group of consolidated companies. Profit from operating activities including result of investments shown at equity. Intangible assets, property, plant and equipment, investments accounted for using the equity method, inventories, trade receivables and other assets – total assets are presented under the heading “Group”. All liabilities with the exception of financial debt, liabilities to Group companies, derivative financial instruments, other deferred income and tax obligations – total liabilities are presented under the heading “Group”. Capital expenditure for intangible assets, property, plant and equipment, and investments accounted for using the equity method.

The reconciliation column includes both the effects of consolidation activities and the amounts resulting from different definitions of segment item contents compared with the corresponding Group items. Eliminated business segment revenue generated with other consolidated business segments is shown in the reconciliation column for revenue. For other operating income, inter-segment income has also been eliminated (reconciliation column for other income). In the 2010 financial year it consisted especially of rental income from subletting buildings, foreign currency transaction gains from short-term intra-Group foreign currency loans and revenue from intra-Group training and services. To the extent that eliminated revenue and other operating income is matched by operating expenses in the companies receiving the services, these expenses are also eliminated (reconciliation columns for expenses). The amounts in the reconciliation column for the operating result include the effects of consolidation procedures on profit or loss in which income and expense do not figure for two companies at the same amount, or in the same period. Other segment income includes, for example, income from the reversal of provisions and book gains from disposals, which are attributed to the segment result but not to the operating result. Here too, income from other segments is eliminated (reconciliation column for other segment income). The same applies vice versa to other segment expenses, which include expense items not attributable to operations but which must be reflected in the segment result, such as book losses or impairment charges. The components of the consolidated operating result which are included in neither the operating nor the segment result, such as gains/losses from current financial investments, for example, are added back in the reconciliation columns for other segment income and other segment expenses. The result of the equity valuation for the segment’s equity investments is part of its segment result, however from a Group perspective it is not attributed to the operating result but rather to the financial result. Segment assets primarily include property, plant and equipment, intangible assets, investments accounted for using the equity method, inventories and receivables.

Operating Segments (IFRS 8)

417

Segment liabilities consist of operating liabilities and provisions. Tax and financial items have not been allocated to segments. Segment assets and segment liabilities in the column “Other” also include the financial assets and liabilities of the Group companies aggregated here for which IFRS 8 does not require reporting as part of segment reporting. Segment capital expenditure includes additions to property, plant and equipment and intangible assets, as well as capital expenditure on investments accounted for using the equity method. Figures by region for 2010 in EUR m

in €m 1) Traffic revenue Other revenue 2) Non-current assets Capital expenditure on non-current assets

Europe 14,239 2,380 14,829

North America 3,147 1,014 155

2,157

Central and South America 513 147 10

61

1

Asia / Pacific 3,239 975 162

Middle East 681 305 1 0

6

*

Africa 449 235 10 1

Total 22,268 5,056 15,167 2,226

The figures for the main countries are as follows: in €m 1) Traffic revenue Other revenue 2) Non-current assets Capital expenditure on non-current assets

Germany 5,809 930 8,589 1,149

USA 2,748 901 151 61

* Rounded below EUR 1m. 1) Traffic revenue is allocated according to the original location of sale. 2) Non-current assets include property, plant and equipment and intangible assets with the exception of repairable spare parts for aircraft.

Figures by region for 2009 in EUR m

in €m 1) Traffic revenue Other revenue 2) Non-current assets Capital expenditure on non-current assets

Europe 11,356 2,339 14,082

**

North America 2,680 882 146

2,111

Central and South America 251 140 11

29

2

Asia / Pacific 2,376 813 159

Middle East 635 274 * 0

5

0

*

Africa 306 231 9 2

Total 17,604 4,679 14,407 2,149

The figures for the main countries are as follows: in €m 1) Traffic revenue Other revenue 2) Non-current assets Capital expenditure on non-current assets * ** 1) 2)

Germany 5,291 937 8,673 1,409

USA 2,383 804 146 28

Rounded below EUR 1m. Regional classification adjusted in line with IATA standard. Traffic revenue is allocated according to the original location of sale. Non-current assets include property, plant and equipment and intangible assets with the exception of repairable spare parts for aircraft.

The allocation of traffic revenue to regions is based on the original location of sale, the allocation of other revenue is based on the geographical location of the customer. The regions are defined on a geographical basis. As an exception to this rule, traffic revenue generated in Turkey is attributed to Europe. Lufthansa controls its air traffic operations on the basis of network results and not on the basis of regional earnings contributions. The same applies to the Catering segment. Consequently, the presentation of regional segment results is of no informational value for the Lufthansa Group.

Wiley International Trends in Financial Reporting under IFRS

418

The information on the Passenger Airline Group business segment and Logistics segment in the management report includes a presentation of traffic revenue generated in the Passenger Airline Group and Logistics segment by traffic region, rather than by original location of sale.

Daimler Annual Report 2010 Notes to the financial statements 32. Segment Reporting (in Part) Reportable segments. The reportable segments of the Group are Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services. The segments are largely organized and managed separately according to nature of products and services provided, brands, distribution channels and profile of customers. The vehicle segments develop and manufacture passenger cars and off-road vehicles, trucks, vans and buses. Mercedes-Benz Cars sells its passenger cars and off-road vehicles under the brand names Mercedes-Benz, smart and Maybach. Daimler Trucks distributes its trucks under the brand names MercedesBenz, Freightliner, Western Star and Fuso. The vans of the Mercedes-Benz Vans segment are primarily sold under the brand name Mercedes-Benz. Daimler Buses sells completely built-up buses under the brand names Mercedes-Benz, Setra and Orion. In addition, Daimler Buses produces and sells bus chassis. The vehicle segments also sell related spare parts and accessories. The Daimler Financial Services segment supports the sales of the Group’s vehicle segments worldwide. Its product portfolio mainly comprises tailored financing and leasing packages for customers and dealers. The segment also provides services such as insurance, fleet management, investment products and credit cards. Management reporting and controlling systems. The Group’s management reporting and controlling systems principally use accounting policies that are the same as those described in Note 1 in the summary of significant accounting policies under IFRS. The Group measures the performance of its operating segments through a measure of segment profit or loss which is referred to as “EBIT” in our management and reporting system. EBIT is the measure of segment profit/loss used in segment reporting and comprises gross profit, selling and general administrative expenses, research and non-capitalized development costs, other operating income and expense, and our share of profit/loss from investments accounted for using the equity method, net, as well as other financial income/expense, net. Intersegment revenue is generally recorded at values that approximate third-party selling prices. Segment assets principally comprise all assets. The industrial business segments’ assets exclude income tax assets, assets from defined pension benefit plans and other post-employment benefit plans and certain financial assets (including liquidity). Segment liabilities principally comprise all liabilities. The industrial business segments’ liabilities exclude income tax liabilities, liabilities from defined pension benefit plans and other postemployment benefit plans and certain financial liabilities (including financing liabilities). Pursuant to risk sharing agreements between Daimler Financial Services and the respective vehicle segments the residual value risks associated with the Group’s operating leases and its finance lease receivables are primarily borne by the vehicle segments that manufactured the leased equipment. The terms of the risk sharing arrangement vary by segment and geographic region. Noncurrent assets comprise of intangible assets, property, plant and equipment and equipment on operating leases. Capital expenditures for property, plant and equipment and intangible assets reflect the cash effective additions to these property, plant and equipment and intangible assets as far as they do not relate to capitalized borrowing costs or goodwill and finance leases. The effects of certain legal proceedings are excluded from the operative results and liabilities of the segments, if such items are not indicative of the segments’ performance, since their related results of operations may be distorted by the amount and the irregular nature of such events. This may also be the case for items that refer to more than on reportable segment. With respect to information about geographical regions, revenue is allocated to countries based on the location of the customer; non-current assets are disclosed according to the physical location of these assets.

Operating Segments (IFRS 8)

419

J Sainsbury plc Annual Report and Financial Statements 2010 Notes to the Financial Statements 4.

Segment Reporting

The Group’s businesses are organized into three operating segments: • • •

Retailing (Supermarkets and Convenience); Financial services (Sainsbury’s Bank joint venture); and Property investment (British Land joint venture and Land Securities joint venture).

Management has determined the operating segments based on the information provided to the Operating Board (the CODM) to make operational decisions on the management of the Group. All material operations and assets are in the UK. The business of the Group is not subject to highly seasonal fluctuations although there is an increase in trading in the period leading up to Christmas. The Group has continued to include additional voluntary disclosure analyzing the Group’s Financial Services and Property joint ventures into separate reportable segments. Revenue from operating segments is measured on a basis consistent with the income statement. All revenue is generated by the sale of goods and services. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. The Operating Board assesses the performance of Retailing on the basis of profit generated by the sales and the costs directly attributable to that segment which are contained within underlying profit. The reconciliation provided below reconciles underlying operating profit from each of the segments disclosed to profit before tax.

52 weeks to 20 March 2010 Segment revenue Underlying operating profit Underlying finance income Underlying finance costs Underlying share of post-tax profit from joint ventures Underlying profit before tax Profit on sale of properties Investment property fair value movements Financing fair value movements IAS 19 pension financing charge One-off item: Office of Fair Trading dairy inquiry Profit before tax Income tax expense Profit for the financial year Assets Investment in joint ventures Segment assets Segment liabilities Other segment items (1) Capital expenditure Depreciation expense Amortisation expense Provision for impairment of receivables Share-based payments 52 weeks to 21 March 2009 Segment revenue Underlying operating profit (2) Underlying finance income Underlying finance costs Underlying share of post-tax profit from joint ventures

Property investments £m 11 11 123 (3) 131

Retailing £m 19,964 671 33 (112) 592 27 (12) (24) 12 595

Financial services £m 7 7 7

10,406 10,406 5,889

102 102 -

347 347 -

1,003 466 13 1 42 18,911 616 28 (141) -

4

12

Group £m 19,964 671 33 (112) 18 610 27 123 (15) (24) 12 733 (148) 585 10,406 449 10,855 5,889 1,003 466 13 1 42 18,911 616 28 (141) 16

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420

(2)

Underlying profit before tax Profit on sale of properties Investment property fair value movements Financing fair value movements IAS 19 pension financing credit Profit/(loss) before tax Income tax expense Profit for the financial year Assets Investment in joint ventures Segment assets Segment liabilities Other segment items (3) Capital expenditure Depreciation expense Amortisation expense Provision for impairment of receivables Share-based payments

Retailing £m 503 57 (124) (7) 24 577

Financial services £m 4 -

Property investments £m 12 -

4

(3) (115)

9,745 1 9,746 5,657

72 72 -

215 215 -

1,105 453 15 1 40

-

-

Group £m 519 57 (124) (10) 24 466 (177) 289 9,745 288 10,033 5,657 1,105 453 15 1 40

(1)

Capital expenditure consists of property, plant and equipment additions of £992 million and intangibles additions of £11 million. (2) Underlying finance income and underlying profit before tax have been restated due to the change in the definition of underlying profit before tax, see note 3. (3) Capital expenditure consists of property, plant and equipment additions of £1,081 million, property, plant and equipment acquired through business combinations of £4 million, intangibles additions of £10 million and intangibles generated through business combinations of £10 million. Due to the nature of its activities, the Group is not reliant on any individual major customers.

Telstra Notes to the Financial Statements year ended 30 June 2010 5.

Segment Information

Operating Segments We report our segment information on the same basis as our internal management reporting structure, which drives how our company is organized and managed. During the year ended 30 June 2010, the following changes were made to our operating segments: • • •

To further drive Telstra’s network and technology excellence, Telstra Networks and Services and Information Technology, formerly two segments, are now combined into one segment, Telstra Operations; A new segment, Chief Marketing Office, was formed to focus on product and marketing innovation. As a result, the previous Product Management group, Telstra Media and Strategic Marketing segments have now been incorporated into this segment; and The creation of a new business unit “Telstra International”, which takes geographic and operational responsibility for CSL New World (CSL NW) and international managed network and hosting operations under the Telstra International brand with points of presence around the world. While CSL NW remains as a separately reportable segment, the rest of the International portfolio, except our China businesses, have been grouped under a new segment called “Other International Unit.” From 1 July 2010, our China businesses, except SouFun, now also form part of the Telstra International operating segment.

Segment results are reported according to the internal management reporting structure at balance date. Segment comparatives are restated to reflect the changes described above as well as any organisational changes which have occurred since the prior reporting period to present a like-for-like view. As KAZ Group Pty Limited was sold on 30 April 2009, we have excluded it from the Telstra Enterprise and Government segment prior period results for internal management reporting. The Telstra Group is organised into the following operating segments for internal management reporting purposes:

Operating Segments (IFRS 8)

421

Telstra Consumer (TC) is responsible for providing the full range of telecommunication products, services and solutions (across Mobiles, Fixed and Wireless Broadband, Telephony and PayTV) to consumer customers through inbound and outbound call centres, Telstra Shops (owned and licensed), Telstra Dealers and online. Telstra Business (TB) is responsible for the provision of the full range of telecommunication products and services, communication solutions, and information and communication technology services to small to medium enterprises. Telstra Enterprise and Government (TE&G) is responsible for the provision of the full range of telecommunication products and services, communication solutions, and information and communication technology services to enterprise and government customers. Telstra Operations (TOps) is responsible for: • • • • •

Leading the identification, analysis, validation, development and implementation of product, technology and information technology strategies for both the network infrastructure and customer solutions of our Company; Overall planning, design, specification of standards, commissioning and decommissioning of our communication networks; Construction of infrastructure for our Company’s fixed, mobile, Internet protocol (IP) and data networks; Operation, assurance and maintenance, including activation and restoration, of these networks; and Supply and delivery of information technology solutions to support our products, services, customer support functions and our internal needs.

Telstra Wholesale (TW) is responsible for the provision of a wide range of telecommunication products and services delivered over our networks and associated support systems to nonTelstra branded carriers, carriage service providers and Internet service providers. Sensis is responsible for: •

•

The management and growth of the directories and advertising business, including print, voice and digital directories, digital mapping and satellite navigation, digital display advertising and business information services. This includes the management of leading ® ® ® ® information brands including Yellow Pages White Pages Whereis Citysearch 1234 and Mediasmart; and The management and growth of offshore businesses which include: • • • •

The provision of China’s largest online real estate, home furnishings and home improvements portal through the investment in SouFun; The provision of automotive and digital device internet businesses in China through the investment in Norstar Media and Autohome/PCPop; The provision of mobile value added services in China through ChinaM and Sharp Point; and The provision of China’s leading mobile advertising services through the investment in Dotad.

CSL New World (CSL NW), our 76.4% owned subsidiary in Hong Kong is responsible for providing full mobile services including handset sales, voice and data products to the Hong Kong market. TelstraClear (TClear), our New Zealand subsidiary is responsible for providing full telecommunications services to the New Zealand market. Telstra Country Wide (TCW) is responsible for the local management and control of providing telecommunication products, services and solutions to all consumer customers, except those in Sydney and Melbourne, and small business, enterprise and some government customers outside the mainland state capital cities, in outer metropolitan areas, and in Tasmania and the Northern Territory. From 1 July 2010, TCW is part of the TC operating segment. Chief Marketing Office is responsible for: • • •

Knowing our customers and being the brand guardian; Product and marketing innovation and the management of all product, pricing and promotion across Telstra; and Contributing to Telstra’s profitable growth and corporate reputation, by managing Telstra’s product development and life cycle management, driving growth in Telstra’s

Wiley International Trends in Financial Reporting under IFRS

422

®

digital content assets, including Bigpond and Trading Post, developing profitable pricing strategy, maintaining good industry analyst relations, creating award-winning marketing campaigns, and developing valuable sponsorships and awards program. Telstra Cable is responsible for: • • •

The management of our investment in the FOXTEL partnerships; The development of new business opportunities between Telstra and FOXTEL; and The hybrid fibre coaxial (HFC) cable network.

Other International Unit is responsible for the provision of global communication solutions to multi-national corporations through our interests in the United Kingdom, Asia and North America. Corporate areas include: • • •

• • • •

Legal Services—provides legal services across the Company Public Policy and Communications—responsible for managing our relationships and positioning with key groups such as our customers, the media, governments, community groups and staff. It also has responsibility for regulatory positioning and negotiation; Finance and Administration—encompasses the functions of corporate planning, accounting and administration, credit management, billing, treasury, risk management and assurance, investor relations and procurement. It also includes providing financial support to all business units and financial management of the majority of the Telstra Entity fixed assets (including network assets); The Telstra Board and the Office of the Company Secretary; Human Resources—encompasses talent management, organisational development, human resource operations, health, safety and environment, as well as workplace relations and remuneration; The Office of the CEO; and Corporate Strategy & Customer Experience—responsible for developing the strategies, identifying the opportunities and driving change that improves the customer experience and delivering Telstra-wide productivity improvements.

In our segment financial results, the “All Other” category consists of various business units that do not qualify as reportable segments in their own right. These include: • • • • •

Telstra Country Wide; Chief Marketing Office (new); Telstra Cable; Other International Unit; and Our Corporate areas.

Revenue for the “All Other” segment relates primarily to our revenue earned by Telstra Cable from providing access to our HFC network and other services to FOXTEL. The Asset Accounting Group is the main contributor to the segment result for this segment, which is primarily depreciation and Amortization charges as well as impairment of property, plant and equipment and software. Segment Results The measurement of segment results is in line with the basis of information presented to management for internal management reporting purposes. The performance of each segment is measured based on their “underlying EBIT contribution” to the Telstra Group. EBIT contribution excludes the effects of all intersegment balances and transactions. As such, only transactions external to the Telstra Group are reported. Furthermore, certain items of income and expense are excluded from the segment results to show a measure of underlying performance. These items are separately disclosed in the reconciliation of total reportable segments to Telstra Group reported EBIT and profit before income tax expense in the financial statements. Certain items of income and expense are recorded by our corporate areas, rather than being allocated to each segment. These items include the following: •

The Telstra Entity fixed assets (including network assets) are managed centrally. The resulting depreciation and amortization is also recorded centrally;

Operating Segments (IFRS 8)

• • • • •

• • • •

423

The adjustment to defer our basic access installation and connection fee revenues and costs in accordance with our accounting policy. Instead our reportable segments record these amounts upfront; The majority of redundancy expenses for the Telstra Entity; and Information technology costs for the Telstra Entity. In addition, the following narrative further explains how some items are allocated and managed, and as a result how they are reflected in our segment results: Sales revenue associated with mobile handsets for TC, TB and TE&G are mainly allocated to the TC segment along with the associated goods and services purchased. Ongoing prepaid and postpaid mobile revenues derived from our mobile usage is recorded in TC, TB and TE&G depending on the type of customer serviced; Revenue derived from Chief Marketing Office internet products and its related segment assets are recorded in the customer facing business segments of TC, TB and TE&G. Certain distribution costs in relation to these products are recognized in these three business segments; TOps recognise certain expenses in relation to the installation and running of the broadband cable network; The domestic promotion and advertising expense for Telstra Entity is recorded centrally in Chief Marketing Office; and Revenue derived from our TCW customers is recorded in our TC, TB and TE&G segments. Direct costs associated with this revenue is also recorded in TC, TB and TE&G. TC

Year ended 30 June 2010 $m Revenue from external customers for operating (a) segments 10,219 Other non-operating segment revenue -

TB

TE&G

TOps

TW

Sensis

CSL NW

Tclear

All Other

Total

$m

$m

$m

$m

$m

$m

$m

$m

$m

3,825

4,236

74

2,320

2,260

771

529

420

24,654

-

-

-

-

-

-

-

203

203

Other income

56

11

1

6

-

2

3

-

33

112

Total income

10,275

3,836

4,237

80

2,320

2,262

774

529

656

24,969

444

182

304

1,308

69

460

70

92

778

3,707

2,702

749

555

231

96

226

319

255

227

360

Other expenses Share of equity accounted profits Depreciation and Amortization

987

154

82

2,112

16

346

168

78

1,007

4,950

-

-

-

-

-

-

-

-

-

-

17

74

-

117

96

118

3,924

4,346

EBIT contribution

6,142

2,751

3,281

3,645

2,139

1,113

121

(14)

(5,280)

6,608

Labour expenses Goods and services purchased

(2)

(2)

Telstra Group

Year ended 30 June 2009 Revenue from external customers for operating (a)(b) segments Other non-operating segment revenue Other income

TC

TB

TE&G

TOps

TW

Sensis

CSL NW

Tclear

All Other

Total

$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

10,269

3,789

4,170

77

2,383

2,300

989

547

486

25,010

-

-

-

-

-

-

170

170

(1)

7

-

1

-

-

33

106

-

-

56

10

Total income 10,325 Labour expenses 441 Goods and services purchased 2,514 Other expenses 973 Share of equity accounted (profits)/ losses Depreciation and Amortization EBIT contribution 6,397

3,799 191

4,169 311

84 1,359

2,383 67

2,301 509

989 85

547 95

689 936

25,286 3,994

694 147

495 88

236 2,252

81 20

207 390

466 199

264 80

295 1,062

5,252 5,211

-

-

-

-

-

1

(3)

71 3,834

2,215

128 1,067

342 103

121 13

3,702 5,307

4,382 6,450

2,767

(4) 18 3,261

Wiley International Trends in Financial Reporting under IFRS

424

A reconciliation of EBIT contribution for reportable segments to Telstra Group reported EBIT and profit before income tax expense is provided below: Telstra Group Note EBIT contribution for reportable segments All other Total all segments Amounts excluded from underlying results: (a) - distribution from FOXTEL Partnership (c) - impairment in value of goodwill - impairment in value of investments - reversal of impairment in value of investments - EBIT contribution from KAZ Group Pty Limited - other - Telstra Group EBIT (reported) - Net finance costs - Telstra Group profit before income tax expense (reported)

Year ended 30 June 2010 2009 $m $m 11,888 11,757 (5,280) (5,307) 6,608 6,450 60 (168) 1 6,501 (963) 5,538

100 (4) 6 5 1 6,558 (900) 5,658

(a)

The $60 million (2009: $100 million) distribution received from FOXTEL has been recorded as revenue in the income statement, but excluded from reportable segment revenue. $227 million related to KAZ Group Pty Limited (disposed in fiscal 2009) has been excluded from TE&G segment revenue in prior year. (c) The impairment of goodwill relates to CSL New World.

(b)

Telstra Group Note (d) Information about our geographic operations Revenue from external customers Australian customers International customers Carrying amount of non current assets Located in Australia Located in international countries (d)

(e)

(e)

Year ended 30 June 2010 2009 $m $m 22,969 1,948 24,917 28,010 3,485 31,495

23,328 2,179 25,507 28,855 3,825 32,680

Our geographical operations are split between our Australian and international operations. Our international operations include CSL New World (Hong Kong), TelstraClear (New Zealand), the SouFun, Norstar Media, Autohome/PCPop, ChinaM, Sharp Point and Dotad businesses in China which are part of our Sensis segment, and our international business, including Telstra Europe (UK), that serves multi-national customers in the “All Other” segment. No individual geographical area forms a significant part of our operations apart from our Australian operations. The carrying amount of our segment non current assets excludes derivative assets, defined benefit assets and deferred tax assets.

Operating Segments (IFRS 8)

425

Telstra Group Note Information about our products and services PSTN products Fixed internet ISDN products Other fixed revenue Mobiles IP and data access Business services and applications Offshore content and online content Advertising and directories CSL New World TelstraClear Other offshore services revenue Pay TV bundling (f) Other sales revenue (g) Other revenue Total revenue (f) (g)

6 6

Year ended 30 June 2010 2009 $m $m 5,833 2,144 905 1,202 7,317 1,772 936 144 2,165 770 529 293 511 292 104 24,917

6,337 2,160 942 1,221 6,878 1,742 1,115 70 2,259 989 547 390 467 254 136 25,507

Other sales revenue includes $84 million relating to HFC cable usage (2009: $76 million). Other revenue primarily consists of distributions from our FOXTEL Partnership and rental income.

Non Current Assets Held for Sale On 1 December 2009, the shareholders of SouFun decided to commence a process to prepare SouFun for an offer of the shares in that company to the public. At that time, we announced that we intend to sell down our shareholding as part of the process. As at 30 June 2010, we are underway in preparing SouFun for a public offering and we intend to sell down our shareholding in fiscal 2011. SouFun is included in the Sensis reportable segment in our segment information disclosures in note 5. In accordance with AASB 5: “Non-current Assets Held for Sale and Discontinued Operations”, the carrying value of assets and liabilities of SouFun have been classified as held for sale as follows: Telstra Group

Notes Current assets Cash and cash equivalents Trade and other receivables Inventories Current tax receivables Prepayments Total current assets Non current assets Property, plant and equipment Intangible assets Total non current assets Total assets Current liabilities Trade and other payables Provisions Current tax liabilities Revenue received in advance Total current liabilities Non current liabilities Deferred tax liabilities Total non current liabilities Total liabilities Net assets

As at 30 June 2010 2009 $m $m

20

169 45 8 1 2 225

-

13 14

7 347 354 579

-

38 1 12 33 84

-

5 5 89 490

Section IX INDUSTRY–SPECIFIC STANDARDS AND STANDARDS APPLICABLE IN SPECIFIC SITUATIONS

Chapter 30: Accounting and Reporting by Retirement Benefit Plans (IAS 26) Chapter 31: Financial Reporting in Hyperinflationary Economies (IAS 29) IFRIC 7, Applying the Restatement Approach

under IAS 29, Financial Reporting in Hyperinflationary Economies Chapter 32: First-Time Adoption of International Financial Reporting Standards (IFRS 1) Chapter 33: Insurance Contracts (IFRS 4) Chapter 34: Exploration for and Evaluation of Mineral Resources (IFRS 6)

427

Chapter 30 ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS (IAS 26)

1.

OBJECTIVE

1.1 This Standard prescribes the accounting and reporting requirements for retirement benefit plans. 2.

SYNOPSIS OF THE STANDARD A summary of this Standard and the key terms it defines is presented next.

2.1 This Standard, which is applicable to retirement benefit plans, affects participants of the retirement benefit plan “as a group.” It does not address reports that might be made to individuals about their particular retirement benefits. 2.2 Retirement benefit plans are formal or informal arrangements based on which an entity provides benefits (termination benefits) for its employees on or after termination of service. These could take the form of annual pension payments or lump-sum payments. Such benefits, or the employer’s contributions toward them, should, however, be determinable or possible of estimation in advance of retirement, from the provisions of a document (in which case the retirement benefit plan is based on a formal arrangement) or from the entity’s practices (in which case the retirement benefit plan is referred to as based on an informal arrangement). 2.2.1 Retirement benefit plans can be either defined contribution plans or defined benefit plans. 2.2.2 Defined contribution plans are retirement benefit plans whereby retirement benefits to be paid to plan participants are determined by contributions to a fund together with investment earnings thereon. In other words, when the amount of the future benefits payable to the participants of the retirement benefit plan is determined by the contributions made by their employer, the participants, or both, together with investment earnings thereon, such plans are defined contribution plans. 2.2.3 Defined benefit plans are retirement benefit plans whereby retirement benefits to be paid to plan participants are determined by reference to a formula that is usually based on the employees’ earnings and/or years of service. Under these plans, certain defined benefits are guaranteed ir429

430

Wiley International Trends in Financial Reporting under IFRS

respective of whether the plans have sufficient assets. Therefore, the ultimate responsibility for payment remains with the employer, although payment may in turn be guaranteed by an insurance company, the government, or some other entity, depending on local law and custom. 2.2.4 In case a retirement benefit plan contains the characteristics of both defined contribution and defined benefit plans, such a hybrid plan should be deemed to be a defined benefit plan. 2.3 The financial statements of a defined contribution plan should contain a statement of net assets available for benefits and a description of the funding policy. In preparing the statement, the plan investments should be carried at fair value, which in the case of marketable securities would be their market value. If an estimate of fair value is not possible, the entity must disclose why fair value has not been used. 2.3.1 Net assets available for benefits are the assets of a retirement benefit plan less its liabilities (other than the actuarial present value of promised retirement benefits). 2.4

The financial statements of a defined benefit plan should contain either • A statement that shows the net assets available for benefits, the actuarial present value of promised retirement benefits, distinguishing between vested and nonvested benefits and the resulting excess or deficit; or • A statement of net assets available for benefits including either a note disclosing the actuarial present value of promised retirement benefits, distinguishing between vested and nonvested benefits, or a reference to this information in an accompanying actuarial report.

2.4.1 In case an actuarial valuation has not been prepared on the date of the financial statements, the most recent valuation should be used as the basis, and the date of the actuarial valuation used should be disclosed. 2.4.2 Actuarial present values of promised benefits should be based either on current or projected salary levels, and the basis used should also be disclosed. 2.4.3 The effect of any changes in actuarial assumptions that had a material impact on the actuarial present value of promised retirement benefits should be disclosed, and the financial statements should also explain the relationship between actuarial present values of promised benefits, the net assets available for benefits, and the policy for funding the promised benefits. 2.4.4 This Standard recommends that a report of the trustees in the nature of a management or directors’ report and an investment report accompany the statements in a defined benefit plan. 3.

DISCLOSURE REQUIREMENTS The disclosures required to be made by this Standard are described next.

3.1 In the case of both defined benefit plans and defined contribution plans, the financial statements of a retirement benefit plan should contain this information: • Statement of changes in net assets available for benefits • Summary of significant accounting policies • Description of the plan and the effect of any changes in the plan during the period 3.2 The financial statements provided by retirement benefits plans should also include, if applicable 3.2.1 Statement of net assets available for benefits disclosing • Assets at the end of the period suitably classified • Basis of valuation of assets • Details of any single investment exceeding either 5% of the net assets available for benefits or 5% of any class or type of security • Details of any investment in the employer • Liabilities other than the actuarial present value of promised retirement benefits

Accounting and Reporting by Retirement Benefit Plans (IAS 26)

431

3.2.2 Statement of changes in net assets available for benefits showing: • • • • • • • • • •

Employer contributions Employee contributions Investment income, such as interest and dividends Other income Benefits paid or payable (analyzed, e.g., as retirement, death, and disability benefits, and lump-sum payments) Administrative expenses Other expenses Taxes on income Profits and losses on disposal of investments and changes in value of investments Transfers from and to other plans

3.2.3 Description of the funding policy. 3.2.4 For defined benefit plans, the actuarial present value of promised retirement benefits (which may distinguish between vested benefits and nonvested benefits) based on the benefits promised under the terms of the plan, on service rendered to date and using either current salary levels or projected salary levels. This information may be included in an accompanying actuarial report to be read in conjunction with the related information. 3.2.5 For defined benefit plans, a description of the significant actuarial assumptions made and the method used to calculate the actuarial present value of promised retirement benefits. 3.3 As the report of a retirement benefit plan contains a description of the plan, either as part of the financial information or in a separate report, it may contain • The names of the employers and the employee groups covered • The number of participants receiving benefits and the number of other participants, classified as appropriate • The type of plan—defined contribution or defined benefit • A note as to whether participants contribute to the plan • A description of the retirement benefits promised to participants • A description of any plan termination terms • Changes in the above items during the period covered by the report 3.4 Furthermore, it is not uncommon to refer to other documents that are readily available to users in which the plan is described, and to include in the report only information on subsequent changes.

Chapter 31 FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES (IAS 29)

1.

OBJECTIVE

1.1 This Standard prescribes a methodology for entities reporting in a currency of a hyperinflationary economy to make the financial statements of different periods comparable and the accounting indicators for the same accounting period useful for users’ decision making. 2.

SYNOPSIS OF THE STANDARD

This Standard, which is applicable to the separate and consolidated financial statements of any entity whose functional currency is the currency of a hyperinflationary economy, is summarized next. 2.1 A hyperinflationary economy is an economy that is characterized by several factors, including • The general population prefers to keep its wealth in nonmonetary assets or in a relatively stable foreign currency. In this case, amounts of local currency held are invested immediately to maintain purchasing power. • The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. The prices of goods and services may be quoted in that currency. • Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short. For example: • Interest rates, wages, and prices are linked to a price index. • The cumulative inflation rate over three years is approaching or exceeds 100%. 2.2 The entity shall apply this Standard from the beginning of the reporting period in which it identifies the existence of hyperinflation in the country in whose currency it reports.

433

434

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2.3 All financial statement elements, (including that of the previous period), whether based on a historical cost approach or a current cost approach, should be stated in terms of the measuring unit current at the end of the reporting period. 2.3.1 The measuring unit current at the end of the reporting period is determined using a general price index that reflects changes in general purchasing power. All entities belonging to the same hyperinflationary economy should use the same general index. 2.3.2 In presenting the comparative amounts in a different presentation currency, the provisions of International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates, should also be applied. 2.3.3 The gain or loss on the net monetary position should be included in profit and loss. 2.4

In the restatement of the statement of financial position • All monetary items of assets and liabilities that are already expressed in terms of the measuring unit current at the end of the reporting period should not be restated. Examples of monetary items are debtors, creditors, and bank deposits. • All assets and liabilities linked by an agreement to changes in prices (such as indexlinked bonds and loans) should be adjusted in accordance with the terms of the agreement to ascertain the amount outstanding at the end of the reporting period. For these kinds of assets and liabilities, a specific index should be used for the measuring unit current at the end of the reporting period. • Nonmonetary items of assets and liabilities that are carried at amounts current at the end of the reporting period (e.g., net realizable value and fair value) should not to be restated. • All other nonmonetary assets and liabilities should be restated. • Nonmonetary assets that are revalued should be restated based on the conversion factor on the date of revaluation. • Nonmonetary assets that are carried at cost or cost less depreciation (amounts current at their date of acquisition) should be restated. • Restated amounts of property, plant, and equipment, goodwill, patents, and trademarks should be reduced to recoverable amount, and the restated amounts of inventories should be reduced to net realizable value. • Profit or loss of the equity method associate or joint venture is included in the consolidated financial statement of the investor. • The statement of financial position and statement of comprehensive income of an equity method associate or joint venture should be restated for calculating the investor’s share of its net assets and profit or loss. When the restated financial statements of the investee are expressed in a foreign currency, they should be translated at closing rates. • The part of the borrowing costs that compensates for the inflation should be recognized as an expense in the period in which the costs are incurred. • The components of owners’ equity, except retained earnings and any revaluation surplus, should be restated by applying a general price index from the dates the components were contributed or otherwise arose. Any revaluation surplus that arose in previous periods should be eliminated. Restated retained earnings are derived from all the other amounts in the restated statement of financial position.

2.4.1 In the restatement of comprehensive income, the items of income and expense (other than depreciation and amortization) should be restated by applying the change in the general price index from the dates when the items of income and expenses were initially recorded in the financial statements. This will mean that the entity has to keep records of indices against every transaction relating to income and expense and then restate them on the reporting date once the closing index becomes available. 2.4.2 In the restatement of the statement of cash flows, all items in the statement of cash flows should be expressed in terms of the measuring unit current at the end of the reporting period.

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2.5 The differences between the carrying amount of individual assets and liabilities in the statement of financial position and their tax bases that arise on the restatement of financial statements should be accounted for in accordance with IAS 12, Income Taxes. 2.6 When the parent and subsidiary both have reporting currencies that are currencies of a hyperinflationary economy, the financial statements of the subsidiary should be first restated before the consolidation is carried out in accordance with IAS 27, Consolidated and Separate Financial Statements. 2.7 When an economy ceases to be hyperinflationary, the entity should discontinue the preparation and presentation of financial statements under this Standard. The entity shall treat the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. 3.

DISCLOSURE REQUIREMENTS The next disclosures shall be made.

3.1 Mention should be made of the fact that the financial statements have been restated for the changes in the general purchasing power of the functional currency and as a result are stated in terms of the measuring unit current at the end of the reporting period. 3.2 The basis of approach adopted in the financial statements—historical cost approach or current cost approach—should be disclosed. 3.3 The identity and level of the price index at the end of the reporting period and the movement in the index during the current and previous reporting period should be mentioned. 4. IFRIC 7, APPLYING THE RESTATEMENT APPROACH UNDER IAS 29, FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES Under International Financial Reporting Interpretations Committee (IFRIC) 7, in case an entity identifies the existence of hyperinflation in the economy of its functional currency in the reporting period and in case such a situation did not exist in the prior period, the entity shall apply the requirements of IAS 29 as if the economy was always hyperinflationary. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Anheuser-Busch InBev Annual Report 2010 (in US $ millions) Notes to the consolidated financial statements 2.

Statement of Compliance

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and in conformity with IFRS as adopted by the European Union up to 31 December 2010 (collectively “IFRS”). AB InBev did not apply any European carve-outs from IFRS. AB InBev has not applied early any new IFRS requirements that are not yet effective in 2010. 3.

Summary of Significant Accounting Policies

(F) Foreign Currencies Translation of the Results and Financial Position of Foreign Operations Assets and liabilities of foreign operations are translated to US dollars at foreign exchange rates prevailing at the balance sheet date. Income statements of foreign operations, excluding foreign entities in hyperinflationary economies, are translated to US dollars at exchange rates for the year approximating the foreign exchange rates prevailing at the dates of the transactions. The components of shareholders’ equity are translated at historical rates. Exchange differences arising from the translation of sharehold-

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436

ers’ equity to US dollars at year-end exchange rates are taken to comprehensive income (translation reserves). In hyperinflationary economies, re-measurement of the local currency denominated non-monetary assets, liabilities, income statement accounts as well as equity accounts is made by applying a general price index. These re-measured accounts are used for conversion into US dollars at the closing exchange rate. As of 30 November 2009 the economy in Venezuela has been assessed to be highly inflationary and AB InBev has applied the price index from Venezuela’s central bank to report its Venezuelan operations from December 2009 until October 2010, when the Venezuelan operations were deconsolidated, following the transaction between AmBev and Cerveceria Regional S.A. The impact of hyperinflation accounting is not material to the company’s financial results or financial position. 13. Property, Plant and Equipment

Million US dollars Acquisition cost Balance at end of previous year Effect of movements in foreign exchange Effect of hyperinflation Acquisitions Acquisitions through business combinations Disposals Disposals through the sale of subsidiaries Transfer to other asset categories Other movements Balance at end of year Depreciation and impairment losses Balance at end of previous year Effect of movements in foreign exchange Effect of hyperinflation Disposals Disposals through the sale of subsidiaries Depreciation Impairment losses Transfer to other asset categories Other movements Balance at end of year Carrying amount at 31 December 2009 at 31 December 2010

Land and buildings

Plant and equipment

Fixtures and fittings

Under construction

2010 Total

2009 Total

29,290

30,892

7,885

17,619

3,060

756

(43) 10 14

(190) 43 341

(46) 3 136

30 – 1,681

(249) 56 2,172

2,069 – 1,540

– (87)

1 (350)

– (179)

– (2)

1 (618)

15 (885)

(54) (39) (1) 7,665

(266) 851 6 18,055

(19) 315 – 3,270

(1) (1,149) 1 1,316

(340) (22) 6 30,296

(3,386) (1,263) 308 29,290

(2,113)

(8,582)

(2,134)

–

(12,829)

(11,221)

48 (7) 46

185 (36) 273

33 (1) 180

– – –

266 (44) 499

(1,203) – 784

37 (333) (48) 83 (2) (2,289)

228 (1,662) (129) 7 5 (9,711)

7 (360) (1) (130) 3 (2,403)

– – (6) 6 – –

272 (2,355) (184) (34) 6 (14,403)

902 (2,411) (128) 683 (235) (12,829)

5,742 5,366

9,037 8,344

926 867

756 1,316

16,461 15,893

16,461 –

Chapter 32 FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS 1)

1.

OBJECTIVE

1.1 This Standard sets out the procedures that an entity must follow when it adopts International Financial Reporting Standards (IFRS) for the first time as the basis for preparing its generalpurpose financial statements. 2.

SYNOPSIS OF THE STANDARD This Standard, which deals with entity’s first IFRS financial statements, is described next.

2.1 An entity is a first-time adopter of IFRS in the year in which it makes an explicit and unreserved statement that its general-purpose financial statements comply with IFRS. 2.1.1 An entity will be considered a first-time adopter in the current year, even if in the preceding year it prepared IFRS financial statements for internal management use and those IFRS financial statements were not made available to owners or external parties, such as investors or creditors. In case for some reason a set of IFRS financial statements was made available to owners or external parties in the preceding year, then the entity would not be considered a first-time adopter in the current year, and this Standard will not apply to it in the current year. 2.1.2 An entity will also be considered a first-time adopter in the current year even if, in the preceding year, its financial statements either asserted compliance with some but not all IFRS or included only a reconciliation of selected figures from previous generally accepted accounting principles (GAAP) to IFRS. However, an entity is not a first-time adopter if, in the preceding year, its financial statements asserted: (a) compliance with IFRS even if the auditor’s report contained a qualification with respect to conformity with IFRS or (b) compliance with both previous GAAP and IFRS. 2.2 An entity is required to prepare an opening IFRS statement of financial position at the date of transition to IFRS (i.e., “the starting point for its accounting in accordance with IFRS”). 437

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2.3 Under this Standard, an entity is required to use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in it first IFRS financial statements. 2.4 In the year of first-time adoption of IFRS, an entity should derecognize previous GAAP assets and liabilities from the opening statement of financial position in case they do not qualify for recognition under IFRS. For instance, International Accounting Standard (IAS) 38, Intangible Assets, does not permit recognition of certain expenditures (e.g., research, training and advertising) and intangible assets. If the entity’s previous GAAP had recognized such expenditures as assets, on adoption of IFRS, they should be eliminated in the opening IFRS balance sheet. 2.5 An entity should recognize all assets and liabilities that are required to be recognized by IFRS even if they were never recognized under previous GAAP. For example, if derivative financial assets were not recognized under previous GAAP but these are recognized under IAS 39, Financial Instruments: Recognition and Measurement, on first-time adoption of IFRS, an entity should recognize them. 2.6 On first-time adoption of IFRS, an entity should reclassify items in accordance with previous GAAP as a particular type of asset or liability or component of equity, into a different type of asset, liability, or component of equity in accordance with IFRS. For instance, IAS 10, Events After the Reporting Date, does not permit classifying dividends declared or proposed after the reporting date as a liability at the reporting entity; if, however, an entity had recognized dividends payable as a liability (when it was declared or proposed after the reporting period) under previous GAAP, it should reverse it in the opening IFRS balance sheet. 2.7 Generally, an entity that is a first-time adopter of IFRS should follow the general measurement principle that all IFRS that are effective as of the reporting date shall be applied in measuring all recognized assets and liabilities. 2.8 At the date of first-time adoption of IFRS, any adjustments that are required to move from previous GAAP to IFRS should be recognized directly in retained earnings or, if appropriate, in another category of equity at the date of transition to IFRS. 2.9 An entity’s estimates in accordance with IFRS at the date of transition to IFRS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies) except in case of an error. In other words, an entity is not permitted to use information that became available to it after the previous-GAAP estimates were made except in cases where there is objective evidence that those estimates were made in error. Therefore, in preparing IFRS estimates retrospectively at the date of transition to IFRS, an entity must use the inputs and assumptions that had been used to determine previous-GAAP estimates as of that date (after adjustments to reflect any differences in accounting policies). 2.10 If a first-time adopter desires to make disclosures of selected financial information for periods before the date of the opening IFRS balance sheet, it is not required to conform that information to IFRS. In other words, conforming the earlier period’s selected financial information to IFRS is optional. Furthermore, if the entity elects to present the earlier selected financial information based on its previous GAAP rather than IFRS, it must prominently disclose that fact by labeling that earlier information as not being in compliance with IFRS. Also, it must disclose the nature of the main adjustments that would be required to make such information IFRS compliant. No quantitative disclosures are required in the latter case; only narrative disclosures are necessary. 2.11 To comply with the requirements of IAS 1, Presentation of Financial Statements, an entity’s first IFRS financial statements shall include at least three statements of financial position, two statements of comprehensive income, two separate income statements (if presented), two statements of cash flows, and two statements of changes in equity and related notes, including comparative information.

First-Time Adoption of International Financial Reporting Standards (IFRS 1)

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2.12 This Standard provides exceptions to the retrospective application principle. These exceptions include • Applying derecognition requirements in IAS 39 prospectively for transactions occurring on or after January 1, 2004 • Not reflecting in its opening IFRS statement of financial position a hedging relationship of a type that does not qualify for hedge accounting in accordance with IAS 39. (However, if an entity designated a net position as a hedged item in accordance with previous GAAP, it may designate an individual item within that net position as a hedged item in accordance with IFRS, provided that it does so no later than the date of transition to IFRS.) • Specific requirements of IAS 27, Consolidated and Separate Financial Statements (2008) with respect to noncontrolling interest that shall be applied prospectively (e.g., the requirement that total comprehensive is attributed to the owners of the parent and to noncontrolling interests even if this results in the noncontrolling interests having a deficit balance) 2.13 There are further optional exemptions to the general restatement and measurement principles allowed under this Standard. These exceptions are individually optional. For instance, a firsttime adopter is allowed to retain previous-GAAP accounting in case of business combinations that occurred before the date of its opening IFRS balance sheet without restating a previous write-off of goodwill from reserves. Other examples of such optional exemptions are share-based payment transactions, insurance contracts, and fair value or revaluation as deemed cost. 2.14 When there are different IFRS adoption dates by the investor and investee, this Standard permits a choice between measurement bases. For instance, if a subsidiary becomes a first-time adopter later than its parent, this Standard permits a choice between two measurement bases in the subsidiary’s separate financial statements. 3.

DISCLOSURE REQUIREMENTS

3.1

Disclosures in the Financial Statements of a First-Time Adopter

This Standard requires disclosures that explain how the transition from previous GAAP to IFRS affected the entity’s reported financial position, financial performance, and cash flows. Such disclosures include • Reconciliations of equity reported under previous GAAP to equity under IFRS both at the (a) date of the opening IFRS statement of financial condition and (b) end of the last annual period reported under the previous GAAP. • Reconciliations of total comprehensive income for the last annual period reported under the previous GAAP to total comprehensive income under IFRS for the same period. • Explanation of material adjustments that were made, in adopting IFRSs for the first time, to the statement of financial condition, statement of comprehensive income, and the statement of cash flows. • If errors in previous GAAP financial statements were discovered in the course of transition to IFRS, the reconciliation shall distinguish the correction of errors from the changes in accounting policies. • If the entity recognized or reversed any impairment losses in preparing its opening IFRS statement of financial position, these must be disclosed in accordance with the requirements of IAS 36, Impairment of Assets. • If the entity has elected to apply any of the specific recognition and measurement exemptions permitted under this Standard, detailed disclosures with respect to such an election are mandated. For instance, if the entity used fair values in its opening financial position as deemed cost for an item of property, plant, and equipment or an intangible asset, the entity’s first IFRS financial statements shall disclose, for each line item in the opening IFRS statement of financial position, the aggregate of those fair values and the aggregate adjustment to the carrying amounts reported under previous GAAP. Similarly, if an en-

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tity uses a deemed cost for investments in subsidiaries, jointly controlled entities, and associates or if the entity uses deemed cost or oil and gas assets, specific disclosures are prescribed by the Standards in such cases. 3.2

Disclosures in Interim Financial Reports

If an entity presents an interim financial report in accordance with IAS 34, Interim Financial Reporting, for part of period covered by its first IFRS financial statements, certain disclosures (in addition to those required by IAS 34) are required to be made in these interim financial statements. Both explanatory information and reconciliations are required in the interim financial report that immediately precedes the first set of IFRS annual financial statements. The information includes reconciliations, such as reconciliations of its equity in accordance with its previous GAAP at the end of comparable interim period to its equity under IFRS at that date and reconciliation of its total comprehensive income in accordance with IFRS for that comparable interim period (current and year to date). In addition, an entity’s first interim financial report in accordance with IAS 34 for the part of period covered by its first IFRS financial statements shall include reconciliations as required by paragraphs 24(a) and 24(b) of IFRS 1 supplemented by the details required by paragraphs 25 and 26 of IFRS 1. 4.

RECENT AMENDMENTS TO IFRS 1

4.1

Consequential Amendments to IFRS 1

These amendments are a result of issuance of IFRS 9 in November 2009 (effective for annual periods beginning on or after January 1, 2013, with early application permitted). If a first-time adopter applies IFRS 9, it assesses financial assets for classification on the basis of the facts and circumstances that exist at the date of initial application. In other words, retrospective application is prohibited. In addition, a first-time adopter has the option to designate a financial asset at fair value through profit or loss to avoid an accounting mismatch based on the facts and circumstances at the date of transition; designate equity investments as at fair value through other comprehensive income based on facts and circumstances at the date of transition; and not restate comparative information in accordance with IFRS 9. 4.2

Comparative IFRS 7 Disclosures—Limited Exemption

There is a short-term optional exemption for first-time adopters from the requirements of Improving Disclosures about Financial Instruments—Amendments to IFRS 7, published in March 2009. In January 2010, the International Accounting Standards Board (IASB) issued this Limited Exemption from Comparative IFRS 7 Disclosures for First-Time Adopters. 4.3

IASB Improvements Project 2010 This project is effective for annual periods beginning on or after January 1, 2011. • An additional “deemed cost” exemption was provided in case of items of property, plant, and equipment or intangible assets used in rate-regulated activities, the carrying amount determined under previous GAAP may include amounts not qualifying for capitalization under IFRS. (This exemption results in such carrying amounts being permitted to be used as deemed cost at the date of transition to IFRS.) • A first-time adopter is permitted to use an event-driven fair value measurement as deemed cost for some or all its assets when such valuation occurs during the reporting period covered by its first IFRS financial statements. • Clarifies that IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, does not apply to changes in accounting policies that occur during the period covered by the entity’s first IFRS financial statements. It provides additional guidance for first-time adopters that publish interim financial reports under IAS 34.

First-Time Adoption of International Financial Reporting Standards (IFRS 1)

441

EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

Samsung Annual Report Notes to the financial statements 2.1 Basis of Presentation The Company prepares its financial statements in accordance with International Financial Reporting Standards as adopted by Korea (“Korean IFRS”). These are those standards, subsequent amendments and related interpretations issued by the IASB that have been adopted by Korea. First-time adoption of Korean IFRS is set out under Korean IFRS 1101, First-time Adoption of International Financial Reporting Standards. Korean IFRS 1101 requires application of the same accounting policies to the opening statement of financial position and for the periods when the first comparative financial statements are disclosed. In addition, mandatory exceptions and optional exemptions which have been applied by the Company are described in Note 3. 3. Transition to International Financial Reporting Standards as adopted by the Republic of Korea from Generally Accepted Accounting Principles in the Republic of Korea The Company adopted Korean IFRS from the fiscal year 2010 (the date of first-time adoption to Korean IFRS: January 1, 2010). The comparison year, 2009, is restated in accordance with Korean IFRS 1101, First-time Adoption of International Financial Reporting Standards (the date of transition to Korean IFRS: January 1, 2009). Significant Differences in Accounting Policies Significant differences between the accounting policies chosen by the Company under Korean IFRS and under previous Korean GAAP are as follows: 1) First time adoption of Korean IFRS. The Company elected the following exemptions upon the adoption of Korean IFRS in accordance with Korean IFRS 1101, First-time Adoption of International Financial Reporting Standards: a) Business combinations: Past business combinations that occurred before the date of transition to Korean IFRS will not be retrospectively restated under Korean IFRS 1103, Business Combinations. b) Fair value as deemed cost: The Company elects to measure certain land assets at fair value at the date of transition to Korean IFRS and use the fair value as its deemed cost. Valuations were made on the basis of recent market transactions on the arm’s length terms by independent valuers. c) Cumulative translation differences: All cumulative translation gains and losses arising from foreign subsidiaries and associates as of the date of transition to Korean IFRS are reset to zero. d) Employee benefits: The Company elected to use the ‘corridor’ approach for actuarial gains and losses and all cumulative actuarial gains and losses have been recognized at the date of transition to Korean IFRS. 2) Employee Benefits Employees and directors with at least one year of service are entitled to receive a lump-sum payment upon termination of their employment with SEC, its Korean subsidiaries and certain foreign subsidiaries, based on their length of service and rate of pay at the time of termination. Under the previous severance policy pursuant to Korean GAAP, accrued severance benefits represented the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the end of the reporting period. However, under Korean IFRS, the liability is determined based on the present value of expected future payments calculated and reported using actuarial assumptions 3) Capitalization of Development Costs Under Korean GAAP the Company recorded expenditures related to research and development activities as current expense. Under Korean IFRS if such costs related to development activities meet certain criteria they are recorded as intangible assets.

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4) Goodwill or Bargain Purchase Arising from Business Combinations Under Korean GAAP, the Company amortizes goodwill or recognizes a gain in relation to bargain purchase (negative goodwill1) acquired as a result of business combinations on a straight-line method over five years from the year of acquisition. Under Korean IFRS, goodwill is not amortized but reviewed for impairment annually. Bargain purchase is recognized immediately in the statement of income. The impact of this adjustment is included within “other” adjustment in the tables below. 5) Derecognition of Financial Assets Under Korean GAAP, when the Company transferred a financial asset to financial institutions and it was determined that control over the asset has been transferred the Company derecognized the financial asset. Under Korean IFRS, if the Company retains substantially all the risks and rewards of ownership of the asset, the asset is not derecognized but instead the related cash proceeds are recognized as financial liabilities. 6) Deferred Tax Under Korean GAAP, deferred tax assets and liabilities were classified as either current or noncurrent based on the classification of their underlying assets and liabilities. If there are no corresponding assets or liabilities, deferred tax assets and liabilities were classified based on the periods the temporary differences were expected to reverse. Under Korean IFRS, deferred tax assets and liabilities are all classified as non-current on the statement of financial position. In addition, there is a difference between Korean IFRS and Korean GAAP in terms of recognition of deferred tax assets or liabilities relating to investments in subsidiaries. Under Korean GAAP there are specific criteria as to when deferred tax assets and liabilities relating to investments in subsidiaries should be recognized, whereas under Korean IFRS, the related deferred tax assets or liabilities are recognized according to sources of reversal of the temporary differences. 7) Changes in Scope of Consolidation At the date of transition, changes in the scope of consolidation as a result of adoption of Korean IFRS are as follows: Changes Newly Added

Description

Under the former ‘Act on External Audit of Stock Companies in the Republic of Korea, companies whose total assets are less than 10 billion Korean Won were not subject to consideration, but they are subject to consolidation under Korean IFRS.

Name of Entity World Cyber Games, Samsung Electronics Football Club, SEMES America, Samsung Electronics Ukraine, Samsung Electronics Romania, Samsung Electronics Kazakhstan, Samsung Electronics Czech and Slovak s.r.o. Samsung Electronics Levant, Samsung Electronics European Holding Batino Realty Corporation Samsung Telecommunications Malaysia Samsung Electronics Shenzhen Samsung Electronics China R&D Center Samsung Electronics Limited Samsung Electronics Poland Manufacturing, Samsung Telecoms (UK)

Newly Added

Samsung Venture Capital Union #6, #7 and Under Korean GAAP, a union is not regarded #14 as a legal entity and excluded from scope of consolidation. However, it is subject to consolidation under Korean IFRS.

Excluded

Under Korean GAAP, entities where the Company owns more than 30% of shares and is the largest shareholder with the largest voting rights were included in scope of consolidation. Under Korean IFRS, such entities are not subject to consolidation unless control over the entity is established.

Samsung Card

First-Time Adoption of International Financial Reporting Standards (IFRS 1)

443

The effects of the adoption of Korean IFRS on financial position, comprehensive income and cash flows of the Company (a) Adjustments to the Statement of Financial Position as of the Date of Transition, January 1, 2009 Korean GAAP Adjustments: Change in scope of consolidation *

Fair valuation of land Derecognition of financial assets Capitalization of development costs Pension and compensated absence Deferred tax on investments in equity and reclassification to non-current Effect of the adoption of IFRS for jointly controlled entities and associates Other Tax effect on adjustments Total Korean IFRS *

Assets 105,300,650

Liabilities 42,376,696

Equity 62,923,954

(12,972,168) 3,816,293 1,807,675 200,478 -

(10,649,400) 927,141 1,807,675 (186,978)

(2,322,768) 2,889,152 200,478 186,978

(1,434,287)

(1,332,886)

(101,401)

155,163 (95,064) (141) (8,522,051) 96,778,599

2,010 (9,058,482) 33,318,214

155,163 (95,064) (2,151) 536,431 63,460,385

The adjustment includes the effect of deferred tax.

(b) The Effect of the Adoption of Korean IFRS on Financial Position and Comprehensive Income of the Company as of and for the Year Ended December 31, 2009

Korean GAAP Adjustments: Change in scope of consolidation Fair valuation of land (*) Derecognition of financial assets Capitalization of development costs Pension and compensated absence Deferred tax on investments in equity and reclassification to non-current Effect of the adoption of IFRS for jointly controlled entities and associates Other Tax effect on adjustments Total Korean IFRS *

Assets 118,281,488

Liabilities 45,227,196

Equity 73,054,292

Comprehensive income 9,700,671

(10,120,256) 3,804,404) 754,969 214,451 -

(7,372,830) 924,525 754,969 153,357

(2,747,426) 2,879,879 214,451 (153,357)

(489,504) (9,273) 13,973 33,621

(874,056)

(564,016)

(310,040)

(200,099)

266,742 (143,058) (4,895) (6,101,699) 12,179,789

11,386 (6,092,609) 39,134,587

266,742 (143,058) (16,281) (9,090) 73,045,202

111,579 (47,994) (14,130) (601,827) 9,098,844

The adjustment includes the effect of deferred tax.

(c) Adjustments to the Statement of Cash Flows for the Year Ended December 31, 2009 According to Korean IFRS 1007, Cash Flow Statements, cash flows from interest, dividends received and taxes on income shall each be disclosed separately. The comparison year, 2009, is restated in accordance with Korean IFRS. There are no other significant differences between cash flows under Korean IFRS and those under previous Korean GAAP for the year ended December 31, 2009.

Chapter 33 INSURANCE CONTRACTS (IFRS 4)

1.

OBJECTIVE

1.1 This Standard is the first phase of guidance from the International Accounting Standards Board (IASB) on accounting for insurance contracts and aims at improving the disclosures for insurance contracts and recognition and measurement practices. The Standard was issued in March 2004, in time for the adoption of International Financial Accounting Standards (IFRS) by listed companies throughout Europe and elsewhere in 2005 since there was virtually no guidance from the IASB on the subject at that time. 1.2 It is expected that the second phase of the IASB’s Insurance Project will be more comprehensive in scope and will cover other aspects of insurance accounting not yet dealt with by this Standard. 2.

SYNOPSIS OF THE STANDARD

This Standard, which applies to insurance contracts, including reinsurance contracts, that an entity issues and to reinsurance contracts that it holds, is summarized next. 2.1 This Standard does not apply to other assets and liabilities of an insurer, such as financial assets and financial liabilities within the scope of International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement. It also does not address accounting by policyholders. 2.2 In case an issuer of financial guarantee contracts has previously treated such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either International Accounting Standard IAS 39, or this Standard (IFRS 4) to such financial guarantee contracts. 2.2.1 An insurance contract is defined as a “contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.” 2.3 This Standard currently exempts an insurer (temporarily, though, until completion of Phase II of the IASB’s Insurance Project) from certain requirements of other IFRS, including the require445

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ment to consider IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, in selecting accounting policies for insurance contracts. 2.3.1 This Standard, however, does not fully exempt an insurer from the implications of paragraphs 10 to 12 of IAS 8. It therefore categorically states that an insurer • Shall not recognize as a liability provisions for possible claims under contracts that are not in existence at the reporting date (such as catastrophe and equalization provisions); • Shall perform the “liability adequacy test” to assess the adequacy of recognized insurance liabilities and an impairment test for reinsurance assets; • Shall not derecognize insurance liabilities from its statement of financial position until they are discharged or canceled, or expire; • Shall not offset insurance liabilities against related reinsurance assets and income or expense from reinsurance contracts against the expense or income from the related insurance contract; and • Shall assess whether its reinsurance assets are impaired. 2.4 This Standard prohibits an insurer from changing its accounting policies for insurance contracts unless, as a result, its financial statements present information that is more relevant and no less reliable, or more reliable and no less relevant. (The criteria for assessing “relevance” and “reliability” are laid down in IAS 8.) 2.5 This Standard imposes stringent requirements on insurers to prevent them from introducing any of the next practices, although they may continue using accounting policies that involve these practices: • Measuring insurance liabilities on an undiscounted basis • Measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current market-based fees for similar services • Using nonuniform accounting policies for the insurance liabilities of subsidiaries 2.6 Under this Standard, the introduction of an accounting policy that involves remeasuring designated insurance liabilities consistently in each period to reflect current market interest rates (and, if applicable, other current estimates and assumptions) is permitted. Without such permission, an insurer would have been required to apply the change in accounting policies consistently to all similar liabilities. 2.7 This Standard also states that an insurer need not change its accounting policies for insurance contracts to eliminate excessive prudence. However, if an insurer already measures its insurance contracts with sufficient prudence, it should not introduce additional prudence. 2.8 An insurer is not required to change its accounting policies for insurance contracts to eliminate future investment margins as there is a rebuttable presumption that an insurer’s financial statements will become less relevant and reliable if it introduces an accounting policy that reflects future investment margins in the measurement of insurance contracts. The examples that the Standard provides to explain this concept are: using a discount rate that reflects the estimated return on the assets or projecting returns on those assets at an estimated rate of return, discounting those projected returns at a different rate, and including the result in the measurement of the liability. 2.9 When an insurer changes its accounting policies for insurance liabilities, it may reclassify some or all financial assets as at fair value through profit or loss. 2.10

The Standard also addresses miscellaneous matters. • It explains that an insurer need not account for an embedded derivative separately at fair value if the embedded derivative meets the definition of an insurance contract. • It requires an insurer to unbundle (i.e., to account separately for) deposit components of some insurance contracts, to avoid the omission of assets and liabilities from its balance sheet.

Insurance Contracts (IFRS 4)

447

• It explains the concept and applicability of the practice sometimes known as shadow accounting. • It explains at length and provides expanded presentation for insurance contracts acquired in a business combination or portfolio transfer. • It also addresses limited aspects of discretionary participation features contained in insurance contracts or financial instruments. 3.

DISCLOSURE REQUIREMENTS

3.1

This Standard requires disclosure of information that • Identifies and explains the amounts in the insurer’s financial statements that arise from insurance contracts: accounting policies for insurance contracts and related assets, liabilities, income, and expense; the recognized assets, liabilities, income, expense, and cash flows arising from insurance contracts; if the insurer is a “cedant,” certain additional disclosures are required; the assumptions that have the greatest effect on the measurement of assets, liabilities, income, and expense including, if practicable, quantified disclosure of those assumptions; the effect of changes in assumptions; reconciliations of changes in insurance liabilities, reinsurance assets, and, if any, related deferred acquisition costs. • Helps users to evaluate the nature and extent of risks arising from insurance contracts: • Risk management objectives and policies • Those terms and conditions of insurance contracts that have a material effect on the amount, timing, and uncertainty of the insurer’s future cash flows • Information about insurance risk (both before and after risk mitigation by reinsurance), including information about • Sensitivity to insurance risk • Concentrations of insurance risk • Actual claims compared with previous estimates • Information about credit risk, liquidity risk, and market risk that IFRS 7, Financial Instruments: Disclosures would require if the insurance contracts were within its scope • Information about exposures to market risk arising from embedded derivatives contained in a host insurance contract if the insurer is not required to, and does not, measure the embedded derivatives at fair value

EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS

CNP Assurances Annual Financial Report 2010 Note to the consolidated financial statements for the year ended 31 December 2010 3.13 Insurance and Financial Liabilities 3.13.1 Contract Classification Contracts recognised and measured in accordance with IFRS 4 include: • •

Insurance contracts (see definition below) that cover a risk for the insured. Examples include death/disability contracts, pension contracts, property and casualty contracts and unit-linked savings contracts with a guaranteed element; Financial instruments with DPF, comprising both traditional savings contracts with DPF and unitlinked contracts including a traditional savings component with DPF.

Financial instruments without DPF are recognised and measured in accordance with IAS 39. This category corresponds to unit-linked savings contracts that do not have any traditional savings component or guaranteed element. Contracts that do not fulfil the criteria for classification as either insurance contracts (IFRS 4) or financial instruments without DPF (IAS 39) fall within the scope of:

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• •

IAS 18, when they correspond to the provision of services; or IAS 19, for contracts taken out in connection with benefit plans in favour of Group employees.

3.13.2 Insurance Contracts and Financial Instruments with DPF Insurance contracts and financial instruments with DPF are accounted for in accordance with Group accounting policies, as well as with the specific provisions of IFRS 4 concerning shadow accounting and liability adequacy tests. At each period-end, the Group assesses whether its recognized insurance liabilities net of its insurance assets (deferred participation asset plus other insurance-related intangible assets) are adequate, using current estimates of future cash flows under the insurance contracts and financial instruments with DPF. Insurance Contracts

Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or another beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder or beneficiary are classified as insurance contracts. Insurance risk is a risk other than a financial risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, or other variable. In the case of a non-financial variable, if the variable is not specific to a party to the contract, the risk is financial; otherwise it is an insurance risk. Surrender risk, extension risk or the risk of higher-than-expected administrative costs are not insurance risks, unless they are risks originally incurred by the insured that are transferred to the Group under an insurance contract. For each group of contracts with similar characteristics, the significance of the insurance risk is assessed based on a single representative contract. Under this approach, the insurance risk may be considered significant although the probability of the group of contracts generating a loss that has a material adverse effect on the financial statements is remote due to the pooling of risks. Financial Instruments with DPF

Contracts that do not expose the Group to an insurance risk or for which the insurance risk is not material are qualified as financial instruments when they give rise to a financial asset or liability. Contracts are qualified as financial instruments with DPF when they incorporate a contractual or regulatory entitlement to receive, as a supplement to guaranteed benefits, additional benefits: • • •

That are likely to be a significant portion of the total contractual benefits; Whose amount or timing is contractually at the Group’s discretion; and That are contractually based on the performance of a specified pool of contracts or a specified type of contract, or realised and/or unrealised investment returns on a specified pool of assets held by the Group, or the profit or loss of the company, fund or other entity that issues the contract.

Hybrid Contracts

Certain contracts written by the Group comprise both an insurance component and a deposit component. These two components are unbundled only when the deposit component can be measured separately and, under the Group’s accounting policies, the rights and obligations arising from the deposit component would not be recognised if the contract was not unbundled. The insurance component of an unbundled contract is accounted for under IFRS 4 and the deposit component under IAS 39. In line with the policy described above, the components of combined unit-linked and traditional savings contracts written by the Group are not unbundled. Life Insurance and Savings Contracts Premiums

Premiums on contracts in force during the period are recognised in revenue after adjustment for: • •

The estimated earned portion of premiums not yet written on group contracts comprising whole life cover; Estimated cancelled premiums, determined by reviewing written premiums and earned premiums not yet written. This adjustment is made for the main products based on the observed cancellation rate for contracts written and cancelled during the period.

Technical and Mathematical Reserves

Reserves for contracts including whole life cover include the portion of premiums written but not earned during the reporting period.

Insurance Contracts (IFRS 4)

449

Mathematical reserves for traditional savings contracts correspond to the difference between the present value of the respective commitments of the Group and the policyholder. Liabilities arising from life insurance contracts are determined using a discount rate that is equal to or less than the conservatively estimated forecast yield on the assets backing the liabilities. Insurance liabilities are discounted at a rate that is equal to or less than the contractual rate, using regulatory mortality tables or internal experience-based tables if these are more conservative. The discount rate applied to annuities takes into account the effects of a fall in interest rates when the contractual rate is considered too high compared with the expected yield from reinvested premiums. A general reserve is set up for future contract administration costs not covered by the premium loading or by the fees levied on financial products. When policyholders are entitled to participate in surplus underwriting profits and investment income in addition to the guaranteed minimum yield, any surplus not paid during the period is accumulated in the policy-holder surplus reserve. This reserve also includes the deferred policyholders’ participation resulting from the use of shadow accounting. An unexpired risks reserve is set up to cover claims and benefits outstanding at the period-end. Mathematical reserves for unit-linked contracts are determined by reference to the assets backing the linked liabilities. Gains and losses arising from the remeasurement of these assets at fair value are recognised in profit, to offset the impact of changes in the related technical reserves. Reserves for guaranteed yields are determined using the Black & Scholes method. Disability, Accident and Health Insurance

Premiums are recognised net of taxes and estimated cancelled premiums. Earned premiums for the period are adjusted for: • •

Estimated earned premiums not yet written at the period-end; The change in the unearned premium reserve (corresponding to the portion of premiums written during the period that relates to the next period).

A reserve is recorded to cover timing differences between the coverage of risks and their financing in the form of insurance premiums. Claims are recognised in the period in which they are incurred. The amount recorded covers both reported claims and estimated claims incurred but not reported (IBNRs). Claims reserves are based on the estimated cost of settling the claims, net of any forecast recoveries. A deferred participation reserve is recorded for participating contracts, based on shadow accounting principles. A reserve is also recorded for claims handling expenses. Liability Adequacy Test

At each period-end, the Group assesses whether its recognised insurance liabilities, net of its insurance assets (deferred participation asset plus insurance-related intangible assets), are adequate, based on current estimates of future cash flows under its insurance contracts and financial instruments with DPF. The test is performed using asset liability management models, by applying a stochastic approach to estimate liabilities according to a wide range of scenarios. The models take into account embedded derivatives (policyholder surrender options, guaranteed yields, etc.) and administrative costs. The test determines the economic value of insurance liabilities corresponding to the average of the stochastic trajectories. Similar-type contracts are grouped together when performing the test and the results are analysed at entity level: if the sum of the surrender value and deferred participation (asset or liability), less related deferred acquisition costs and related intangible assets, is less than the fair value of the recognised insurance liability, the shortfall is recognised in profit. Shadow Accounting

Shadow accounting procedures are designed to address the risk of an artificial imbalance between assets and liabilities valued using different valuation models. When the measurement of liabilities, deferred acquisition costs or the value of business in force is directly affected by realized gains and losses on assets, a deferred participation reserve is recorded in insurance liabilities to offset the unrealized gains or losses

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in financial assets. Deferred participation is accounted for in the same way as the underlying, i.e., by adjusting either profit or the revaluation reserve. The deferred participation reserve is determined by multiplying fair value adjustments to assets by the estimated participation rate corresponding to the contractual obligations associated with each portfolio. The estimated participation rate takes into account regulatory and contractual participation clauses, as well as the Group’s profit-taking programme and policyholder dividend policy. Participation rates applied to unrealised gains and losses for shadow accounting purposes are the same as the rates applied to consolidation adjustments for the purpose of determining deferred participation. The portion of gains or losses attributable to policyholders is determined based on the terms of participating contracts. Shadow accounting is not applied to non-participating contracts that fall outside the scope of regulations requiring payment of a guaranteed minimum participating dividend. The amount of deferred participation calculated for each entity under shadow accounting principles is recognised either in liabilities as a deferred participation reserve or in assets as a deferred participation asset. Deferred participation assets are tested for recoverability to ensure that the amount calculated based on the participation rates estimated as described previously and in accordance with the going concern principle, is recoverable out of future actual or unrealised participations and will not result in liability inadequacy vis-à-vis the Group’s economic obligations. Recoverability testing uses the same methods as liability adequacy testing described above. Pursuant to the recommendation of the French national accounting board (Conseil national de la comptabilité – CNC) of 19 December 2008 concerning the recognition of deferred participation assets in the consolidated accounts of insurance companies, the recoverability of these amounts is enhanced by the Group’s conservative assessment of its ability to continue to hold its assets, in particular no future retained fund flows has been taken into account. Moreover, the Group has demonstrated the recoverability of the deferred participation assets using unprecedented surrender rates. Reinsurance Outward Reinsurance

Premiums, claims and technical reserves are stated before reinsurance. Ceded amounts are recognised under the “Reinsurance result” line item of the income statement. Ceded technical reserves are tested for impairment at each period-end. If there is objective evidence that these reserves are impaired, as a result of an event that occurred after initial recognition, the carrying amount of the asset is reduced by recording an impairment loss in the income statement. For reinsurance assets secured by collateral, the estimated discounted cash flows from the asset take into account cash flows from the sale of the collateral, net of the estimated cost of obtaining execution of the guarantee, regardless of whether or not such sale is considered probable. Inward Reinsurance

Inward reinsurance contracts give rise to a significant insurance risk and are therefore accounted for in the same way as insurance contracts. Note 10 Analysis of Insurance and Financial Liabilities 10.1 Analysis of Insurance and Financial Liabilities The following tables show the sub-classifications of insurance liabilities that require separate disclosure under IFRS.

Insurance Contracts (IFRS 4)

451

10.1.1 Analysis of Insurance and Financial Liabilities at 31 December 2010

In € millions Non-life technical reserves • Unearned premium reserves • Outstanding claims reserves • Bonuses and rebates (including claims equalisation reserve on Group business maintained in liabilities) • Other technical reserves • Liability adequacy test reserves Life technical reserves • Unearned premium reserves • Outstanding claims reserves • Policyholder surplus reserve • Other technical reserves • Liability adequacy test reserves Financial instruments with DPF • Unearned premium reserves • Outstanding claims reserves • Policyholder surplus reserve • Other technical reserves • Liability adequacy test reserves Financial instruments without DPF Derivative financial instruments separated from the host contract Deferred participation reserve TOTAL INSURANCE AND FINANCIAL LIABILITIES Deferred participation asset

Before reinsurance 6,130.8 248.9 894.1 59.6

31.12.2010 Net of reinsurance 5,349.9 234.7 757.4 55.4

Reinsurance 781.0 14.2 136.8 4.3

4,928.2 0.0 117,047.5 112,811.6 1,491.3 2,527.0 217.6 0.0 154,561.6 151,793.6 1,956.1 810.4 1.5 0.0 5,248.3 0.0

4,302.4 0.0 110,591.4 106,414.9 1,434.9 2,524.0 217.6 0.0 154,554.0 151,786.0 1,956.1 810.4 1.5 0.0 5,046.7 0.0

625.7 0.0 6,456.1 6,396.7 56.4 3.0 0.0 0.0 7.6 7.6 0.0 0.0 0.0 0.0 201.6 0.0

5,165.8 288,154.0 0.0

5,165.8 280,707.8 0.0

0.0 7,446.2 0.0

10.1.2 Analysis of Insurance and Financial Liabilities at 31 December 2009

In € millions Non-life technical reserves • Unearned premium reserves • Outstanding claims reserves • Bonuses and rebates (including claims equalisation reserve on Group business maintained in liabilities) • Other technical reserves • Liability adequacy test reserves Life technical reserves • Unearned premium reserves • Outstanding claims reserves • Policyholder surplus reserve • Other technical reserves • Liability adequacy test reserves Financial instruments with DPF • Unearned premium reserves • Outstanding claims reserves • Policyholder surplus reserve • Other technical reserves • Liability adequacy test reserves Financial instruments without DPF Derivative financial instruments separated from the host contract Deferred participation reserve TOTAL INSURANCE AND FINANCIAL LIABILITIES Deferred participation asset

Before reinsurance 5,454.8 209.2 772.2 76.3

31.12.2009 Net of reinsurance 4,763.1 195.9 670.0 68.7

Reinsurance 691.7 13.3 102.3 7.6

4,397.0 0.0 101,638.6 98,409.1 1,144.2 1,963.6 121.6 0.0 151,676.3 149,363.2 1,752.0 561.1 0.0 0.0 5,937.3 0.0

3,828.6 0.0 95,696.6 92,517.5 1,097.9 1,959.5 121.6 0.0 151,672.7 149,359.6 1,752.0 561.1 0.0 0.0 5,695.3 0.0

568.5 0.0 5,942.0 5,891.5 46.3 4.2 0.0 0.0 3.7 3.7 0.0 0.0 0.0 0.0 242.1 0.0

6,889.8 271,596.8 0.0

6,889.8 264,717.3 0.0

0.0 6,879.4 0.0

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10.1.3 Analysis of Insurance and Financial Liabilities at 31 December 2008

In € millions Non-life technical reserves • Unearned premium reserves • Outstanding claims reserves • Bonuses and rebates (including claims equalisation reserve on Group business maintained in liabilities) • Other technical reserves • Liability adequacy test reserves Life technical reserves • Unearned premium reserves • Outstanding claims reserves • Policyholder surplus reserve • Other technical reserves • Liability adequacy test reserves Financial instruments with DPF • Unearned premium reserves • Outstanding claims reserves • Policyholder surplus reserve • Other technical reserves • Liability adequacy test reserves Financial instruments without DPF Derivative financial instruments separated from the host contract * Deferred participation reserve Other (net deferred acquisition costs) TOTAL INSURANCE AND FINANCIAL LIABILITIES * Deferred participation asset *

Before reinsurance 5,227.0 184.4 750.4 56.5

31.12.2008 Net of reinsurance 4,551.4 168.1 677.4 53.6

Reinsurance 675.6 16.3 73.0 3.0

4,235.7 0.0 81,069.3 79,590.2 1,160.7 208.6 109.8 0.0 148,776.8 145,111.0 1,727.1 1,938.5 0.1 0.0 6,439.8 0.0

3,652.4 0.0 75,650.1 74,215.6 1,120.4 204.4 109.8 0.0 148,776.5 145,110.7 1,727.1 1,938.5 0.1 0.0 6,229.5 0.0

583.3 0.0 5,419.1 5,374.6 40.3 4.2 0.0 0.0 0.3 0.3 0.0 0.0 0.0 0.0 210.4 0.0

356.7 0.0 241,869.7

356.7 0.0 235,564.4

0.0 0.0 6,305.3

(1,175.3)

(1,175.3)

0.0

A net deferred participation asset was booked in the balance sheet in 2008 to reflect the unrealised losses recognised over the period in line with shadow accounting principles. The recoverability test (described in Note 3.13.2) conducted on 31 December 2008 has demonstrated the Group’s capacity to recover this amount over time from future or unrealised participations.

10.2 Change in Technical Reserves This note presents changes in technical reserves by category, such as those arising from changes in the assumptions applied to measure insurance liabilities. Each change with a material impact on the consolidated financial statements is shown separately. Movements are presented before and after reinsurance. 10.2.1 Changes in Mathematical Reserves—Life Insurance 10.2.1.1 Changes in Mathematical Reserves—Life Insurance—2010

In € millions Mathematical reserves at the beginning of the period Premiums Extinguished liabilities (benefit payments) Locked-in gains Change in value of linked liabilities Changes in scope (acquisitions/divestments) Asset loading Surpluses/deficits Currency effect Changes in assumptions Newly-consolidated companies Non-current liabilities associated with assets held for sale and discontinued operations Other Mathematical reserves at the end of the period

Before reinsurance 247,772.8 28,193.1 (19,555.6) 8,220.1 514.9 11.0 (1,303.4) (8.1) 546.7 (17.2) 0.0

31.12.2010 Net of reinsurance 241,877.6 27,803.6 (19,322.9) 7,797.8 514.9 (2.7) (1,303.4) (8.1) 546.7 (17.5) 0.0

Reinsurance 5,895.2 389.6 (232.7) 422.3 0.0 13.7 0.0 0.0 0.0 0.3 0.0

0.0 230.9 264,605.2

0.0 315.0 258,200.9

0.0 (84.1) 6,404.3

Insurance Contracts (IFRS 4)

453

10.2.1.2 Changes in Mathematical Reserves—Life Insurance—2009

In € millions Mathematical reserves at the beginning of the period Premiums Extinguished liabilities (benefit payments) Locked-in gains Change in value of linked liabilities Changes in scope (acquisitions/divestments) Asset loading Surpluses/deficits Currency effect Changes in assumptions Consolidation of Barclays Vida y Pensiones Non-current liabilities associated with assets held for sale and discontinued operations Other Mathematical reserves at the end of the period

Before reinsurance 224,701.2 28,849.2 (17,490.5) 8,431.1 3,317.6 (84.9) (1,116.0) (5.0) 699.7 (10.5) 956.0 (238.2)

31.12.2009 Net of reinsurance 219,326.3 28,299.5 (17,265.4) 8,149.6 3,317.6 (84.9) (1,116.0) (5.0) 699.7 (20.4) 956.0 (238.1)

Reinsurance 5,374.9 549.7 (225.1) 281.5 0.0 0.0 0.0 0.0 0.0 9.9 0.0 (0.1)

(236.9) 247,772.8

(141.3) 241,877.6

(95.6) 5,895.2

31.12.2008 Net of reinsurance 211,703.6 24,049.3 (17,238.7) 7,109.3 (5,591.2) (20.0) (1,016.7) 0.0 (435.0) 0.2 467.1 298.4 219,326.3

Reinsurance 5,131.4 481.4 (217.5) 104.2 0.0 (0.2) 0.0 0.0 0.0 0.0 0.0 (124.4) 5,374.9

Before reinsurance

31.12.2010 Net of reinsurance

Reinsurance

772.2 933.3 (3.8) 929.4 (817.2) (16.7) (833.8)

669.9 722.5 (3.8) 718.7 (644.7) (12.9) (657.6)

102.3 210.8 0.0 210.8 (172.5) (3.8) (176.3)

0.0 26.3 0.0

0.0 26.3 0.0

0.0 0.0 0.0

0.0 894.1

0.0 757.3

0.0 136.8

10.2.1.3 Changes in Mathematical Reserves—Life Insurance—2008

In € millions Mathematical reserves at the beginning of the period Premiums Extinguished liabilities (benefit payments) Locked-in gains Change in value of linked liabilities Changes in scope (acquisitions/divestments) Asset loading Surpluses/deficits Currency effect Changes in assumptions Consolidation of Marfin Insurance Holdings Ltd Other Mathematical reserves at the end of the period

Before reinsurance 216,835.0 24,530.7 (17,456.2) 7,213.5 (5,591.2) (20.2) (1,016.7) 0.0 (435.0) 0.2 467.1 174.0 224,701.2

10.2.2 Changes in Technical Reserves—Non-Life Insurance 10.2.2.1 Changes in Technical Reserves—Non-Life Insurance—2010

In € millions Outstanding claims reserves at the beginning of the period Claims expenses for the period Prior period surpluses/deficits Total claims expenses Current period claims settled during the period Prior period claims settled during the period Total paid claims Changes in scope of consolidation and changes of method Translation adjustments Newly-consolidated companies Non-current liabilities associated with assets held for sale and discontinued operations Outstanding claims reserves at the end of the period

454

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10.2.2.2 Changes in Technical Reserves—Non-Life Insurance—2009

In € millions Outstanding claims reserves at the beginning of the period Claims expenses for the period Prior period surpluses/deficits Total claims expenses Current period claims settled during the period Prior period claims settled during the period Total paid claims Changes in scope of consolidation and changes of method Translation adjustments Newly-consolidated companies Non-current liabilities associated with assets held for sale and discontinued operations Outstanding claims reserves at the end of the period

Before reinsurance

31.12.2009 Net of reinsurance

750.4 868.5 64.6 933.1 (283.5) (525.8) (809.3)

677.4 716.8 26.7 743.5 (204.8) (450.8) (655.6)

5.1 34.4 0.0

2.8 34.4 0.0

(141.5) 772.2

(132.6) 669.9

Reinsurance 73.0 151.7 37.9 189.6 (78.7) (75.0) (153.6) 2.3 0.0 0.0 (8.9) 102.3

10.2.2.3 Changes in Technical Reserves—Non-Life Insurance—2008

In € millions Outstanding claims reserves at the beginning of the period Claims expenses for the period Prior period surpluses/deficits Total claims expenses Current period claims settled during the period Prior period claims settled during the period Total paid claims Changes in scope of consolidation and changes of method Translation adjustments Consolidation of Marfin Insurance Holdings Ltd Outstanding claims reserves at the end of the period

Before reinsurance

31.12.2008 Net of reinsurance

678.5 1,416.1 (3.3) 1,412.8 (1,322.5) (37.4) (1,359.9)

608.7 1,275.3 (1.0) 1,274.3 (1,172.6) (34.9) (1,207.5)

0.0 (22.9) 42.0 750.4

0.0 (22.9) 24.9 677.5

Reinsurance 69.8 140.8 (2.3) 138.5 (149.9) (2.5) (152.4) 0.0 0.0 17.1 73.0

10.2.3 Changes in Mathematical Reserves—Financial Instruments with DPF

In € millions Mathematical reserves at the beginning of the period Premiums Extinguished liabilities (benefit payments) Locked-in gains Change in value of linked liabilities Changes in scope (acquisitions/divestments) Currency effect Newly-consolidated companies Non-current liabilities associated with assets held for sale and discontinued operations Other Mathematical reserves at the end of the period

Before reinsurance 5,937.3 1,038.0 (2,074.0) 75.5 183.8 (16.5) 96.9 0.0

31.12.2010 Net of reinsurance 5,695.2 1,023.8 (2,001.7) 75.5 166.2 (16.5) 96.9 0.0

0.0 7.2 5,248.3

0.0 7.2 5,046.7

Reinsurance 242.1 14.2 (72.3) 0.0 17.6 0.0 0.0 0.0 0.0 0.0 201.6

Insurance Contracts (IFRS 4)

455

In € millions Mathematical reserves at the beginning of the period Premiums Extinguished liabilities (benefit payments) Locked-in gains Change in value of linked liabilities Changes in scope (acquisitions/divestments) Currency effect Newly-consolidated companies Non-current liabilities associated with assets held for sale and discontinued operations Other Mathematical reserves at the end of the period

In € millions Mathematical reserves at the beginning of the period Premiums Extinguished liabilities (benefit payments) Locked-in gains Change in value of linked liabilities Changes in scope (acquisitions/divestments) Currency effect Newly-consolidated companies Other Mathematical reserves at the end of the period

Before reinsurance 6,439.9 888.6 (2,526.1) 65.7 595.8 21.2 153.5 261.1

31.12.2009 Net of reinsurance 6,229.5 888.6 (2,526.1) 65.7 595.8 21.2 153.5 229.4

(17.3) 54.9 5,937.3

(17.3) 54.9 5,695.2

Before reinsurance 7,881.2 795.0 (961.8) 43.9 (1,203.5) (13.1) (111.8) 0.0 10.0 6,439.9

31.12.2008 Net of reinsurance 7,553.8 768.8 (935.0) 43.9 (1,087.1) (13.1) (111.8) 0.0 10.0 6,229.5

Reinsurance 210.4 0.0 0.0 0.0 0.0 0.0 0.0 31.7 0.0 0.0 242.1

Reinsurance 327.4 26.2 (26.8) 0.0 (116.4) 0.0 0.0 0.0 0.0 210.4

10.3 Deferred Participation (Shadow Accounting Adjustments) This note breaks down the sources of deferred participation arising from the use of shadow accounting. The amount of deferred participation calculated for each entity under shadow accounting principles is recognised either in liabilities as a deferred participation reserve, or in assets as a deferred participation asset (see Note 3.13.2). The Group recognised a deferred participation reserve amounting to €5,165.8 million at 31 December 2010.

*

Deferred participation Deferred participation on remeasurement at fair value through profit Deferred participation on remeasurement at fair value recognised in equity Deferred participation on adjustment of capitalisation reserve Deferred participation on adjustment of claims equalisation reserves Deferred participation on other consolidation adjustments TOTAL

31.12.2010 Average Amount rate

31.12.2009 Average Amount rate

31.12.2008 Average Amount rate

(4,968.2)

(5,441.1)

(5,520.0)

ns

ns

7,672.0

-81.8%

9,818.4

-82.8%

2,829.7

-81.1%

235.9

0.0%

243.8

100.0%

208.4

100.0%

2,226.2 5,165.8

Amount at the beginning of the period Deferred participation on remeasurement at fair value through profit Deferred participation on remeasurement at fair value recognized in equity Effect of change in recoverability rate Other movements Deferred participation at the end of the period

2,268.7 6,889.8 31.12.2010 6,889.8

1,663.1 (818.7) 31.12.2009 (818.7)

31.12.2008 8,675.0

472.9

78.9

(6,888.4)

(2,146.4) 0.0 (50.4) 5,165.8

6,988.7 0.0 640.9 6,889.8

(4,256.5) 0.0 1,651.2 (818.7)

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10.4 Main Assumptions The insurer’s commitments differ according to the type of contract, as follows: Savings Contracts: Mainly Financial Commitments Savings contracts fall into two broad categories: •

Traditional savings contracts, where the insurer is committed to paying a minimum guaranteed yield plus a share of the investment yield. The yield guarantee may be for a fixed period (generally eight years) or for the entire duration of the contract. The insurer has an obligation to pay the guaranteed capital when requested to do so by the customer, whatever the prevailing market conditions at the time.

Commitments under savings contracts are managed primarily by matching asset and liability maturities; •

Unit-linked contracts, where the policyholder bears the entire investment risk and the insurer’s commitment is limited to any additional guarantees, such as a capital guarantee in the case of death.

Pension Products: Technical and Financial Commitments Commitments associated with annuity-based pension products depend on: • •

The benefit payment period, which is not known in advance; The interest rate, corresponding to the return on the capital managed by the insurer.

For these contracts, results are determined by long-term financial management policies and actual mortality rates compared with assumptions. Personal Risk Contracts: Mainly Technical Commitments The risk associated with these contracts is determined primarily by the insured’s age, gender, socioprofessional category and job. The Group implements risk selection and reinsurance policies, and monitors statistical data concerning the policyholder base and related loss ratios. The components of technical reserves are defined in Articles R.331-3 of the French Insurance Code for life insurance business and R.331-6 for non-life business. Measurement of Insurance and Financial Liabilities Insurance and financial liabilities are measured as follows: • • •

Insurance contracts (IFRS 4) are measured using the same policies as under French GAAP (or local GAAP in the case of foreign subsidiaries); Financial instruments with DPF are measured in accordance with local GAAP; Financial instruments without DPF are measured at fair value.

10.5 Changes in Financial Liabilities—Linked Liabilities The following table shows changes in financial liabilities related to linked liabilities. 10.5.1 2010

In € millions Technical reserves at the beginning of the period (+) Entries (new contracts, transfers between contracts, replacements) (+/-) Revaluation (fair value adjustments, incorporation of policyholder surplus) (-) Exits (paid benefits and expenses) (+/-) Entries/exits related to portfolio transfers (-) Loading deducted from assets (+/-) Surpluses/deficits (+/-) Effect of changes in assumptions (+/-) Translation adjustment (+/-) Newly-consolidated companies Other * TECHNICAL RESERVES AT THE END OF THE PERIOD *

31.12.2010 Before Net of reinsurance reinsurance 31,441.6 31,421.1 4,177.4 4,177.4 994.3 (3,046.7) (872.1) (94.5) 0.0 0.0 521.1 0.0 25.2 33,146.3

994.3 (3,046.7) (872.1) (94.5) 0.0 0.0 521.1 0.0 25.2 33,125.8

Not including linked liability financial instruments without DPF, accounted for in accordance with IAS 39. The table below reconciles the amounts shown in the above tables to unit-linked liabilities reported in the balance sheet.

Insurance Contracts (IFRS 4)

457

10.5.2 2009

In € millions Technical reserves at the beginning of the period (+) Entries (new contracts, transfers between contracts, replacements) (+/-) Revaluation (fair value adjustments, incorporation of policyholder surplus) (-) Exits (paid benefits and expenses) (+/-) Entries/exits related to portfolio transfers (-) Loading deducted from assets (+/-) Surpluses/deficits (+/-) Effect of changes in assumptions (+/-) Translation adjustment (+/-) Consolidation of Barclays Vida y Pensiones Other * TECHNICAL RESERVES AT THE END OF THE PERIOD *

31.12.2009 Before Net of reinsurance reinsurance 27,797.8 27,777.3 2,803.9 2,803.9 3,887.0 (2,465.8) (1,506.2) (83.9) 0.0 0.0 652.8 237.2 118.8 31,441.6

3,887.0 (2,465.8) (1,506.2) (83.9) 0.0 0.0 652.8 237.2 118.8 31,421.1

Not including linked liability financial instruments without DPF, accounted for in accordance with IAS 39. The table below reconciles the amounts shown in the above tables to unit-linked liabilities reported in the balance sheet.

10.5.3 2008

In € millions Technical reserves at the beginning of the period (+) Entries (new contracts, transfers between contracts, replacements) (+/-) Revaluation (fair value adjustments, incorporation of policyholder surplus) (-) Exits (paid benefits and expenses) (+/-) Entries/exits related to portfolio transfers (-) Loading deducted from assets (+/-) Surpluses/deficits (+/-) Effect of changes in assumptions (+/-) Translation adjustment (+/-) Consolidation of Marfin Insurance Holdings Ltd Other * TECHNICAL RESERVES AT THE END OF THE PERIOD *

31.12.2008 Before Net of reinsurance reinsurance 34,141.8 34,141.8 3,663.9 3,663.9 (5,367.6) (2,171.0) (2,230.8) (89.7) 0.0 0.0 (396.0) 361.3 (114.0) 27,797.8

5,367.6) 2,191.5) 2,230.8) (89.7) 0.0 0.0 396.0) 361.3 114.0) 27,777.3

Not including linked liability financial instruments without DPF, accounted for in accordance with IAS 39. The table below reconciles the amounts shown in the above tables to unit-linked liabilities reported in the balance sheet.

In € millions Financial liabilities – linked liability financial instruments – balance sheet Changes in financial liabilities – linked liabilities other than IAS 39 Changes in financial liabilities – linked liabilities – IAS 39 TOTAL

31.12.2010

31.12.2009

31.12.2008

37,410.0

36,591.3

33,772.7

33,146.3 4,263.7 0.0

31,441.6 5,149.7 0.0

27,797.8 5,974.9 0.0

10.6 Credit Risk on Reinsured Business The purpose of this note is to provide an analysis of credit risk related to outward reinsurance contracts by reinsurer, for CNP France and the main subsidiaries in the Group: a) Excess-of-loss contracts have been placed with reinsurers who are rated between A- and AAA; b) For quota-share treaties where the asset is not held by CNP Assurances, the breakdown of ceded insurance liabilities by reinsurer is as follows.

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10.6.1 Credit Risk on Reinsured Business at 31 December 2010 31.12.2010 In € millions First reinsurer Second reinsurer Third reinsurer Fourth reinsurer Other reinsurers TOTAL

Credit rating AA A AA AA -

Ceded technical reserves Amount % 3,066.0 41.2% 2,129.1 28.6% 1,062.9 14.3% 494.3 6.6% 693.9 9.3% 7,446.2

10.6.2 Credit Risk on Reinsured Business at 31 December 2009 31.12.2009 In € millions First reinsurer Second reinsurer Third reinsurer Fourth reinsurer Other reinsurers TOTAL

Credit rating AA A AA AA -

Ceded technical reserves Amount % 2,811.5 40.9% 1,945.3 28.3% 975.9 14.2% 507.4 7.4% 639.3 9.3% 6,879.4

10.6.3 Credit Risk on Reinsured Business at 31 December 2008 31.12.2008 In € millions First reinsurer Second reinsurer Third reinsurer Fourth reinsurer Other reinsurers TOTAL

Credit rating AA A AA AA -

Ceded technical reserves Amount % 2,624.8 41.6% 1,801.1 28.6% 905.2 14.4% 493.5 7.8% 480.7 7.6% 6,305.3

Crédit Agricole S.A. Annual Report 2010 Notes to the consolidated financial statements for the year ended 31 December 2010 Significant Accounting Policies/Insurance Businesses (IFRS 4) Liabilities remain partially valued under French GAAP, as permitted by IAS and IFRS regulations, pending further amendments to the existing standards. Financial assets held by the Group’s insurance companies have been reclassified into the financial assets categories set out in IAS 39. Contracts containing discretionary participation features are collectively classified as a liability under insurance company technical reserves. They are recognised in the same way as insurance contracts. Premiums on these contracts are recognized as income and the increase in obligations to policyholders is recognised as an expense. Life insurance technical reserves are conservatively estimated based on the technical rates defined in the contracts. Liabilities associated with contracts with or without discretionary participation features or guaranteed elements, are measured based on the fair value of the underlying assets or its equivalent at the end of the reporting period and are recorded under financial liabilities. The financial margin on these policies is taken to profit or loss, after reversing out the technical items (premiums, benefits, etc.), according to deposit accounting principles. Property and casualty insurance policy liabilities are estimated at the reporting date, without applying any discount. Claims management costs associated with technical reserves are charged to a provision in the financial statements at the reporting date. For non-life insurance policies, acquisition costs are recognized as and when the premium is earned. For life insurance contracts, directly identifiable acquisition costs are deferred over the profit generation period. Total expenses related to the insurance business are presented in Note 4.5 - Net income (expenses) on other activities.

Insurance Contracts (IFRS 4)

459

As permitted by the extension of local GAAP precised by IFRS 4 and CRC regulation 2000-05 pertaining to consolidated financial statements for insurance companies, “shadow accounting” is used to account for insurance liabilities for contracts with discretionary participation features. Under this practice, positive or negative valuation differences in the corresponding financial assets that will potentially revert to policyholders are recognised in a “Deferred profit sharing” reserve. The deferred profit sharing is recognised on the liabilities side of the balance sheet under insurance company technical reserves or on the asset side with an offsetting entry in the income statement or in the valuation reserve, in the same way as unrealised gains and losses on the underlying assets. The deferred profit sharing is determined in two stages: • •

By allocating unrealised gains and losses on the assets to insurance contracts with participation features on the basis of a three-year historic average; Then by applying to the remeasurements of insurance contracts with participation features a historical distribution key observed over the past three years for redeemable securities and a 100% key for the other financial assets.

To determine whether the deferred profit-sharing asset is recoverable, tests are carried out to determine whether any unrealised losses can be applied to future surpluses before testing for liability shortfall in accordance with the CNC recommendation of 19 December 2008. These tests are based: • •

First, on liquidity analyses of the Company, which show the enterprise’s capacity to access funding sources to meet its obligations and its ability to hold assets with unrealised losses even if new production declines. The tests were performed with and without new production; Second, on a comparison between the average value of future services measured by the internal model replicating the Company’s management decisions and the value of the assets representing the obligations at fair value. This shows the enterprise’s ability to meet its obligations.

Lastly, sensitivity tests on the ability to activate the deferred profit sharing are also carried out: • •

In the event of a uniform 15% increase in redemptions applied to redemption rates drawn from scenarios similar to those used by the banking and insurance sector regulatory authority Presidential Control Authority (ACP); In the event of an additional 10% decline in the equity markets.

In accordance with IFRS 4, at each reporting date, the Group also ascertains that insurance liabilities (net of deferred acquisition costs and associated intangible assets) are adequate to meet estimated future cash flows. The liability adequacy test used to verify this must meet the following minimum requirements, as defined in paragraph 16 of the standard: • •

It must consider current estimates of all future contractual cash flows, including associated management costs, commission and fees as well as options and guarantees implicit in these contracts; If the test shows that the liability is inadequate, it is wholly provided for in profit or loss.

5.3 Insurance Activities Gross Income from Insurance Activities In millions of euros Premium written Change in unearned premiums Earned premiums Other operating income Investment income Investment expenses Gains (losses) on disposal of investments net of impairment and amortisation write-backs Change in fair value of investments at fair value through profit or loss Change in impairment on investments Investment income after expenses Claims paid Income on business ceded to reinsurers Expenses on business ceded to reinsurers Net expense or income on business ceded to reinsurers

31/12/2010 28,771 (166) 28,605 233 7,380 (444)

31/12/2009 24,580 (364) 24,216 266 7,162 (606)

2,541 968 (23) 10,422 (34,445) 392 (504) (112)

110 4,450 (627) 10,489 30,862) 405 (438) (33)

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In millions of euros Contract acquisition costs Amortisation of investment securities and similar Administration expenses Other current operating income (expense) Other operating income (expense) Operating income Financing costs Share of profit of associates Income tax expense Consolidated net income Minority interests NET INCOME, GROUP SHARE (1)

31/12/2010 (1,882) (9) (1,065) (123) (31) 1,593 (116) (482) 995 12 983

In millions of euros Available-for-sale assets Equities Bonds Treasury bills and similar securities Held-to-maturity assets Bonds Treasury bills and similar securities Financial assets at fair value through profit or loss classified as held for trading and financial assets designated as at fair value through profit or loss upon initial recognition Equities Bonds Treasury bills and similar securities Derivative instruments Other assets at fair value (1) Assets backing unit-linked contracts Hedging derivative instruments Loans and receivables Investment property TOTAL INSURANCE COMPANY INVESTMENTS

(2)

(296) 951 23 928

Of which -€10.8 billion in claims costs in 2010 (unchanged from 2009), -€5.1 billion in change of stake in policyholder participation in 2010 (-€5.2 billion in 2009) and -€18.2 billion in change of technical reserves in 2010 (-€15.2 billion in 2009).

IFRS Classification

(1)

31/12/2009 (1,767) (11) (812) (170) 2 1,318 (71)

31/12/2010 Unrealised Net value gains 139,313 19,976 69,510 49,827 21,225 506 139 3 21,086 503

31/12/2009 (2) Unrealised Net value gains 137,829 27,705 76,826 33,298 21,167 1,000 3,228 165 17,939 915

25,011 8,302 8,291 7,477 941 41,389 41,496 (107) 4,127 2,461 233,526

27,806 9,452 13,933 3,516 905 38,507 38,492 15 4,069 2,493 231,871

1,782 2,288

1,848 2,928

Debt issues related to assets held by Group insurers on behalf of policyholders, included in unit-linked contracts, are not eliminated. This has no material impact on the Group’s consolidated financial statements. This note sets out insurance company investments (Crédit Agricole Assurances scope) in the Crédit Agricole S.A. Group. The published figures for 2009 for the Crédit Agricole Assurances scope have been restated so that they are comparable with the new presentation format applied from 31 December 2010.

6.15 Insurance company technical reserves In millions of euros Insurance contracts Investment contracts with discretionary participation features Investment contracts without discretionary participation features Deferred participation liability (1) Other technical reserves Total Technical Reserves Deferred profit-sharing asset (1) Reinsurers’ share of technical reserves (2) NET TECHNICAL RESERVES (1)

Life 101,334

Non-life 2,227

31/12/2010 International 8,509

Creditor 1,302

Total 113,372

103,442

6,451

109,893

1,749

5,710

7,459

206,525 (1,353) (444) 204,728

2,227 (191)

20,670 (143) (100) 20,427

1,302 (270)

230,724 (1,496) (1,005) 228,223

Including deferred asset on revaluation of AFS securities of €0.8 billion before tax, that is €0.5 billion after tax (see Note 6.4 Available-for-sale financial assets).

Insurance Contracts (IFRS 4)

(2)

461

Reinsurers’ share in technical reserves and other insurance liabilities are recognised under “Accrued income and other assets.”

In millions of euros Insurance contracts Investment contracts with discretionary participation features Investment contracts without discretionary participation features (1) Deferred participation liability Other technical reserves Total technical reserves Reinsurers’ share of technical reserves (2) NET TECHNICAL RESERVES (1)

(2)

Life 87,422

Non-life 1,920

31/12/2010 International 7,062

Creditor 1,134

Total 97,538

103,743

5,056

108,799

1,812 1,329

5,609 (15)

7,421 1,314

194,306 (388) 193,918

1,920 (155) 1,765

17,712 (95) 17,617

1,134 (296) 838

215,072 (934) 214,138

Including liability for deferred participation on revaluation of AFS securities of €3.5 billion before tax, amounting to €2.3 billion after tax (see Note 6.4 Available-for-sale financial assets). Reinsurers’ share in technical reserves and other insurance liabilities are recognised under “Accrued income and other assets.”

Deferred participation assets at 31 December 2010 and deferred participation liabilities at 31 December 2009 break down as follows: Deferred participation asset Deferred participation on AFS securities mark-to-market adjustment Deferred participation on trading securities mark-to-market adjustment Other deferred participation (liquidity risk reserve cancellation) (1) (2) TOTAL

31/12/2010 (811) (870) 185 (1,496)

Deferred participation asset Deferred participation on AFS securities mark-to-market adjustment Deferred participation on trading securities mark-to-market adjustment Other deferred participation (liquidity risk reserve cancellation) TOTAL (1) (2)

31/12/2009 3,514 (2,095) (105) 1,314

(1)

(2)

Situation reversed in comparison with 31 December 2009: for CAA group, excluding consolidation of UCITSs, other deferred participation changes from a liability of €1.3 billlion in 2009 to an asset of €1.5 billion at 31 December 2010. For 2010, Group portfolios changed from a position of unrealised gain to unrealised loss Deferred participation asset on revaluation of AFS securities of €0.8 billion before tax, that is €0.5 billion after tax, at 31 December 2010, compared with a deferred participation liability on revaluation of AFS securities of €3.5 billion before tax, that is €2.3 billion after tax, at 31 December 2009 (see Note 6.4 Available-for-sale financial assets).

The recoverable nature of this asset was determined by tests carried out as described in Note 1.3 on insurance activities, in accordance with the CNC recommendation of 19 December 2008.

Danske Bank Group Annual Report 2010 Notes to the financial statements for the year ended 31 December 2010 Pooled scheme 2010 2009 Assets Bonds Shares Unit trust certificates Cash deposits Total including own bonds own shares other intra-group balances Total assets Liabilities Deposits

Unit-linked contracts 2010 2009

Total 2010

2009

18,693 5,761 17,810 2,616 44,880

19,829 4,991 11,271 2,010 38,101

--22,397 -22,397

--15,032 -15,032

18,693 5,761 40,207 2,616 67,277

19,829 4,991 26,303 2,010 53,133

4,588 305 2,686 37,301

4,993 294 1,937 30,877

---22,397

---15,032

4,588 305 2,686 59,698

4,993 294 1,937 45,909

44,880

38,101

22,397

15,032

67,277

53,133

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DKK millions Assets under insurance contracts Due from credit institutions Investment securities Holdings in associated undertakings (note 22) Investment property (note 24) Tangible assets (note 25) Reinsurers’ share of provisions Other assets Total including own bonds own shares other intra-group balances Total assets

2010

2009

1,195 217,995 974 18,165 433 2,042 3,225 244,029

1,256 202,991 996 17,757 160 1,948 4,179 229,287

24,673 216 1,625 217,515

30,621 274 1,448 196,944

Investment securities under insurance contracts Listed bonds Listed shares Unlisted shares Unit trust certificates Other securities Total

155,379 14,157 3,253 43,865 1,341 217,995

152,391 14,963 2,140 31,406 2,091 202,991

Liabilities under insurance contracts Life insurance provisions Provisions for unit-linked insurance contracts Collective bonus potential Other technical provisions Total provisions for insurance contracts Other liabilities Intra-group balances Total

178,552 43,913 1,740 8,857 233,062 6,878 -1,808 238,132

178,320 32,591 2,846 8,621 222,378 2,494 -996 223,876

Provisions for insurance contracts Balance at 1 January Premiums paid Benefits paid Interest added to policyholders’ savings Fair value adjustment Foreign currency translation Change in collective bonus potential Other changes Balance at 31 December

222,378 16,937 -16,715 9,482 3,107 489 -1,107 -1,509 233,062

209,663 15,730 -15,125 8,620 5,033 217 1,286 -3,046 222,378

1,948 141 -110 40 94 -71 2,042

1,917 137 -131 25 19 -19 1,948

Reinsurers’ share of provisions for insurance contracts Balance at 1 January Premiums paid Benefits paid Interest added to policyholders’ savings Fair value adjustment Other changes Balance at 31 December Holdings in associated undertakings Cost at 1 January Additions Disposals Cost at 31 December Revaluations at 1 January Share of profit Share of other comprehensive income Dividends Reversals of revaluations Revaluations at 31 December Carrying amount at 31 December

853 44 2 895 233 84 5 107 -70 145 1,040

841 15 3 853 98 288 -10 180 37 233 1,086

Insurance Contracts (IFRS 4)

463

Wesfarmers Annual Report 2010 For the year ended 30 June 2010 Notes to the financial statements 21: Insurance liabilities CONSOLIDATED

Unearned insurance premiums Current Non-current Carrying amount at beginning of year Deferral of premium on contracts written during year Earning of premiums deferred in prior years Carrying amount at end of year Outstanding insurance claims Current Non-current Outstanding insurance claims Gross central estimate of outstanding claims liabilities Discount to present value Claim handling expenses Risk margin Total insurance liabilities Current Non-current

2010 $m

2009 $m

762 35 797 784 694 (681) 797

718 66 784 750 728 (694) 784

545 373 918

480 437 917

885 (66) 34 65 918

887 (61) 33 58 917

1,307 408 1,715

1,198 503 1,701

The overall risk margin is determined allowing for diversification between classes of business and the relative uncertainty of the outstanding claims estimate for each class. The assumptions regarding uncertainty for each class are applied to the net central estimates and the results are aggregated, allowing for diversification, in order to arrive at an overall net provision that is intended to provide a probability of sufficiency between 85 per cent and 90 per cent. The probability of adequacy at 30 June 2010 is approximately 85 per cent (2009: 85 per cent), which is within the Group’s internal target range of 85 per cent to 90 per cent. The risk margin included in net outstanding claims is 15.7 per cent of the central estimate (2009: 13.0 per cent). The discount rate used is 4.2 per cent (2009: 4.3 per cent). CONSOLIDATED Gross $m Movement in outstanding insurance claims Carrying amount at beginning of year Incurred claims recognized in profit and loss Net claim payments Acquisition of companies Other Carrying amount at end of year

917 927 (927) 1 918

Reinsurance $m (404) (258) 246 (416)

2010 Net $m 513 669 (681) 1 502

2009 Net $m 448 749 (788) 124 (20) 513

Liquidity Risk Liquidity risk is the risk that payment of obligations may not be met in a timely manner at a reasonable cost. The Group is exposed to daily calls on its available cash resources from policy claims. The Group manages this risk in accordance with the Group’s liquidity policy whereby investments are held in liquid, short‑term money market securities to ensure that there are sufficient liquid funds available to meet insurance obligations. The Group limits the risk of liquidity shortfalls resulting from a mismatch in the

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timing of claims payments and receipts of claims recoveries by negotiating cash call clauses in reinsurance contracts and seeking accelerated settlements for large claims. The maturity profile of the Group’s discounted net outstanding claims provision is analysed below. CONSOLIDATED