12.06
Accounting principles for consolidation, valuation, determination of results and cash flows
Notes to the consolidated financial statements
Accounting principles for consolidation, valuation, determination of results and cash flow
DESCRIPTION OF OUR BUSINESS
Our operations can be divided amongst our three primary business divisions: mail, express and logistics. The mail division primarily provides services for collecting, sorting, transporting and distributing domestic and international mail. The express division provides demand door-to-door express delivery services for customers sending documents, parcels and freight worldwide. The logistics division provides supply chain management services on a contract-by-contract basis to customers worldwide in various business sectors including the automotive, publishing, and fast moving consumer goods industries.
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with the provisions of Part 9, Book 2 of the Dutch civil code and accounting principles as described in the “Guidelines for Annual Reporting in the Netherlands” (“Dutch GAAP”).All amounts in the financial statements are stated in euros, unless otherwise indicated.
Capital is determined on the basis of historical cost. Assets and liabilities are included at nominal value unless otherwise indicated.
CHANGES IN ACCOUNTING POLICIES
Starting from the financial year 2003 dividend payable amounts have been reclassified from “Other current liabilities” to “Shareholders’ equity”, (2002: 119; 2001: 114), in accordance with RJ160 of “Guidelines for Annual Reporting in the Netherlands”.
CONSOLIDATION PRINCIPLES
Group companies, which are companies that form an organisational and economic entity with our company and in which we have a controlling interest, are fully consolidated. The minority participating interests in group equity and in net income are disclosed separately. Companies are consolidated from the date the Group has control over the company and divested companies are included in the consolidated financial statements up to the date the Group ceases to have control over the company.These accounting principles apply to the balance sheets and the statements of income and to the group companies included in the consolidation. All significant intercompany balances and transactions have been eliminated on consolidation.
The Group’s share in the results of an affiliated company is computed on the basis of TPG’s equity portion in that particular affiliated company.
In the consolidated balance sheet, shares in affiliated companies are reported separately under financial fixed assets. The book value of the shareholdings changes to reflect TPG’s share in net income of the respective companies, reduced by dividends received. If the Group’s share of any accumulated losses exceeds the acquisition value of the shares in the company, the book value is reduced to zero and the reporting of losses ceases, unless the Group is bound by guarantees or other undertakings in relation to the affiliated company.
Joint ventures are defined as companies in which TPG, jointly with another partner through agreement, has a joint decisive influence over operations. Joint ventures are reported in accordance with the proportional consolidation method. In applying the proportional consolidation method, the Group’s percentage share of the balance sheet and statement of income items are included in the consolidated financial statements of TPG N.V.
The consolidated financial statements include the financial statements of TPG N.V. and its consolidated companies. A complete list of subsidiaries and affiliated companies included in our consolidated financial statements is publicly filed at the office of the commercial register of the Chamber of Commerce in Amsterdam. This list has been prepared in accordance with the provisions of Article 379, Paragraph 1 and Article 414, Part 9, Book 2 of the Dutch civil code.
FOREIGN CURRENCIES
Revenues and expenses in foreign currencies are included in the statements of income at the rate on the date incurred (cash value or at an average exchange rate for accounting purposes). If a forward contract has been entered into, the forward exchange rate is applied.Accounts receivable, liabilities, cash and cash equivalents denominated in foreign currencies are translated into euro at the rate of exchange at the balance sheet date or at the forward exchange rate if a forward contract has been entered into.
Exchange rate differences are included in the statements of income under interest and similar income or interest and similar expenses.
Assets and liabilities of foreign companies with functional currencies other than euro have been translated into euro at the rate of exchange at the balance sheet date. The resulting exchange rate differences are added to or charged against the cumulative translation reserve, which forms part of equity. The exchange result on loans or other financial instruments used to hedge the company’s exposure with respect to its net investment in foreign companies denominated in foreign currencies is also added to or charged against the cumulative translation reserves. Revenues and expenses of foreign companies with functional currencies other than euro have been translated at the average rate for the year. Exchange differences arising on foreign currency liabilities in entities whose functional currency is the euro are added to or charged against cumulative translation reserve where the liability has the nature of a permanent investment.
Goodwill, other intangible assets, property, plant and equipment and inventory (non-monetary assets) of direct foreign activities are translated at historical exchange rates. Accounts receivable, liabilities, cash and cash equivalents (monetary assets and liabilities) of direct foreign activities are translated at the rate of exchange at the balance sheet date. The resulting exchange rate difference from these translations is included in the statements of income under interest and similar income or under interest and similar expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the period as well as other information disclosed. Actual results could differ from those estimates.Accounting policies relating to the valuation of assets and liabilities
GOODWILL
Acquired participating interests are stated at net asset value at the acquisition date, determined in accordance with TPG N.V.’s accounting policies. In determining the net asset value, adjustments to fair value are taken into account, net of deferred taxation.Goodwill represents the excess of the consideration paid over the fair value of the acquired net assets. Goodwill arising from acquisitions is valued at historical cost less amortisation or at the recoverable amount whenever an impairment took place. Amortisation expense is calculated using the straight-line method over the estimated useful life of up to 20 years, unless a longer period can be specifically identified and supported.
SOFTWARE, PREPAYMENTS ON INTANGIBLE ASSETS AND OTHER INTANGIBLE ASSETS
Costs related to the development and installation of software for internal use are capitalised at historical costs and amortised over the estimated useful life.Prepayments on intangibles assets include mainly assets under construction which are not yet used in operating activities. At the moment an intangible asset is used in operating activities, the asset is transferred to the respective intangible asset category. The amortisation of intangible assets will begin at the moment the assets have been transferred.
Other intangible assets are mainly related to licences and concessions and assets which can not be classified as goodwill, software or prepayments on intangible assets. The valuation of other assets is at historical costs and amortised over the estimated useful life.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are valued at historical cost less depreciation or at the recoverable amount whenever an impairment took place. In addition to costs of acquisition, we also include costs of bringing the asset to its working condition, handling and installation costs and the non-refundable purchase taxes. Depreciation is calculated using the straight-line method based on the estimated useful life, taking into account any residual value. Land is not depreciated. System software is capitalised and amortised as a part of the tangible fixed asset for which it was acquired to operate, because the estimated useful life is inextricably linked to the estimated useful life of the associated asset.Property, plant and equipment that is no longer used in operating activities is valued at the lower of either net book value or the recoverable amount. Upon retirement or sale, the related historical cost and accumulated depreciation are removed from the accounts and any profit or loss resulting from disposal or sale of property, plant and equipment is included in the statements of income as part of other operating revenues.
AFFILIATED COMPANIES
An affiliated company is a company in which the Group exercises significant influence without the partly owned company being a group company or joint venture. Normally, this means that the group owns between 20% and 50% of the votes. Accounting for affiliated companies is according to the equity method.Affiliated companies identified as held for disposal are valued at the lower of historical cost or recoverable amount.
INVENTORY
Inventories of raw materials and finished goods are valued at the lower of historical cost or net realisable value less any provision required for obsolescence. Historical cost is based on weighted average prices.
ACCOUNTS RECEIVABLE
Trade accounts receivables are stated at face value net of an allowance for doubtful receivables. Loans receivable from affiliated companies due within one year are included in accounts receivable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash at hand, bank account balances, bills of exchange and cheques (only those which can be cashed in the short-term). Cash and cash equivalents with an original maturity above twelve months are reported as financial fixed assets.All highly liquid investments with an original maturity of three months or less at date of purchase are considered to be cash equivalents.
MINORITY INTERESTS
Minority interests in income of consolidated subsidiaries represent the minority shareholders’ share of the income or loss of various consolidated subsidiaries. The minority interest in the consolidated balance sheets reflects the original investment by these minority shareholders in these consolidated subsidiaries, along with their proportional share of earnings or losses of these subsidiaries.
DERIVATIVE FINANCIAL INSTRUMENTS
We use derivative financial instruments as part of an overall riskmanagement strategy. When used, these instruments are applied as a means of hedging exposure to foreign currency risk, interest rate risk and commodity risk connected to anticipated cashflows or existing assets and liabilities. We do not hold or issue derivative financial instruments for trading purposes.
Gains and losses from foreign currency forward exchange contracts that are hedging anticipated cash flows are deferred in other assets or other liabilities and recognised in the statement of income, or as adjustments of carrying amounts, when the hedged transaction occurs. If an anticipated cash flow does not occur or is expected not to occur, the foreign currency forward exchange contract is terminated and any result is recognised in interest and similar income or interest and similar expenses.
The net exposures of derivative financial instruments are re-valued at the prevailing spot exchange rate. Realised and unrealised gains and losses resulting from hedges of on balance sheet foreign currency exposure are included in interest and similar income or in interest and similar expenses offsetting the revaluation of the underlying on-balance sheet items. Foreign currency gains and losses on derivative financial instruments used to hedge our net investments in foreign operations are recorded in equity, net of taxes.
Premium or discount arising at the inception of foreign currency derivatives are amortised over the life of the contract and included in interest and similar income or interest and similar expenses. Payments and receipts on interest rate swaps are recorded on an accruals basis, if interest rate swaps are terminated early the gain or loss on interest is recorded within interest and similar income or interest and similar expenses.
PROVISIONS FOR PENSION LIABILITIES
For defined benefit plans, pension provisions are accounted for at fair value in accordance with SFAS no. 87, “Employers Accounting for Pensions”, through which pension expenses and related liabilities are based on a specific methodology that reflects the concepts of accrual accounting. Amounts are reflected in the statements of income systematically over the remaining service lives of the employees covered by the plan. Amounts charged to expense are typically different from amounts funded.In the event that the accumulated benefit obligation, calculated as the present value of the benefits attributed to employee service rendered until the balance sheet date and based on historical compensation levels, exceeds the fair value of the plan assets and/or the existing level of the pension provision, the difference is, pursuant to SFAS 87, adopted to provisions by means of recognition of an intangible asset for prior service costs with the balance, net of taxes, being charged to shareholder’s equity.
Pension costs for defined contribution plans are expensed to the statements of income when incurred.
PROVISIONS
Provisions are recognised when there is a present obligation 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.Provisions are recorded for restructuring, retirements and other obligations. Provisions are recorded at nominal value unless the effect of the time value of money is material, in which case the
provision is stated at net present value. Certain post-retirement benefits are stated at the net present value of future obligations.
Provisions for onerous contracts are recorded when the unavoidable costs of meeting the obligation under the contract exceed the economic benefits expected to arise from that contract, taking into account impairment of fixed assets first.
DEFERRED TAXES
Deferred tax assets and liabilities, arising from temporary differences between the nominal values of assets and liabilities and the fiscal valuation of assets and liabilities, are calculated, using the tax rates expected to apply when they are realised or settled. Deferred tax assets are recognised if it is more likely than not that they will be realised in the foreseeable future. Deferred tax assets and liabilities with the same term and the same consolidated tax group are presented net in the balance sheet, if we have a legally enforceable right to offset the recognised amounts.Accounting principles relating to the determination of results
REVENUES
Revenues are recognised when services are rendered, goods are delivered or work is completed. Losses are recorded when probable. Revenue is the gross inflow of economic benefits during the current year arising in the course of the ordinary activities when those inflows result in increases in equity, other than increases relating to contributions from equity participants.Revenues of delivered goods and services are recognised when:
- we have transferred to the buyer the significant risks and rewards of ownership of the goods;
- we retain neither continuing managerial involvement to the degree usually associated with ownership nor effective control of the goods sold;
- the amounts of revenue are measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to us;
- the costs to be incurred in respect of the transaction can be measured reliably; and
- the stage of completion of the transaction at the balance sheet date can be measured reliably.
Revenue is measured at the fair value of the consideration of received amounts or receivable amounts.
Amounts received in advance are recorded as accrued liabilities until services are rendered to customers, goods are delivered or work is completed, using the percentage of completion method, based on the stage of completion of the service provided.
NET SALES
Net sales represent the revenues from the delivery of goods and services to third parties, less discounts and taxes levied on sales.
OTHER OPERATING REVENUES
Other operating revenues include revenues that do not arise from our normal trading activities and include net gains from thesale of property, plant and equipment and the rental income from buildings and houses.
STOCK-BASED COMPENSATION
Our employee stock option plans and our performance share plan are performance-based. The final benefits to be awarded under these plans may vary depending on target total shareholder returns for our shares over the respective three-year vesting periods. If the exercise price for our options is less than the underlying share price on the date of grant, we recognise compensation expense in the year of grant equal to the number of options granted multiplied by the difference between the underlying share price and the option exercise price. We recognise the total compensation expense for our performance share plans in the year in which the related shares vest. The total compensation expense to be recognised for our performance share plans will be equal to the number of performance shares that ultimately vest multiplied by the underlying share price on the vesting date.Under our bonus-matching scheme, a part of the annual bonus is paid in shares. Should the employee retain at least half the shares awarded to him or her under this scheme for a period of three years, the company will match those shares on a one-to-one basis at no cost to the employee. There are two cost components to this scheme. The first cost component relates to the employee’s annual bonus, paid in shares. This component is recognised as compensation expense in the year to which the bonus relates. The second cost component relates to the shares that will be matched on the third anniversary of the grant date. The total compensation cost for this second component is recognised as compensation expense evenly over the three-year vesting period. The total compensation cost for this second component is equal to the maximum number of bonus shares that may be matched, multiplied by the underlying share price on the date of grant.
IMPAIRMENTS
We review intangible and tangible fixed assets for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable. For all goodwill amortised for a period greater than 20 years and for all tangible and intangible assets for which an impairment may have occurred, the carrying value of the related asset is reassessed through comparison with the value of the related discounted future cash flows. Any impairment arising on this comparison is reflected as a charge in the statements of income.
RESULTS FROM INVESTMENTS IN AFFILIATED COMPANIES
The amount included in this account refers to the contribution made to net income by companies in which we have a direct or indirect interest using the equity method.
INCOME TAXES
The amount of income tax included in the statements of income is based upon income before tax in accordance with our interpretation of applicable regulations and rates, taking into account permanent differences between the income for book purposes and for tax purposes.