Content and Presentation
The Consolidated Financial Statements of the Edison Group at December 31, 2010 comply with the requirements of the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB), as published in the Official Journal of the European Union (O.J.E.U.).
Amendments to the international accounting principles and interpretations applicable as of January 1, 2010, that have not had a significant impact on the Consolidated Financial Statements except for IFRIC 12, are reviewed below:
- IFRIC 12 “Service Concession Arrangements” is an interpretation applicable to the financial statements of private-sector companies that operate activities of public interest on a concession basis, when the grantor (i) controls/regulates, by determining their price, which public utility services must be provided by the operator through infrastructures that the operator manages under concession or builds; and (ii) controls, through ownership or otherwise, the concession itself and any other residual interest in the infrastructures when the concession expires. Within the Edison Group, this interpretation applies exclusively to the low-pressure natural gas distribution operations. Uncertainty about the historical regulatory framework, coupled with the fact that the Group acquired control of most of the concessions through acquisitions, made a retrospective adoption impractical. For this reason, the Group opted for a prospective adoption. On the date of first-time adoption, the affected infrastructures, which were carried as part of “Property, plant and equipment” at a value of 72 million euros, were reclassified under “Other intangible assets.” The manner in which the rate charged for the services provided on a concession basis is structured makes it impossible to separate the margin attributable to the construction activity from the margin attributable to the operating activity. Therefore, given the fact that a significant portion of the construction work is performed by contractors, the corresponding investments are recognized as “Other intangible assets” based on the cost incurred, net of any compensation the grantor of the concession or private parties. Consistent with IAS 11 “Construction Contracts”, these costs are capitalized indirectly through income statement. At December 31, 2010 Edison Group recognized revenues and costs for about 5 million euros, with no impact on profit. The amount recognized in “Other intangible assets,” net of the estimated recoverable amount at expiration of the concessions, is amortized over the remaining duration of the concessions.
- IFRS 1 revised, pursuant to which parties who adopt the IFRS principles for the first time must prepare a First-time Adoption document.
- Amendments to IFRS 2 concerning the accounting for Group Cash-settled Share-based Payment Transactions and concurrent withdrawal of IFRIC 8 and IFRIC 11.
- IFRS 3 revised, which introduces changes on how business combinations should be recognized, including the following: a) in case when the acquisition of control is achieved in multiple phases, the fair value of the equity interest held must be remeasured; b) transactions executed with third parties subsequent to the acquisition of control, and assuming that control will be maintained, must be recognized in equity; c) acquisition costs must be charged immediately to income; d) changes in contingent consideration are recognized in profit or loss.
- IAS 27 revised, concerning the valuation of investments in associates in case of increases or decreases in the interest held. If there is a change in the interest held but no loss of control, the effects must be recognized in equity. If there is loss of control, the remaining interest held must be measured at its fair value.
- IFRIC 15 “Agreements for the Construction of Real Estate” does not apply to the Group at this point.
- IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”. This interpretation applies to those cases in which a company wants to hedge the foreign exchange risk entailed by an investment in a foreign entity and qualify this transaction as a hedge pursuant to IAS 39.
- IFRIC 17 “Distribution of Non-cash Assets to Owners”. This interpretation clarifies when a dividend should be recognized, how it should be valued and, when the dividend is distributed, how to recognize any difference between the carrying amount of the distributed assets and the carrying amount of the distributable dividend.
- IFRIC 18 “Transfers of Assets from Customers.” This interpretation deals with how the assets or cash payments received from customers for connecting them to a distribution network should be recognized. IFRIC 18 is applicable only by parties who are not required to adopt IFRIC 12.
- Other marginal amendments to other accounting principles and interpretations.
For the sake of full disclosure, it is important to point out that certain marginal amendments to the international accounting principles and interpretations published in the O.J.E.U during 2010, that will not cause significant impacts on the Consolidated Financial Statements, will be applicable starting in 2011. They include the following:
- IAS 24 revised, which requires additional disclosures concerning related-party commitments;
- IFRIC 14 “Prepayments of a Minimum Funding Requirement;”
- IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments.”
The publication of these consolidated financial statements was authorized by the Board of Directors on March 21, 2011. The Consolidated Financial Statements were audited by PricewaterhouseCoopers Spa in accordance with a three-year assignment (from 2005 to 2007) it received from the Shareholders’ Meeting of April 19, 2005, later extended up to the approval of the financial statements at December 31, 2010.
Unless otherwise stated, all amounts in these accompanying notes are in millions of euros.
Presentation Formats of the Financial Statements Adopted by the Group
The presentation formats chosen by the Group for its financial statements incorporate the changes required by the adoption of “IAS 1 Revised 2008”. The financial statements have the following characteristics:
- The Consolidated Income Statement is a step-by-step income statement, with the different components broken down by nature. It includes a schedule of Other Components of the Comprehensive Income Statement, which shows the components of net profit or loss provisionally recognized in equity.
- In the Consolidated Balance Sheet assets and liabilities are analyzed by maturity. Current and noncurrent items, which are due within or after 12 months from the end of the reporting period, respectively, are shown separately.
- The Cash Flow Statement shows the cash flows in accordance with the indirect method, as allowed by IAS 7.
- The Statement of Changes in Consolidated Shareholders’ Equity shows separately the flows from component of the reserve for other components of comprehensive income.
Please note that the comparative data at December 31, 2009 shown in the balance sheet (“Property, plant and equipment” and “Other intangible assets”) and income statement are being re-presented exclusively for comparison purposes to reflect the adoption of IFRIC 12.