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Significant transaction after the balance sheet date Services of the auditors of the consolidates financial statements Remuneration of Executive and Supervisory members Related parties International Financial Reporting Standards (IFRS)...

Significant transactions after the balance sheet date

At the end of September 2009, TUI Travel PLC issued convertible bonds worth £350m sterling, with 100.2m shares in TUI Travel PLC as underlying at the issuing date. The bonds carry a coupon of 6.0% per annum and have a maturity of five years. This capital market transaction was completed on 5 October 2009.

In this context, TUI AG acquired shares in TUI Travel PLC in order to counter a potential dilution of the controlling majority in the event that all conversion options are exercised. In the completed financial year, 10 million shares in TUI Travel PLC were acquired to this end. At the beginning of the 2009/10 financial year, a further 21.9 million shares in TUI Travel PLC were acquired to secure the controlling majority.

On 3 October 2009, TUI Travel PLC agreed with Boeing to cancel 10 B787s from its order book.

In early October, TUI Travel PLC took a 9.9% stake in Air Berlin PLC, fully prepaid in the short financial year 2009. At the end of October 2009, the city route network of TUIfly was transferred to Air Berlin. To this end, Air Berlin will initially charter 13 aircraft and crews from TUIfly and then 14 from summer 2010 onwards.

At the end of October 2009, TUI AG issued convertible bonds cum rights worth an aggregate nominal value of €217.8m, with initially 38.7 million shares in TUI AG underlying the bonds at the issuing date. The coupon has been set at 5.5% per annum, payable semi-annually in arrears. The maturity of the convertible bonds is five years. This financing measure was completed on 17 November 2009.

Apart from these transactions, no further material transactions were resolved, initiated or implemented in the post-balance sheet period under review, i.e. the period between balance sheet date and the date of release of the consolidated financial statements for puplication by the Executive Board on 1 December 2009.

Services of the auditors of the consolidated financial statements

Total expenses of €3.8m were carried for the services provided by the auditors of the consolidated financial statements, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, in the short financial year 2009. Of this total, €1.8m related to audits, €1.3m to other attestation or measurement services and €0.7m to other services provided for TUI AG or its subsidiaries.

Remuneration of Executive and Supervisory Board members

In the financial year under review, total remuneration paid to Executive Board members totalled €9,412.8 thousand (previous year: €16,786.6 thousand).

In the framework of the long-term incentive programme, the Executive Board members did not receive a compensation (previous year: €3,482.4 thousand) for the short financial year under review. The amount attributable to Executive Board members based in Germany in the previous year was translated into 237,696 phantom stocks in TUI AG in March 2009.

Pension provisions for active Executive Board members totalled €22,331 thousand as at the balance sheet date (previous year: €20,259 thousand).

Total remuneration for Supervisory Board members in the financial year under review amounted to €2,256.7 thousand (previous year: €1,695.2 thousand).

Remuneration for former Executive Board members or their surviving dependants totalled €3,033.3 thousand (previous year: €4,445 thousand) in the financial year under review. Pension obligations for former Executive Board members and their surviving dependants amounted to €43,361.1 thousand (previous year: €41,628.6 thousand) at the balance sheet date.

Disclosures of the relevant amounts for individual Board members and further details on the remuneration system are provided in the Remuneration Report included in the management report.

Related parties

Apart from the subsidiaries included in the consolidated financial statements, TUI AG, in carrying out its ordinary business activities, maintained indirect or direct relationships with related parties. Related parties controlled by the TUI Group or over which the TUI Group is able to exercise a significant influence are listed in the list of shareholdings published in the electronic Federal Gazette (www.ebanz.de). Apart from pure equity investments, related parties also included companies that supplied goods or provided services for TUI Group companies.

Transactions with related parties (excl. key management)

Transactions with related parties (excl. key management)

Transactions with associated companies in which shareholdings were held and joint ventures were primarily effected in the Tourism Division. They related in particular to the tourism services of the hotel companies used by the Group’s tour operators.

All transactions with related parties were executed on an arm’s length basis, based on international comparable uncontrolled price methods in accordance with IAS 24.

Liabilities to related parties did not comprise any liabilities from finance leases, as in 2008. Receivables and liabilities existing as at the balance sheet date were comprised in receivables from and liabilities to non-consolidated Group companies and associated companies.

The income and expenses resulting from equity investments and financing were carried under the financial result for all consolidated companies and presented in the segment report for the individual divisions, alongside a separate presentation of the earnings of associated companies by division.

As at the balance sheet date, the associated company RIU Hoteles S.A. held 5.1% of the shares in TUI AG. Ms Carmen Riu Güell was a member of TUI’s Supervisory Board and indirectly held 5.1% of the shares in TUI AG.

In accordance with IAS 24, key management functions within the Group, the Executive Board and the Supervisory Board were related parties whose remuneration had to be listed separately.

Remuneration of Management, Executive and Supervisory Board

Post-employment benefits were transfers to pension provisions for active Executive Board members. These expenses did not meet the definition of Executive and Supervisory Board remuneration under the German Corporate Governance Code.

International Financial Reporting Standards (IFRS) and Interpretations (IFRIC)

The following standards and interpretations have already been transposed into EU legislation but will only be mandatory for annual financial statements after 30 September 2009:
 

Amendments to IAS 39: ‘Financial Instruments: Recognition and Measurement’

The amendments published in July 2008 relate to the conditions under which inflation risks may be hedged as underlying transactions in the framework of hedges and the possibility to use options as a hedge to hedge against unilateral risks. The TUI Group is currently examining the potential impact on the TUI Group’s net assets, financial position and results of operations.

IFRIC 12: ‘Service Concession Arrangements’

IFRIC 12 was published in November 2006 and explains accounting for concession arrangements with governments or similar institutions to provide public services, e.g. roads, prisons or energy distribution networks. Two types of arrangement are distinguished, resulting in accounting as a financial asset or as an intangible asset. A financial asset is recognised if the company receives the consideration from the government. By contrast, an intangible asset must be carried if the company receives a right to charge users of the public service as consideration. TUI AG is currently examining the potential impact of this interpretation on the Group’s net assets, financial position and results of operations.

IFRIC 15: ‘Agreements for the Construction of Real Estate’

IFRIC 15, published in July 2008, serves to establish recognition of revenue for agreements for the construction of real estate in the financial statements of real estate developers. If the developer sells goods, i.e. completed apartments or houses, the revenue is recognised in line with the transfer of risks. This usually corresponds to the completion of the construction of the real estate. If, however, the agreement is arranged as a services agreement, the revenue is recognised on a percentage-of-completion basis as construction progresses. Potential impacts on future financial statements of the TUI Group are still being examined.

IFRIC 16: ‘Hedges of a Net Investment in a Foreign Operation’

IFRIC 16 was published in July 2008. It clarifies that a risk position can only arise from the translation of the functional currency of the subsidiary into the functional currency of the parent company but that a risk may not arise from translation into the presentation currency of the parent company. The interpretation also sets out that the hedging instrument may be held by any entity within the group and explains how to determine the amounts to be reclassified to the profit and loss statement when an entity disposes of subsidiaries. Current accounting of hedges in connection with net investments already fully complies with these provisions so that the application of this interpretation will not affect the TUI Group’s net assets, financial position and results of operations.

Amendments, standards and interpretations published by the IASB but not yet transposed into European legislation:
 

Amendments to IFRS 1: ‘First-time Adoption of IFRS’

The amendments, published in November 2008, exclusively change the structure of the previous standard to enhance its comprehensibility. These amendments do not affect the TUI Group’s annual financial statements.

Amendments to IFRS 1: ‘Additional Exemptions for First-Time Adopters’

Additional exemptions relating to the general principle of mandatory retrospective application of all standards and interpretations applicable at the closing date as at the date of first-time preparation of IFRS-based financial statements were published in July 2009. They relate to companies in the oil and gas sector and first-time adopters applying the transitional provisions of IFRIC 4. This amendment is therefore not relevant for the TUI Group.

Amendments to IFRS 2: ‘Group Cash-Settled Share-Based Payment Transactions’

The amendments, published in June 2009, clarify that companies that receive goods or services in share-based payment arrangements have to account for those goods or services, no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. Since IFRS 2 also incorporates guidance previously included in IFRIC 8 and IFRIC 11, these two interpretations have been withdrawn. TUI AG is currently examining the potential impact of these interpretations on the Group’s net assets, financial position and results of operations.

Amendments to IFRS 7: ‘Enhanced Disclosures about Financial Instruments’

The amendments, published in March 2009, require enhanced disclosures about fair value measurement of financial instruments and liquidity risks. These enhanced disclosures in the notes have to be presented prospectively and do not require comparative prior period disclosures in the first year. They will be presented accordingly in the TUI Group’s consolidated financial statements.

IFRS 9: ‘Financial Instruments: Classification and Measurement’

The purpose of the standard, issued in November 2009, is to replace IAS 39 in the medium term following further revisions. For the time being, the new requirements of IFRS 9 exclusively relate to financial assets. In future, based on the individual entity’s ‘business model’, these assets will only be divided into two classifications rather than four (those measured at amortised cost and those measured at fair value). According to the new standard, embedded derivatives will no longer be separated from the financial host asset but instead will be assessed with the financial host asset in its entirety, and reclassifications will no longer be permitted unless they result from changes in the entity’s business model. In addition, aiming to simplify existing rules, the new standard only allows for one single method to determine impairments for all financial assets and provides a general ban on the reversal of impairments. It also comprises a large number of additional amendments, most of which are provided in order to simplify existing rules. The TUI Group is currently examining potential effects on the TUI Group’s net assets, financial position and results of operations.

Amendment to IAS 24: ‘Related Party Disclosures’

The revision, dated November 2009, simplifies the reporting obligations on state-controlled entities. Moreover, the definition of related parties has been fundamentally revised. Due to the changed definition, the TUI Group will, in particular, provide more comprehensive disclosures on relationships between subsidiaries and associated companies within the Group.

Amendment to IAS 32: ‘Classification of Rights Issues’

Due to the amendment, issued in October 2009, IAS 32 will be changed such that rights, options and warrants for a fixed number of own shares offered for a fixed amount of foreign currency should be classified as equity if they are issued pro rata to an entity’s all existing shareholders in the same class. The potential impact on the TUI Group is currently being examined.

Amendments to IFRIC 9 and IAS 39: ‘Embedded Derivatives’

These amendments relate to companies that make use of the reclassification amendment introduced in October 2008. It is clarified that a corresponding reclassification of financial assets out of the ‘fair value through profit or loss’ category triggers a mandatory reassessment of the embedded derivatives. Since the TUI Group does not make use of reclassification, these amendments will not affect future consolidated financial statements.

Annual Improvements Project (2009)

The annual improvements project published in April 2009 consists of a total of 12 amendments. For IAS 1, for instance, it is clarified that in the event of existing options of a counterparty to demand settlement of liabilities by the issue of equity instruments these liabilities do not necessarily have to be classified as current. It is also clarified that leases of land can be classified both as operating leases and finance leases. Most of the remaining amendments relate to clarifications concerning the presentation, recording and measurement of items in the financial statements. TUI AG is currently examining all potential impacts on future consolidated financial statements.

IFRIC 17: ‘Distributions of Non-Cash Assets to Owners’

IFRIC 17 was published in November 2008 in order to clarify questions related to the accounting practice for distributions of non-cash assets. It clarifies that a ­dividend payable has to be recognised when the dividend is authorised and that a dividend payable has to be measured at the fair value of the non-cash net assets. The difference between the carrying amount and the fair value of the assets has to be recognised in profit or loss. This interpretation has to be applied prospectively, and potential future impacts will be taken into account accordingly.

IFRIC 18: ‘Transfers of Assets from Customers’

IFRIC 18, published in January 2009, provides guidance on how to account for and recognise revenue for agreements in which an entity receives from a customer assets or cash to acquire assets in order to subsequently provide services (e.g. connecting the customer to a network to supply electricity, gas or water). This interpretation mainly relates to entities in the utility sector and is not relevant for the TUI Group.