Financial Statements Accounting principles
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Accounting principles
In accordance with IAS 34 ‘Interim Financial Reporting’, the Group’s interim financial statements as at 30 September 2008 were published in a condensed form compared with the consolidated annual financial statements. As before, they were based on the historical cost principle, the only exception being the accounting method applied in measuring financial instruments.
Interpretation IFRIC 11 – ‘IFRS 2 - Group and Treasury Share Transactions’ –, published by the IASB, has been applicable since the beginning of the 2008 financial year. The application of this interpretation did not have any effects on the interim financial statements as at 30 September 2008. In addition the amendments of IAS 39 and IFRS 7 regarding the reclassification of financial instruments had to be applied since 1 July 2008. Also these amendments did not have any effect on the present interim financial statements.
The interim financial statements as at 30 September 2008 were prepared in accordance with the same accounting and measurement principles as those applied in the preceding consolidated financial statements as at 31 December 2007.
Since the beginning of the third quarter of 2008, the effects of hedges entered into in order to hedge against exposure to currency risks arising from the translation of the functional currency of container shipping into euro have been separately carried in equity under’Currency translation differences’ (Hedge of a net investment in a foreign operation).
Basis of consolidation
The consolidated financial statements included all major subsidiaries in which TUI AG was able to directly or indirectly govern the financial or operating policies such that the Group obtained benefits from the activities of these companies.
The interim financial statements as at 30 September 2008 included a total of 44 domestic and 718 foreign subsidiaries, besides TUI AG. Since 1 January 2008, one company has been newly included in consolidation due to an expansion of its business operations. Additions also included two newly established companies and an additional 41 companies newly included in consolidation due to acquisitions. All additions to consolidation related to the tourism division.
Eleven companies were deconsolidated as against 31 December 2007. Five of these companies related to the shipping division. They were deconsolidated due to liquidation (two companies), a reduction in their business operations (two companies) or a merger (one company). An additional five companies were removed from consolidation in the tourism division due to merger, liquidation or accrual (one company each) and divestments (two companies). In addition, one company was deconsolidated in central operations due to a merger.
Acquisitions – divestments
In the first nine months of the 2008 financial year, 41 tourism companies (of which in Q3 2008: 11) were acquired at acquisition costs (including ancillary costs) amounting to the equivalent of € 112.1 million (of which in Q3 2008: € 22.1 million).
Summary presentation of the acquisitions
| Name and headquarters of the acquired company |
Business activity |
Acquirer |
Date of acquisition |
Acquired share |
Acquisition costs1) € million |
|---|---|---|---|---|---|
| Active Safary Pty. Ltd., West Leederville, Australia, and its interest in one company | Special tour operator for Australia | Trek America Travel Ltd. | 21 Jan 08 | each 100% | 1.1 |
| Destination Florida-New England, Inc., Florida, US and its interest in one company | Provider of services for cruise companies | First Choice Holdings, Inc. | 17 Jan 08 | each 100% | 4.8 |
| Gullivers Group Ltd., Tewkesbury, UK and its interest in one company | Special tour operator | TUI Travel PLC | 29 Feb 08 | each 100% | 20.2 |
| Your Sporting Challenge Ltd., Southampton, UK | Special tour operator | TUI Travel PLC | 19 Mar 08 | 100% | 0.3 |
| Real Travel Ltd., Tunbridge Wells, UK and its interest in three companies | Special tour operator | TUI Travel PLC | 03 Apr 08 | each 100% | 14.3 |
| World Challenge Holdings Ltd., London, UK and its interest in seven companies | Special tour operator | TUI Travel PLC | 29 Apr 08 | each 100% | 25.4 |
| Sportsworld Holdings Ltd., Reading, UK and its interest in nine companies | Special tour operator | TUI Travel PLC | 13 May 08 | each 100% | 18.3 |
| Travelmood Ltd., London, UK | Special tour operator | TUI Travel PLC | 02 Jun 08 | 100% | 5.6 |
| Société Polynésienne Promotion Hoteliére S.A.S., Tamanu, Polynesia | Hotel company | Touraventure S.A. | 01 July 08 | 50%2) | 1.9 |
| FanFirm Pty Ltd, Sydney, Austrialia and its interest in three companies | Special tour operator | TUI Travel PLC | 12 Aug 08 | each 100% | 15.3 |
| Hotels London Ltd., Hertfordshire, UK | Online Booking Service | Late Rooms Ltd. | 01 Sep 08 | 100% | 1.4 |
| Events International Ltd., Hereford, UK and its interest in four companies | Special tour operator | Gullivers Group Ltd. | 30 Sep 08 | each 100% | 3.5 |
| Total | 112.1 | ||||
1) The acquisition costs in foreign currencies were translated into € and also comprised the incidental costs.
2) After the acquisition of the remaining 50% the TUI Group now holds all interests in its former joint venture.
In some cases, acquisition costs also comprised the best possible estimates of additional purchase price elements depending on future events, in addition to the purchase prices already paid.
Summary presentation of the first-time consolidation balance sheets
| € million (translated) |
Carrying amounts as at acquisition date |
Revaluation of assets and liabilities |
Revalued carrying amounts at date of first- time con- solidation |
|---|---|---|---|
| Other intangible assets | 0.1 | 67.6 | 67.7 |
| Property, plant and equipment | 7.3 | – | 7.3 |
| Investment property | 0.0 | – | 0.0 |
| Fixed assets | 7.4 | 67.6 | 75.0 |
| Inventories | 1.9 | – | 1.9 |
| Receivables and other assets including prepaid expenses | 38.3 | – | 38.3 |
| Cash and cash equivalents | 27.1 | – | 27.1 |
| Deferred tax provisions | 0.0 | 19.0 | 19.0 |
| Other provisions | 5.8 | – | 5.8 |
| Financial liabilities | 18.5 | – | 18.5 |
| Liabilities and deferred income | 78.2 | – | 78.2 |
| Equity | - 27.8 | 48.6 | 20.8 |
The difference of € 86.8 million between the acquisition costs and the acquired revalued net assets as at the acquisition date was temporarily carried as goodwill in each case.
Since the companies were acquired shortly before the present interim financial statements of the TUI Group were prepared, the purchase price allocation to the individual assets and liabilities was only effected on a preliminary basis and no further disclosures in accordance with IFRS 3 are made.
The determination of the fair values of acquired assets and contingent liabilities, prepared on a preliminary basis in connection with the merger between TUI’s tourism division and the British travel group First Choice Holidays PLC effected in September 2007, was finalised in the third quarter of 2008 within the period of twelve months from the acquisition date allowed under IFRS 3. Comparative reference information for reporting periods prior to the completion of the first-time recognition of the acquisition transaction must be presented retrospectively as if the purchase price allocation had already been completed as at the acquisition date. The table below provides an overview of the final purchase price allocation.
First Choice Holidays Group
|
|
Carrying amounts as at acquisition date £ million |
€ million |
Revaluation of assets and liabilities £ million |
€ million |
Revalued carrying amounts at date of first-time consolidation £ million |
€ million |
|---|---|---|---|---|---|---|
| Goodwill | 697.5 | 1,030.9 | - 697.5 | - 1,030.9 | – | – |
| Other intangible assets | 109.4 | 161.7 | 541.5 | 800.3 | 650.9 | 962.0 |
| Property, plants and equipment | 268.0 | 396.1 | - 0.6 | - 0.9 | 267.4 | 395.2 |
| Investment property | 35.2 | 52.0 | – | – | 35.2 | 52.0 |
| Fixed assets | 1,110.1 | 1,640.7 | - 156.6 | - 231.5 | 953.5 | 1,409.2 |
| Inventories | 21.6 | 31.9 | – | – | 21.6 | 31.9 |
| Trade receivables | 271.9 | 401.9 | – | – | 271.9 | 401.9 |
| Other receivables and other assets including prepaid expenses | 388.0 | 573.4 | - 31.3 | - 46.3 | 356.7 | 527.1 |
| Deferred taxes | 1.3 | 1.9 | 15.2 | 22.5 | 16.5 | 24.4 |
| Cash and cash equivalents | 322.4 | 476.5 | – | – | 322.4 | 476.5 |
| Pension provisions | 7.0 | 10.3 | – | – | 7.0 | 10.3 |
| Effective and deferred tax provision | 24.4 | 36.1 | 164.8 | 243.5 | 189.2 | 279.6 |
| Other provisions | 53.1 | 78.5 | 20.5 | 30.3 | 73.6 | 108.8 |
| Financial liabilities | 559.9 | 827.5 | – | – | 559.9 | 827.5 |
| Trade accounts payable | 674.3 | 996.6 | – | – | 674.3 | 996.6 |
| Other liabilities | 545.5 | 806.2 | - 12.1 | - 17.9 | 533.4 | 788.3 |
| Equity | 251.1 | 371.1 | - 345.9 | - 511.2 | - 94.8 | - 140.1 |
| thereof minority interests | 0.9 | 1.3 | – | – | 0.9 | 1.3 |
The goodwill arising in the consolidated balance sheet from the elimination of the acquisition costs against the prorated revalued equity, taking account of minority interests, rose by GBP 14.0 million (€ 17.6 million) to GBP 839.6 million (€ 1,054.6 million) due to changes in the purchase price allocation. The goodwill mainly represents a portion of the expected synergy potential. Consolidated earnings in the third quarter of 2007 declined by GBP 0.3 million (€ 0.5 million) due to the adjustments of the purchase price allocation, with € 0.23 million attributable to minority interests.
In the present consolidated financial statements the purchase price allocations for the acquisitions of Holidays Services S.A. (Morocco), Starquest Expeditions Inc. (US), New Horizons Tour & Travel Inc. (US), Travel Turf Inc. (US) and Asiarooms PTE. Ltd. (Singapore), effected in the 2007 financial year, were also completed within the mandatory period of twelve months stipulated by IFRS 3. The translated summary first-time consolidation balance sheet arising from these acquisitions is presented below:
Summary presentation of the final first-time consolidation balance sheets
|
€ million (translated) |
Carrying amounts as at acquisition date |
Revaluation of assets and liabilities |
Revalued carrying amounts at date of first-time consolidation |
|---|---|---|---|
| Other intangible assets | 0.4 | 38.0 | 38.4 |
| Property, plant and equipment | 6.8 | - 1.8 | 5.0 |
| Investment property | 1.2 | – | 1.2 |
| Fixed assets | 8.4 | 36.2 | 44.6 |
| Inventories | 0.2 | – | 0.2 |
| Receivables and other assets including prepaid expenses | 13.9 | - 1.7 | 12.2 |
| Cash and cash equivalents | 22.0 | - 0.1 | 21.9 |
| Deferred tax provisions | – | 3.6 | 3.6 |
| Other provisions | 3.0 | - 1.1 | 1.9 |
| Financial liabilities | 4.7 | - 0.9 | 3.8 |
| Liabilities and deferred income | 44.0 | 6.8 | 50.8 |
| Equity | - 7.2 | 26.0 | 18.8 |
The goodwill arising in the consolidated balance sheet from the elimination of the purchase price for the acquisition of around 40.2% of the shares in Holidays Services S.A. against the prorated revalued equity rose by € 0.3 million to € 3.1 million due to changes in the purchase price allocation and after elimination of minority interests.
Other purchase price allocations completed in the third quarter of 2008 resulted in a reduction in goodwill in the consolidated balance sheet of € 13.4 million due to the elimination of the acquisition costs against the prorated revalued equity.