At the end of 2006 the IASB published IFRS 8 “Operating Segments”. Application of the standard is mandatory for financial years beginning on or after 1 January 2009. The structure and contents of segment reporting will then be adapted to those used for the reports presented regularly to internal decision-making bodies. From 2009 onwards, the primary earnings indicator in segment reporting will be the operating result, instead of the segment result under IAS 14 as reported to date. Moreover, the first-time application will not have a material effect on the net assets and financial and earnings position of the Lufthansa Group.
In 2007 and in May 2008, amendments to IAS 23 Borrowing Costs were adopted, which are mandatory for financial years beginning on or after 1 January 2009. The option of either capitalising or recognising in profit or loss borrowing costs occurring in close connection with the financing of the purchase or production of an asset was replaced with the obligation to capitalise them. The amendment to IAS 23 in May 2008 also specified that the corresponding interest expense is to be determined using the effective interest method.
The main effects on the net assets, financial and earnings position of the Group will come from the capitalisation of financing costs for advance payments on aircraft orders placed after 1 January 2009.
In September 2007, the IASB published the revised version of IAS 1 “Presentation of Financial Statements”. The new version requires the presentation of a statement of comprehensive income in the future, including “other comprehensive income”, i.e. income and expenses previously recognised in equity without effect on the income statement. The amount of income tax payable on each component is also to be disclosed.
The application of IAS 1 (revised) is mandatory for financial years beginning on or after 1 January 2009. The standard will affect the presentation of the financial statements, but not the net assets and financial and earnings positions of the Lufthansa Group.
In January 2008, the revised versions of IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements were published. The new IFRS 3 includes rules on the scope of application, components of acquisition cost, on dealing with minority interests and goodwill and on the recognition of assets, liabilities and contingent liabilities. The standard also covers accounting for loss carry-forwards and the classification of contracts of the acquired company.
The new IAS 27 makes it obligatory to apply the “economic entity approach” to the purchase and disposal of equity stakes once the possibility of control has been acquired and while it is maintained. This means that transactions with minority shareholders are to be recognised in equity and not through profit or loss. For successive share purchases which result in the control of a company, or when shares are sold, resulting in the loss of control, the standard requires that the shares already or still held are revalued at fair value through profit or loss.
The revised versions of IFRS 3 and IAS 27 will primarily be applied prospectively for financial years beginning on or after 1 January 2010. Depending on the type and scope of future transactions, they may affect the net assets and financial and earnings position of the Lufthansa Group.
Amendments to IFRS 2 Share-based Payment on Vesting Conditions and Cancellations were also published in 2008. The new regulations contain a more precise definition of the conditions for exercising options rights in share-based remuneration agreements as well as rules on cancelling share-based payment agreements. The amendments to IFRS 2 are to be applied for financial years beginning on or after 1 January 2009, and are currently not relevant for the Lufthansa Group.
In February 2008, the IASB adopted amendment to IAS 32 “Financial Instruments: Presentation” and IAS 1 “Presentation of Financial Statements” entitled “Puttable Financial Instruments and Obligations Arising on Liquidation”. This new version of IAS 32 allows, under certain conditions, instruments puttable under the terms of a company agreement to be treated as equity. For instance, shares in the German partnerships, among other things, can be treated as equity if they entitle the partner to a share of the net assets on liquidation. Application of the amendments is mandatory for financial years beginning on or after 1 January 2009.
The amendments are unlikely to have any effects on the Lufthansa Group’s net assets and financial and earnings position.
In May 2008, various other amendments to existing standards were published, which are mostly only applicable to the Lufthansa Group from the 2009 financial year onwards. To the extent that amendments described hereafter are only applicable from a later date, this will be specifically mentioned.
The amendment to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations makes it clear that even in the event of a partial disposal that leads to the loss of possible control over a consolidated company, all the assets and liabilities of the consolidated company are to be reclassified as “held for sale”. The amendment is binding for financial years beginning on or after 1 July 2009.
The amendment to IAS 1 Presentation of Financial Statements makes it clear that financial debt not primarily classified as “held for trading” is to be categorised as current or non-current in line with general provisions.
IAS 16 Property, Plant and Equipment and IAS 7 Statement of Cash Flows have been amended in respect of the recognition of property, plant and equipment and proceeds from the disposal of property, plant and equipment generally sold on the expiry of their lease to third parties.
A further amendment to IAS 19 Employee Benefits specifies the criteria for distinguishing negative past service cost from curtailments to pension plans and short-term from long-term benefits to employees.
The amendment to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance stipulates that the difference between the interest rate on a public loan and the market rate is to be treated as a grant in accordance with IAS 20.
The amendment to IAS 27 Consolidated and Separate Financial Statements makes it clear that financial instruments recognised at fair value in line with IAS 39 are still to be recognised at fair value even in the event that they are classified as held for sale under IFRS 5.
The amendment to IAS 28 Investments in Associates and correspondingly to IAS 32 Financial Instruments Presentation and IFRS 7 Financial Instruments: Disclosures, makes it clear that for the purposes of impairment testing the shareholding in an associated company is to be considered as a single asset and that impairment losses are to be reversed as necessary.
The amendment to IAS 38 Intangible Assets deals with more precise rules on straight-line depreciation and amortisation and clarifies those cases in which an advance payment is to be considered an intangible asset.
The amendment to IAS 39 Financial Instruments: Recognition and Measurement, defines when the reclassification of financial instruments between the categories “at fair value through profit and loss” and “held for trading” is permitted and when not.
Following the amendments to IAS 40 Investment Property and IAS 16 Property, Plant and Equipment, internally generated property, which on the basis of its future use is to be considered as a financial investment, no longer comes under the scope of IAS 16, but under IAS 40 from the outset. Other amendments relate to subsequent measurement under IAS 40.
The amendments to existing standards published in May 2008 and described above will not have any or any significant effect on the net assets, financial and earnings position of the Group.
In July 2008 additions were published to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items. The additions define the conditions under which inflationary risks can be hedged as a hedged transaction as well as ways of using options as a hedging instrument for hedging unilateral risks. These provisions are not currently relevant to the Lufthansa Group.
IFRIC 13 Customer Loyalty Programmes is mandatory for financial years beginning on or after 1 July 2008. From this point on, unused air miles distributed as part of bonus miles programmes in the Lufthansa Group are to be recognised at fair value using the deferred revenue method. Compared to the additional cost method applied today, this will result in a considerably higher deferred value per mile. Following the switch to IFRIC 13, the obligation for bonus miles programmes increases as of 1 January 2009 from EUR 1,026m to EUR 1,454m, deferred tax liabilities decrease by EUR 103m and equity falls by EUR 325m. The average value of each deferred mile rises from EUR 0.0051 to EUR 0.0073. If IFRIC 13 had been applied in 2008, profit before taxes would have been EUR 74m lower and profit after taxes EUR 57m lower.
The interpretation IFRIC 15 Agreements for the Construction of Real Estate defines those transactions for which IAS 18 Revenue and those for which IAS 11 Construction Contracts is to be applied. The interpretation is binding for financial years beginning on or after 1 January 2009.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation deals with the balance sheet disclosure of hedges for investments in companies whose functional currency is not the Group currency. IFRIC 16 is binding for financial years beginning on or after 1 October 2008.
IFRIC 17 Distribution of Non-cash Assets to Owners covers distributions in kind to third parties and is applicable for financial years beginning on or after 1 July 2009.
IFRIC 18 Transfers of Assets from Customers was published in January 2009, primarily for the benefit of the energy sector.
IFRIC 15, 16, 17 and 18 are not currently relevant for the Lufthansa Group.