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Consolidated financial statements at 31 December 2011 Ferrovial S.A. and Subsidiaries c. Held-to-maturity investments and accounts receivable: Financial asset model provided for in IFRIC 12 This line item includes the service concession arrangements related to infrastructure in which the consideration consists of an unconditional contractual right to receive cash or another financial asset, either because the grantor guarantees to pay the operators specified or determinable amounts or because it guarantees to pay the operator the shortfall between amounts received from users of the public service and specified or determinable amounts. Therefore, these are concession arrangements in which demand risk is borne in full by the grantor. In these cases, the amount payable by the grantor is recognised in assets in the consolidated statements of financial position as a loan or a receivable. To calculate the amount payable by the grantor, the value of the construction, operation and/or maintenance services provided and the interest implicit in arrangements of this nature are taken into consideration. Revenue from the services provided in each period increases the amount of the related receivables with a credit to sales. The interest on the consideration for the services provided increases the amount of the receivables with a credit to other operating income. Amounts received from the grantor reduce the total receivable with a charge to cash. Set forth below are details of the main toll road concessions in force to which the financial asset model is applied, showing their duration and the consolidation method applied: Concession Country Concession First year of Consolidation operator term concession method ii. Terrasa Manresa Spain 50 1986 Full Toll Road Norte Litoral Toll Spain 30 2001 Full Road Eurolink M3 Ireland 30 2003 Full Financial assets are derecognised when the risks and rewards of ownership of the financial asset are substantially transferred. In the specific case of receivables, this is deemed to occur when the default and delinquency risks have been transferred. 3.3.8 Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date they are arranged. Subsequent changes in fair value are also recognised at each reporting date. The method used to recognise gains or losses on derivatives depends on whether the instrument has been designated as a hedging instrument and, as the case may be, on the type of hedge involved. The Group uses the following types of hedge: i. Cash flow hedge: a cash flow hedge hedges exposure to highly probable future transactions and changes in cash flows. When there is overhedging (effectiveness of between 80% and 100%), the gain or loss on the ineffective portion of the hedging instrument is taken to the consolidated income statement and the gain or loss on the effective portion is recognised directly in other comprehensive income. When there is underhedging (effectiveness of between 100% and 125%) the gain or loss on the effective portion is recognised in other comprehensive income, while those on the ineffective portion will not have any effect either on other comprehensive income or income statement. The amount deferred in other comprehensive income is not recognised in the income statement until the gains or losses on the hedged transactions are recognised in income statement or until the transactions mature. That amount is recognised in the same line item as the gain or loss on the hedged item. Lastly, should the hedge become ineffective, the amount recognised in other comprehensive income until then is taken to income statement proportionately over the term of the derivative arranged. Fair value hedge: a fair value hedge hedges exposure to changes in the value of a recognised asset or liability or a firm commitment relating to a future transaction. The loss or gain on the hedging instrument and the loss or gain on the hedged asset or liability is recognised in income statement. Other receivables Held-to-maturity investments, loans granted and receivables are initially recognised at fair value and are subsequently measured at amortised cost, and any accrued interest is recognised on the basis of the effective interest rate. The effective interest rate is the discount rate that exactly matches the carrying amount of a financial instrument to all its estimated cash flows of all kinds through its residual life. If at year-end there is objective evidence that not all amounts receivable will be collected, the necessary impairment losses are recognised. The amount of the impairment loss is the difference between the carrying amount of the asset and the present value of the estimated future cash flows, discounted at the effective interest rate. iii. Hedge of net investments in foreign operations: Hedges of this nature hedge exposure to changes in the value of net investments in foreign operations attributable to foreign exchange fluctuations. Gains or losses are recognised in other comprehensive income and taken to income statement when the investment is sold or matures. Gains or losses arising from changes in fair value of derivatives not qualifying for hedge accounting are recognised in the consolidated income statement. Ferrovial, S.A. Consolidated financial statements at 31 December 2011 14
Consolidated financial statements at 31 December 2011 Ferrovial S.A. and Subsidiaries 3.3.9 Business combinations and goodwill Business combinations are accounted for using the acquisition method, whereby the identifiable assets and liabilities of the business acquired are recognised at fair value. Goodwill is the positive difference between the cost of the investment and the fair value of the above-mentioned assets and liabilities. In acquisitions of associates, goodwill generated is treated as an addition to the value of the investment. Goodwill on consolidation is not amortised and is tested for impairment (see Note 3.3.5). 3.3.10 Inventories Inventories are initially recognised at acquisition or production cost. Borrowing costs relating to inventories are capitalised during the construction or production period. Inventories are subsequently measured at the lower of weighted average cost and net realisable value. The Group determines the net realisable value of inventories and recognises all the necessary write-downs where cost exceeds net realisable value. 3.3.11 Cash and cash equivalents Cash and cash equivalents include cash on hand, demand deposits at banks and other short-term, highly liquid investments with an initial maturity of three months or less. “Cash and Cash Equivalents” includes investments of the same nature and with the same maturity assigned to the financing of certain infrastructure projects, where the availability of the cash is restricted by the financing contracts as security for certain payment obligations relating to interest payments or principal repayments as well as infrastructure payments and operation. 3.3.12 Non-current assets classified as held for sale and discontinued operations a. Non-current assets classified as held for sale: noncurrent assets are classified as held for sale when it is considered that their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable, the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification. The total balance of these assets is presented in a single line item and is measured at the lower of the carrying amount of the assets and their fair value less costs to sell. The assets are no longer depreciated once they have been classified as held for sale. Gains or losses on these assets are recognised in the income statement based on the basis of the nature of the related items. An entity that is committed to a sale plan involving loss of control of a subsidiary must classify all the assets and liabilities of that subsidiary as held for sale when the criteria set out in the preceding paragraph are met, regardless of whether the entity will retain a noncontrolling interest in its former subsidiary after the sale. b. Discontinued operations: a discontinued operation is a component of an entity that has either been disposed of or is classified as held for sale, and represents a complete segment for the consolidated Group, is part of a single coordinated plan or is a subsidiary acquired exclusively with a view to resale. The total profit or loss of discontinued operations, for both the current reporting period and those presented comparing with the current period, is presented net of tax in the income statement, comprising the total of: - The post-tax profit or loss of discontinued operations. - The post-tax gain or loss recognised on the disposal. 3.3.13 Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are deducted, net of taxes, from equity. Acquisitions of the Parent’s treasury shares are deducted from equity for the amount of the consideration paid, including the attributable costs associated with the acquisitions. When treasury shares are sold or reissued, any amount received is taken, net of costs, to equity. 3.3.14 Grants Grants are recognised at their fair value when there is reasonable assurance that the grant will be received and the Group fulfils all the conditions attaching to them. Grants related to assets are recognised as non-current liabilities under “Deferred Income”, and are credited to the consolidated income statement on a straight-line basis over the estimated useful lives of the related assets. 3.3.15 Provisions and contingent liabilities The Group recognises a provision for a commitment or obligation to a third party that meets the following requirements: it is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and the amount or timing of which are not known for certain but can be estimated sufficiently reliably. The provisions include most notably the following: Provisions for budgeted losses in the Construction business covering a probable loss identified before completion of the related contract. Provisions for the closure and post-closure of landfills in the Services business, since the Company is required to close the landfill when it reaches maximum capacity. These provisions cover estimated closure costs and waste treatment costs during the post-closure period, in accordance with technical estimates based on the landfill’s capacity, average density and other parameters. A contingent liability is a possible obligation arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the control of the consolidated companies. Ferrovial, S.A. Consolidated financial statements at 31 December 2011 15
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