Pace plc Annual Report and Accounts 2012 - Financial Statements

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Financial StatementsNotesContinued1 Basis of preparation and business environment continuedSignificant judgements, key assumptions and estimation uncertainty continuedOperating segmentsOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operatingsegments, has been identified as the Board of Directors. The Board of Directors has determined that, based on its current internalreporting framework and management structure, it has two reportable segments.Such determination is necessarily judgemental in its nature and has been determined for the preparation of the FinancialStatements. The level of disclosure of segmental and other information is determined by such assessment. Further details of theconsiderations made and the resulting disclosures are provided in Note 3 to the Financial Statements.Intangible assetsThe Group business includes a significant element of research and development activity. Under accounting standards, principallyIAS 38 ‘Intangible Assets’, there is a requirement to capitalise and amortise development spend to match costs to expectedbenefits from projects deemed to be commercially viable. The application of this policy involves the ongoing consideration bymanagement of the forecasted economic benefit from such projects compared to the level of capitalised costs, together withthe selection of amortisation periods appropriate to the life of the associated revenues from the product.Going concernThe Group has borrowing facilities in place until March 2014. At 31 December 2012 these are in the form of a $150 million term loan,which is subject to repayment through instalments of $37.5 million each, due every six months plus a final payment of $75 million,and a $150 million revolver credit facility. These facilities are subject to financial performance covenants which the Group currentlycomplies with.The Group has prepared a financial and working capital forecast based upon trading assumptions and other short-term andmedium-term plans. The Group has sensitised these plans for a number of potential scenarios, including working capital managementand revenue reduction and has concluded that the Group will continue to meet its financial performance covenants and will haveadequate working capital available to continue in operational existence for the foreseeable future.2 Accounting policiesBusiness combinationsControl is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessingcontrol, the Group takes into consideration potential voting rights that currently are exercisable. The acquisition date is the dateon which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whethercontrol is transferred from one party to another.GoodwillGoodwill that arises upon the acquisition of subsidiaries is included in intangible assets.Initial measurementThe Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controllinginterest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed,all measured as of the acquisition date. Consideration transferred includes the fair values of the assets transferred, liabilities incurredby the Group to the previous owners of the acquiree and equity interests issued by the Group. Consideration transferred also includesthe fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in thebusiness combination. If a business combination results in the termination of pre-existing relationships between the Group andthe acquiree, then the lower of the termination amount, as contained in the agreement, and the value of the off-market elementis deducted from the consideration transferred and recognised in other expenses.A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligationand arises from a past event and its fair value can be measured reliably.The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree.Transaction costs that the Group incurs in connection with a business combination such as finder’s fees, legal fees, due diligencefees and other professional and consulting fees, are expensed as incurred.42Annual Report and Accounts 2012 Pace plc
2 Accounting policies continuedGoodwill continuedSubsequent measurementGoodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amountof goodwill is included in the carrying amount of the investment and an impairment loss on such an investment is not allocated toany asset, including goodwill, that forms part of the carrying amount of the equity accounted investee.As permitted by IFRS 1 ‘First-time Adoption of IFRS’, goodwill arising on acquisitions before 29 May 2004 (date of transitionto Adopted IFRS) has been frozen at the UK GAAP amounts subject to being tested for impairment annually. The Group performsits annual impairment review at the cash-generating unit level.Other intangiblesOther intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulatedamortisation and accumulated impairment losses.Amortisation of other intangibles is done on a straight-line basis over the estimated useful economic lives of the particular assetcategories as follows:Customer contracts and relationships three–ten yearsTechnology and patentsOtherResearch and development expenditureone–ten yearsthree yearsAll ongoing research expenditure is expensed in the period in which it is incurred. Where a product is technically feasible, productionand sales are intended, a market exists and sufficient resources are available to complete the project, development costs arecapitalised and subsequently amortised on a straight-line basis over the estimated useful life of the product concerned fromcommercial launch. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion ofoverheads. Where these conditions are not met, development expenditure is recognised as an expense in the period in which it isincurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. The estimateduseful lives for development expenditure are estimated to be in a range of between six and thirty months.Capitalised development expenditure is not treated as a realised loss for the purpose of determining the Company’s distributableprofits as the costs meet the conditions required to be treated as an asset in accordance with IAS 38.The amortisation of capitalised development expenditure is charged to the income statement in research and developmentexpenditure within the Administrative expenses category.Impairment chargesThe carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at eachreporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverableamount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, therecoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an assetor its related cash-generating unit (CGU) exceeds its estimated recoverable amount.The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing valuein use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing,CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects thelowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination isallocated to groups of CGUs that are expected to benefit from the synergies of the combination.The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assetsare allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to whichthe corporate asset is allocated. Impairment losses are recognised in profit or loss. Any impairment losses recognised in respectof CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carryingamounts of the assets in the CGU on a pro rata basis.Annual Report and Accounts 2012 Pace plc 43
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Page 13 and 14: 2 Accounting policies continuedInve
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Page 17 and 18: 3 Segmental analysis continuedMajor
Page 19 and 20: 7 Staff numbers and costsThe averag
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Page 29 and 30: 14 Deferred tax assets/(liabilities
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Page 37 and 38: 20 Provisions continuedRoyalties un
Page 39 and 40: 21 Share capital continuedThe Compa
Page 41 and 42: 24 Retained earnings continuedOwn s
Page 43 and 44: 28 Leasing commitmentsTotal amounts
Page 45: Financial StatementsFive Year Recor

Pace plc Annual Report and Accounts 2012 - Financial Statements

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