Prospectus - Fonterra

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61Fonterra Co-operative Group LimitedNotes to the Financial StatementsFor the 14 months ended 31 July 20081. Investment in subsidiariesNZ IFRS requires investments in subsidiaries in the separate financial statements of the investor to be recognisedeither at cost, or at fair value in accordance with NZ IAS 39. Under Previous NZ GAAP Fonterra recognised itsinvestments in subsidiaries at their net asset carrying values, with the annual change recognised in the incomestatement. NZ IFRS 1 provides an exemption to enable the investor to recognise investments in subsidiaries atdeemed cost on transition to NZ IFRS. One of the options available to use as the deemed cost is the PreviousNZ GAAP carrying amount on the date of transition. Accordingly Fonterra has established the deemed cost of itssubsidiaries on transition and reversed the net asset value uplift recognised during 2007, resulting in a reductionof profit for the year to 31 May 2007 of $663 million. The aggregate deemed cost of subsidiaries for whichdeemed cost was their Previous NZ GAAP carrying amount is $7,523 million.2. Fair value of landNZ IFRS 1 provides entities an exemption allowing the fair value of items of property, plant and equipment to beused as deemed cost on transition to NZ IFRS, without the requirement to revalue those items going forward.Fonterra has elected to apply this exemption to land on its balance sheet at the date of transition. The effect ofthis is to increase property, plant and equipment at 31 May 2007 by $5 million (31 May 2006: $5 million). Theaggregate fair value of land at 31 May 2007 for which fair value is used as deemed cost on transition to NZ IFRSis $6 million (31 May 2006: $6 million).3. Financial instrumentsNZ IAS 39 requires all derivative instruments to be recorded at fair value in the balance sheet with the relatedchanges in fair value recognised in the income statement. Fonterra applies hedge accounting in the Company’sfinancial statements for certain debt instruments. Fonterra has a deed of novation in respect of all foreignexchange gains and losses arising on derivative financial instruments, to transfer such gains and lossesrecognised in the income statement to another entity within the Fonterra Group. Therefore, on transition to NZIFRS Fonterra has recognised all derivative instruments at their fair values in the balance sheet, with an offsettingentry to intercompany payables and receivables. This entry has no overall impact on equity.4. Recognition of tax lossesFonterra has recognised additional New Zealand tax losses because of the recognition of deferred tax liabilitieson other NZ IFRS adjustments. The effect of recognising tax losses at 31 May 2007 was to decrease thedeferred tax liability by $53 million (31 May 2006: $44 million), and increase profit for the year to 31 May 2007 by$9 million.5. Value Return paymentNZ IAS 32 contains specific guidelines on distinguishing whether payments made to shareholders are in theircapacity as shareholders or in their capacity as suppliers. Accordingly the Value Return payment is shown as adeduction from equity rather than profit. The impact is to increase profit for the year to 31 May 2007 by $488million (being the Value Return payout of $728 million less the tax credit of $240 million). This has no overallimpact on equity.6. SoftwareSoftware, to the extent it is not an integral part of the related hardware, has been reclassified from property, plantand equipment to intangible assets. The total amount of the reclassification at 31 May 2007 is $43 million (31May 2006: $34 million). The amortisation expense has also been reclassified from depreciation to amortisation.The total amount reclassified within the income statement for the twelve months ended 31 May 2007 is $11million. This adjustment has no overall impact on equity.
62AUDITORS’ REPORTThe DirectorsFonterra Co-operative Group LimitedPrivate Bag 92032Auckland 114229 January 2009Auditors’ report for inclusion in the ProspectusDear DirectorsAs auditors of Fonterra Co-operative Group Limited (“the Company” and “the Borrowing Group”) wehave prepared this report pursuant to clause 36 of the Second Schedule of the Securities Regulations1983 for inclusion in a Prospectus to be dated 30 January 2009.Directors’ responsibilitiesThe Directors are responsible for the preparation and presentation of:(a)(b)(c)the financial statements which give a true and fair view of the state of affairs of theBorrowing Group as at 31 July 2008 and its financial performance and cash flows for theperiod ended on that date, as required by clauses 16 to 32 of the Second Schedule of theSecurities Regulations 1983;the summary of financial statements of the Borrowing Group for the period ended31 July 2008 and the years ended 31 May 2007, 2006, 2005 and 2004 as required byclauses 7(2) and 7(3) of the Second Schedule of the Securities Regulations 1983; andthe amounts in respect of the ranking of securities of the Borrowing Group as at31 July 2008 as required by clause 12 of the Second Schedule of the SecuritiesRegulations 1983.Auditors’ responsibilitiesWe are responsible for expressing an independent opinion on the financial statements of theBorrowing Group for the period ended 31 July 2008 presented by the Directors and reporting ouropinion in accordance with clause 36(1) of the Second Schedule of the Securities Regulations 1983.
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1TABLE OF CONTENTSSUMMARY OF MAIN T
Page 4 and 5:
3SUMMARY OF MAIN TERMS OF THE OFFER
Page 6 and 7:
5PROFILE OF THE FONTERRA GROUPFor t
Page 8 and 9:
7Innovation and SustainabilityThe F
Page 11 and 12: 10STATUTORY INFORMATIONThe order of
Page 13 and 14: 12Africa, Latin America and Oceania
Page 15 and 16: 14• the creation of new mortgages
Page 17 and 18: 16• a failure to make any payment
Page 19 and 20: 18the right to cast not less than 7
Page 21 and 22: 20• in the event of a change in c
Page 23 and 24: 22maximum of 5%, of raw milk suppli
Page 25 and 26: 24Brands ownershipNumerous brands a
Page 27: 26General risksOther special factor
Page 30 and 31: 29FONTERRA FINANCIAL STATEMENTSFont
Page 32 and 33: 31Fonterra Co-operative Group Limit
Page 34 and 35: Fonterra Co-operative Group Limited
Page 66 and 67: 65FONTERRA GROUP SUMMARY FINANCIAL
Page 68 and 69: 67Registrar means Computershare Inv
Page 70 and 71: 69APPLICATION INSTRUCTIONS1. Comple
Page 72: 717. SIGNATURE(S) OF APPLICANT(S)I/
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Prospectus - Fonterra

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