2011 Annual Report - OTCIQ.com

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110 Notes Impairments IFRS 3 prohibits the amortization of goodwill. Instead, goodwill is tested for impairment at least annually at the level of the cash-generating units. Goodwill must also be tested for impairment at the level of individual cash-generating units between these annual tests if events or changes in circumstances indicate that the recoverable amount of a par ticular cash-generating unit might be impaired. Intangible assets subject to amortization and property, plant and equipment must generally be tested for impairment whenever there are particular events or external circumstances indicating the possibility of impairment. To perform the impairment tests, the Company first determines the fair values less costs to sell of its cash-generating units, which are calculated based on discounted cash flow methods and verified through the use of suitable multiples, to the extent available. Market transactions or valuations by third parties for similar assets or cash-generating units are additionally taken into account. Valuations are based on the medium-term corporate planning authorized by the Board of Management. The calculations for impairment-testing purposes are generally based on the three planning years of the medium-term plan plus two additional detailed planning years. In certain justified exceptional cases a longer detailed planning period of ten years is used as the calculation basis, especially when that is required under a regulatory framework or specific regulatory provisions. The cash flow assumptions extending beyond the detailed planning period are determined using unit-specific growth rates that are based on historical analysis and prospective forecasting. The growth rates used in 2011 ranged between 1.5 and 3.5 percent (2010: 1.5 and 3.5 percent). The nominal growth rates are derived from long-term inflation rates, adjusted for unit- specific forecasts of changes by the respective business units (for example, regu latory framework, reinvestment cycles or growth prospects). The interest rates used for discounting cash flows are calculated using market data for each cash-generating unit, and as of December 31, 2011, ranged between 5.4 and 11.1 percent after taxes (2010: 5.4 and 11.9 percent). The principal assumptions underlying the determination by management of recoverable amount are the respective forecasts for commodity market prices, future electricity and gas prices in the wholesale and retail markets, E.ON’s investment activity, changes in the regulatory framework, as well as for rates of growth and capital cost. The above discussion applies accordingly to the testing for impairment of intangible assets and of property plant and equipment, and of groups of these assets. If the goodwill of a cash-generating unit is combined with assets or groups of assets for impairment testing, the assets must be tested first. The recoverable amount primarily used to test a business for impairment is the fair value less costs to sell; at the Russia focus region, however, the recoverable amount is based on the value in use. As part of the annual testing of goodwill for impairment performed in the fourth quarter of 2011, various assets and groups of assets were included in the testing in response to a series of triggering events. In particular, the more pessimistic assessment in contrast to 2010 of long-term power prices, continuing regulatory interventions and reduced load hours for power plants in Spain and Italy were material factors influencing the valuation of activities in Spain and Italy. In Hungary and in the Slovak Republic, generation volumes and margins have also failed to meet expectations. In Central Europe, particularly in the Benelux countries, shutdowns ahead of schedule of generation assets because of reduced profitability brought about by lower generation volumes and margins, as well as reduced revenues from heat-run power plants and the consumer heating business, had their impact on current valuations. The tests resulted in the recognition of impairment charges totaling €3,127 million.
Of this total, an amount of €160 million related to goodwill written down because fair values less costs to sell within the “Other regional units” segment were no longer sufficient to cover their corresponding carrying amounts. The goodwill of virtually all cash-generating units whose goodwill is material in relation to the total carrying amount of all goodwill shows a surplus of recoverable amounts over the respective carrying amounts and, therefore, based on current assessment of the economic situation, only a significant change in the valuation parameters discount rate and growth rate would necessitate the recognition of goodwill impairment. Impairments were additionally recognized on property, plant and equipment in the amount of approximately €2,720 million. This amount relates primarily to generation assets in the Generation global unit and breaks down into generating capacity in Spain (€822 million) and Italy (€768 million), along with a total of €579 million in four other countries. In the regional units, impairments had to be recognized at the Hungary (€173 million) and Netherlands (€163 million) regional units. These charges related mostly to locally controlled heat-run power plants. Moreover, intangible assets had to be written down in the amount of €247 million, relating primarily to the activities of the Renewables global unit (€144 million), the Germany regional unit (€45 million) and the Gas global unit (€29 million). During the year, in the context of tests performed in response to triggering events, intangible assets and property, plant and equipment were written down by €109 million and €138 million, respectively. In the context of the 2010 goodwill impairment tests, a total of €1,067 million in impairment charges had to be recognized at the former Italy Non- regulated (€957 million) and Spain (€110 million) cash-generating units. Impairments were additionally recognized on other non-current assets in the amount of €1,496 million. This amount included €984 million charged to property, plant and equipment, primarily at the former Central Europe (€391 million), Spain (€338 million) and Italy (€255 million) market units. Impairments had to be recognized on intangible assets at the former Italy (€430 million) and Climate & Renewables (€82 million) market units. Intangible Assets CEO Letter E.ON Stock Combined Group Management Report Consolidated Financial Statements Corporate Governance Report Supervisory Board and Board of Management Tables and Explanations In 2011, the Company recorded an amortization expense of €451 million (2010: €489 million). Impairment charges on intangible assets, including those already mentioned at the affected units, amounted to €356 million in 2011 (2010: €618 million). Reversals of impairments on intangible assets totaled €0 million in 2011 (2010: €22 million). Intangible assets include emission rights from different trading systems with a carrying amount of €309 million (2010: €512 million). €59 million in research and development costs as defined by IAS 38 were expensed in 2011 (2010: €61 million). Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the five succeeding fiscal years is as follows: Estimated Aggregated Amortization Expense € in millions 2012 389 2013 332 2014 298 2015 277 2016 265 Total 1,561 As acquisitions and disposals occur in the future, actual amounts may vary. As of December 31, 2011, intangible assets from exploration activity had carrying amounts of €428 million (2010: €535 million). Impairment charges of €129 million (2010: €21 million) were recognized on these intangible assets. 111
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2011 Annual Report
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Contents 2 CEO Letter 4 E.ON Stock
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Europe’s energy markets are conso
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Dividend At the 2012 Annual Shareho
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Global Units We manage all our oper
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How will we achieve all this? The f
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Top performance requires efficient
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The Energy Roadmap 2050 adopts a sc
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Macroeconomic Environment In 2011,
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Energy Prices Four main factors dro
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Attributable Generating Capacity Th
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The Russia unit generated about 94
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Gas Sales On a consolidated basis,
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Sales Our sales rose by 22 percent
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Sales at the UK regional unit decli
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E.ON generates a significant portio
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Distribution Networks’ EBITDA dec
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and coal-fired power stations. Of t
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Analyzing Value Creation by Means o
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Cash Flow and Financial Position E.
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In addition to our DIP, we have a
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E.ON AG’s Earnings, Financial, an
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Employees HR Strategy The knowledge
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Workforce Figures At year-end 2011,
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Technology and Innovation In 2011,
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The ERC was founded in 2006. Its mi
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Risk Management and Insurance E.ON
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Strategic Risks Our business strate
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E.ON is building a hard-coal-fired
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waste.” The draft legislation men
Page 61 and 62: In 2012, Sweden will introduce a ne
Page 63 and 64: Due to lower commodity prices and u
Page 65 and 66: We anticipate Renewables’ earning
Page 67 and 68: Opportunities We conduct a bottom-u
Page 69 and 70: Audit Opinion According to § 322 A
Page 71 and 72: CEO Letter E.ON Stock Combined Grou
Page 75 and 76: Additional information on the State
Page 79 and 80: Business Combinations Business comb
Page 81 and 82: Newly created goodwill is allocated
Page 83 and 84: Subsequent costs arising, for examp
Page 85 and 86: Instruments commonly used are forei
Page 87 and 88: future exercise price. This amount
Page 89 and 90: Contingent liabilities are possible
Page 91 and 92: (2) New Standards and Interpretatio
Page 93 and 94: and joint operations. The provision
Page 95 and 96: The amended standard also contains
Page 97 and 98: Russian Federation. The proceeds fr
Page 99 and 100: The gains on the disposal of invest
Page 101 and 102: The decrease in tax expense by €3
Page 103 and 104: Of the deferred taxes reported, a t
Page 105 and 106: Stock Appreciation Rights of E.ON A
Page 107 and 108: The fees for financial statement au
Page 111: CEO Letter E.ON Stock Combined Grou
Page 115 and 116: (15) Companies Accounted for under
Page 117 and 118: The individual impaired receivables
Page 119 and 120: (20) Additional Paid-in Capital As
Page 121 and 122: Description of the Benefit Obligati
Page 123 and 124: Description of Plan Assets Defined
Page 125 and 126: Taking into account periodic additi
Page 127 and 128: (25) Miscellaneous Provisions The f
Page 129 and 130: Advance payments made to other wast
Page 131 and 132: At year-end 2011, the following EIF
Page 133 and 134: Construction grants of €2,857 mil
Page 135 and 136: In Sweden, owners of nuclear facili
Page 137 and 138: Competition in the gas market and i
Page 139 and 140: Pursuant to the information availab
Page 143 and 144: The fair value of shareholdings in
Page 145 and 146: The following two tables illustrate
Page 147 and 148: Risk Management Principles The pres
Page 149 and 150: A sensitivity analysis was performe
Page 151 and 152: Virtually all of the investments in
Page 153 and 154: Under IAS 24, compensation paid to
Page 155 and 156: Net book gains in 2011 decreased by
Page 159 and 160: (34) Compensation of Supervisory Bo
Page 161 and 162: Notes (36) List of Shareholdings Pu
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CEO Letter E.ON Stock Combined Grou
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In addition to the Company’s peri
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The Supervisory Board has establish
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and the Consolidated Financial Stat
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Compensation of the Members of the
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The Supervisory Board, at its discr
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the E.ON Group’s ROCE and prior-y
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Compensation of the Members of the
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The remaining other compensation of
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In addition, the Board of Managemen
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We examined the Board of Management
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Klaus Dieter Raschke Chairman of th
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At the Board of Management’s disc
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Further information about financial
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Assessment After companies have doc
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Glossary of Financial Terms Actuari
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Prepayments and accrued income Line
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Financial Calendar May 3, 2012 2012
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