2011 Annual Report - OTCIQ.com

88 Notes
cash equivalents acquired (disposed of) under investing activities
if the respective acquisition or disposal results in a gain
or loss of control. In the case of acquisitions and disposals that
do not, respectively, result in a gain or loss of control, the corresponding
cash flows are reported under financing activities.
The impact on cash and cash equivalents of valuation changes
due to exchange rate fluctuations is disclosed separately.
Segment Information
In accordance with the so-called management approach
required by IFRS 8, the internal reporting organization used by
management for making decisions on operating matters is
used to identify the Company’s reportable segments. The internal
performance measure used as the segment result is earnings
before interest, taxes, depreciation and amortization
(“EBITDA”) adjusted to exclude certain extraordinary effects
(see Note 33).
Structure of the Consolidated Balance Sheets and
Statements of Income
In accordance with IAS 1, “Presentation of Financial Statements”
(“IAS 1”), the Consolidated Balance Sheets have been prepared
using a classified balance sheet structure. Assets that will be
realized within twelve months of the reporting date, as well
as liabilities that are due to be settled within one year of the
reporting date are generally classified as current.
The Consolidated Statements of Income are classified using
the nature of expense method, which is also applied for
internal purposes.
Capital Structure Management
E.ON uses the debt factor as the measure for the management
of its capital structure. The debt factor is defined as the ratio
of economic net debt to our EBITDA. Economic net debt supplements
net financial position with provisions for pensions and
asset retirement obligations, as well as the net market values
of currency derivatives from financial trans actions (not including
transactions relating to E.ON’s operating business and asset
management). The medium-term target set by E.ON for its
debt factor is a value of less than 3, based on E. ON’s target
rating of solid single A.
Based on our EBITDA in 2011 of €9,293 million (2010: €13,346 million)
and economic net debt of €36,385 million as of the balance
sheet date (2010: €37,701 million), the debt factor is 3.9
(2010: 2.8). Adjusted for the mostly non-cash non-recurring
effects from the early nuclear power exit, the debt factor as
of year-end 2011 is 3.4.
Critical Accounting Estimates and Assumptions;
Critical Judgments in the Application of Accounting
Policies
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that may influence the application of accounting principles
within the Group and affect the measurement and presentation
of reported figures. Estimates are based on past experience
and on additional knowledge obtained on transactions to
be reported. Actual amounts may differ from these estimates.
The estimates and underlying assumptions are reviewed on
an ongoing basis. Adjustments to accounting estimates are
recognized in the period in which the estimate is revised if the
change affects only that period, or in the period of the revision
and subsequent periods if both current and future periods
are affected.
Estimates are particularly necessary for the measurement of
the value of property, plant and equipment and of intangible
assets, especially in connection with purchase price allocations,
the recognition and measurement of deferred tax assets,
the accounting treatment of provisions for pensions and miscellaneous
provisions, for impairment testing in accordance
with IAS 36, as well as for the determination of the fair value
of certain financial instruments.
The underlying principles used for estimates in each of the
relevant topics are outlined in the respective sections.