BT 2010 Annual Report Download - page 129

FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
127BT GROUP PLC ANNUAL REPORT & FORM 20-F
FINANCIAL STATEMENTSADDITIONAL INFORMATION REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
28. Acquisitions continued
Other
During 2009 the group acquired 100% of the issued share capital of Moorhouse Consulting and Ribbit Corporation, for a total
consideration of £75m including £10m of deferred, contingent consideration. The combined net assets acquired in these transactions and
the goodwill arising were as follows:
Fair value
Book value adjustments Fair value
£m £m £m
Intangible assets –2525
Receivables 2–2
Cash and cash equivalents 5–5
Payables (4) – (4)
Net assets acquired 32528
Goodwill 47
Total consideration 75
Intangible assets recognised in respect of these acquisitions comprised internally developed technology. Goodwill on the acquisitions
principally related to cost savings and other synergies. During 2010 the determination of fair values has been finalised and adjustments have
been made to the balances previously reported. Prior year balances have not been restated as the amount is not significant to the group.
29. Retirement benefit plans
Background
The group offers retirement benefit plans to its employees. The group’s main scheme, the BT Pension Scheme (BTPS), is a defined benefit
scheme. This scheme has been closed to new entrants since 31 March 2001 when it was replaced by a defined contribution scheme, the BT
Retirement Plan (BTRP) which was closed on 31 March 2009. On 1 April 2009 BT set up the BT Retirement Saving Scheme, a contract
based defined contribution arrangement, to which BTRP members were invited to transfer their accumulated assets. The total pension cost
of the group for 2010, included within staff costs, was £304m (2009: £544m, 2008: £626m). The total cost associated with the group’s
defined benefit pension schemes for 2010 was £206m (2009: £459m, 2008: £576m).
Defined contribution schemes
The income statement charge in respect of defined contribution schemes represents the contribution payable by the group based upon a
fixed percentage of employees’ pay. The total pension cost for 2010 in respect of the group’s main defined contribution scheme was
£66m (2009: £47m, 2008: £37m) and £6m (2009: £4m, 2008: £3m) of contributions were outstanding at 31 March 2010.
Defined benefit schemes
BT Pension Scheme Trustees Limited administers and manages the scheme on behalf of the members in accordance with the terms of the
Trust Deed of the scheme and relevant legislation. Under the terms of the Trust Deed of the BTPS, there are nine Trustee directors
appointed by the group, five of which appointments are made with the agreement of the relevant trade unions, including the Chairman of
the Trustee. Four Trustee directors, other than the Chairman, are appointed by BT on the nomination of the relevant trade unions. Two of
the Trustee directors will normally hold senior positions within the group, and two will normally hold (or have held) senior positions in
commerce or industry. Subject to there being an appropriately qualified candidate, there should be at least one current pensioner or
deferred pensioner of the BTPS as one of the Trustee directors. Trustee directors are appointed for a three year term, but are then eligible
for re-appointment.
Measurement of scheme assets and liabilities – IAS 19
Scheme assets are measured at the bid market value at the balance sheet date. The liabilities of the BTPS are measured by discounting the
best estimate of future cash flows to be paid out by the scheme using the projected unit credit method. Estimated future cash flows are
discounted at the current rate of return on high quality corporate bonds of an equivalent term to the liability. Actuarial gains and losses are
recognised in full in the year in which they occur in the statement of comprehensive income.
IAS 19 requires that the discount rate used be determined by reference to market yields at the reporting date on high quality corporate
bonds. The currency and term of these should be consistent with the currency and estimated term of the pension obligations. The discount
rate has been assessed by reference to the duration of the BTPS’s liabilities and by reference to the published iBoxx index of Sterling
corporate bonds of duration greater than 15 years and investment grade AA and above. Allowance is made where the constituent bonds in
the published index have been re-rated or new issues made.
The rate of inflation influences the assumptions for salary and pension increase. This has been assessed by reference to yields on long-
term fixed and index-linked Government bonds and has regard to Bank of England published inflationary expectations. Salary increases
are assumed to be in line with inflation.