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30 Unilever Annual Report and Accounts 2010
Report of the Directors About Unilever
Financial review 2010 continued
Significant events after the balance sheet date
On 10 February 2011 Unilever issued a bond composed of two
senior notes: (i) US $500 million 2.75% fixed rate note which will
mature in five years and (ii) US $1,000 million 4.25% fixed rate
note which will mature in ten years.
Basis of reporting
The accounting policies that are most significant in connection
with our financial reporting are set out on this page.
Foreign currency amounts for results and cash flows are translated
from underlying local currencies into euros using average exchange
rates. Balance sheet amounts are translated at year-end rates,
except for the ordinary capital of the two parent companies. These
are translated at the rate referred to in the Equalisation Agreement
of 31
⁄9p = €0.16 (see Corporate governance on page 51).
Certain discussions within this Financial Review 2010 include
measures that are not defined by the generally accepted
accounting principles (GAAP) of IFRS. These include underlying
sales growth (USG), underlying volume growth (UVG),
restructuring, business disposals, impairments and other one-off
items (RDIs), underlying operating margin, free cash flow (FCF)
and net debt. We believe that these measures provide valuable
additional information on the underlying performance of the
business.
These measures should not be considered in isolation from, or
as a substitute for, financial information presented in compliance
with IFRS. These measures as reported by us may not be comparable
with similarly titled measures reported by other companies.
Further information about these measures is given on pages
31 to 32, including a reconciliation of the measures to GAAP
measures.
Further information on underlying operating margin and the
impact of RDIs is given on the face of our income statement
andin note 3 on page 83.
Critical accounting policies
The financial statements are prepared in accordance with IFRS
as adopted by the EU, as issued by the International Accounting
Standards Board, and with UK and Dutch law. In preparing these
accounts, we are required to make estimates and assumptions,
using judgement based on available information, including
historical experience. We believe these estimates and assumptions
are reasonable and we re-evaluate them on an ongoing basis.
However, some of these policies require difficult, subjective or
complex estimates from management and therefore the actual
amounts and future results could differ.
Critical accounting policies and estimates are those which are
most important to the portrayal of Unilever’s financial position
and results of operations and where it is reasonably likely that
future financial performance could be impacted by changes in
the estimates and assumptions made. These critical accounting
policies and estimates are set out below.
The Group’s critical accounting policies and estimates are:
• goodwill and intangible assets;
• financial instruments;
• pensions and similar obligations;
• provisions;
• taxation; and
• business combinations.
The above critical accounting estimates and policies are described
in note 1 to the consolidated financial statements on pages 79 to
80, under the heading ‘Critical accounting estimates and
judgements’: goodwill and intangible assets; pensions and similar
obligations; provisions; taxation; and business combinations. The
critical accounting policy relating tofinancial instruments is
described below.
Financial instruments
The Group uses certain financial instruments to manage foreign
currency exchange rate, commodity price and interest rate risks.
Financial instruments are classified according to the purpose
forwhich the instruments were acquired. This gives rise to the
following classes: held-to-maturity investments, loans and
receivables, financial assets at fair value through profit or loss,
and available-for-sale financial assets. Please refer to note 1
onpages 77 and 78 for a description of each of these categories.
Derivative financial instruments are reported at fair value, with
changes in fair values booked through profit or loss unless the
derivatives are designated otherwise and effective as hedges
offuture cash flows, in which case the changes are recognised
directly in equity. When the hedged cash flow results in the
recognition of an asset or a liability, the associated gains or losses
on the derivative that had previously been recognised in equity
are included in the measurement of the asset or liability. For
hedged items that do not result in the recognition of an asset or
liability, amounts deferred in equity are recognised in the income
statement in the same period in which the hedged item affects
net profit or loss.
Changes in fair value of net investment hedges in relation to
foreign subsidiaries are recognised directly in equity.