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Scope of and Changes in Consolidation Perimeter
Disposals and acquisitions of interests in various businesses can account, in part, for differences in EADS’ results of operations for one year as compared to another year.
Airbus: Airbus is fully consolidated by EADS in light of the effective control EADS has exercised, by agreement with BAE Systems, over the assets, liabilities and operations of Airbus since 1st January 2001. Since 1st January 2005, EADS is retrospectively applying revised IAS 32 “Financial Instruments: Disclosure and Presentation”. Revised IAS 32 provides modified guidance as to whether a share in an entity should be classified as equity or as a financial liability. Pursuant to the put option granted to BAE Systems with respect to its 20% stake in Airbus, EADS has an obligation to purchase the 20% stake whenever requested by BAE Systems, during a yearly-recurring time window, for an amount to be negotiated at the time the put option is exercised, payable in cash or an equivalent amount of EADS shares. In light of these characteristics, IAS 32 requires the put option to be accounted for as a liability (“liability for puttable instruments”) in the consolidated balance sheet, stated at fair value in the amount of €3.5 billion. The fair value of this liability was derived through various sources, using different valuation techniques, based on best estimates then available to Management. Subsequent changes to the valuation of the put option will be recorded as changes to “liability for puttable instruments” and to goodwill, without any direct impact on the consolidated income statement. BAE Systems’ annual claim to net income on the 20% share in Airbus is now recorded as a partial repayment of the “liability for puttable instruments”, and no longer affects minority interest. Corresponding restatements were made to EADS’ 2004 and 2003 consolidated net income and earnings per share to account for this change in accounting policy.
The impact on EADS’ 2005 consolidated balance sheet of the application of IAS 32 is illustrated below:
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| (in €m) | Actuals 2005 before BAE put option | BAE put option value: 2001 | Dividends paid to BAE 2001-2005 | Reclass minorities 2001 to 2004 | Valuation put option BAE in 2004/2005 | Total impact | Actuals 2005 incl. BAE put option |
| Assets | 9,533 | 0 | 0 | 0 | 634 | 634 | 10,167 |
| Goodwill | 9,533 | 634 | 634 | 10,167 | |||
| Total equity | 16,768 | (3,654) | 788 | 0 | 0 | (2 866) | 13,902 |
| Equity attributable to equity holders | 14,366 | (2,537) | 788 | 1,109 | (640) | 13,726 | |
| Minority interest | 2,402 | (1,117) | (1,109) | (2,226) | 176 | ||
| Total Liabilities | 0 | 3,654 | (788) | 0 | 634 | 3,500 | 3,500 |
| Liability for puttable instruments* | 0 | 3,654 | (788) | 634 | 3,500 | 3,500 |
| (*) | As a result of the accounting principles adopted by EADS in this respect, the variation in the “liabilities for puttable instruments” from 2001 (€3.7 billion) to 2005 (€3.5 billion) reflects (i) a decrease in the liability of €788 million due to cumulative dividends paid to BAE Systems over the period (2001: €501 million; 2002: €100 million; 2003: €30 million; 2004: €64 million; 2005: €93 million) and (ii) an increase in the liability of €634 million related to the cumulative reassessment of the liability at the end of each period (leading to an increase in Airbus goodwill of €541 million in 2004 and €93 million in 2005). |
MBDA: EADS and BAE Systems each hold a 37.5% stake in MBDA, with Finmeccanica holding the remaining 25%. Pursuant to the shareholder agreements relating to the MBDA group, EADS and BAE Systems together exercise certain controlling rights over MBDA through MBDA Holdings, including the right of MBDA Holdings to appoint MBDA’s Chief Executive Officer (“CEO”), Chief Operational Officer (“COO”)-Operations and Chief Financial Officer (“CFO”).
EADS proportionally consolidates 50% of MBDA within the DS Division, consistent with its ability to jointly control operations, with Finmeccanica’s holding reflected as a 12.5% minority interest.
Acquisitions and Disposals
On 2nd September 2005, EADS acquired Nokia’s Professional Mobile Radio - PMR activities (EADS Secure Networks Oy) from Nokia. The initial purchase accounting for this business combination has been determined on a provisional basis. Any adjustments to the provisional purchase accounting will be recognized in 2006.
On 30th November 2005, EADS sold TDA - Armements S.A.S. to Thales. TDA – Armements S.A.S. was proportionally consolidated at 50% through the end of November 2005.
On 28th February 2005, EADS sold its enterprise telephony business, which comprised its civil telecommunication activities, to Aastra Technologies Limited.
On 4th October 2004, EADS acquired, from RIG Holdings L.P., 100% of the share capital of RIG Holdings, Inc., the holding company of Racal Instruments U.S. and Racal Instruments Group Ltd. (together, “Racal Instruments”) for a cash amount of U.S.$130 million. From the acquisition date, and as reflected in the 31st December 2004 consolidated balance sheet, EADS fully consolidates Racal Instruments. Racal Instrument’s 2004 net results for the period from 4th October through 31st December are included in the EADS 2004 consolidated statement of income.
On 18th September 2003, EADS acquired the remaining 41% interest in EADS Telecom France S.A.S. from Nortel Networks as part of an exchange for EADS’ interests in Nortel Networks Germany GmbH & Co. KG and Nortel Networks France S.A.S. Following this acquisition, EADS held 100% of EADS Telecom France S.A.S.
On 21st October 2003, EADS, through its 75% subsidiary DADC (DADC Luft- und Raumfahrt Beteiligungs AG), acquired an additional 17.7% of the share capital of Dornier GmbH for €62 million, bringing its total stake in Dornier GmbH to 94%. Following further acquisitions in May 2005, EADS’ share in Dornier GmbH was 97.11% at 31st December 2005.
See “Notes to Consolidated Financial Statements (IFRS) — Note 4: Acquisitions and disposals”.
