ACCOUNTING PRINCIPLES
The financial statements of Finnair Oyj and Finnair Group have been prepared in accordance with the new Finnish Accounting regulations, which came into force on December 31, 1997. The official financial statements have been prepared in euro amounts.
Consolidated financial statements
Apart from the Parent Company Finnair Oyj, the consolidated financial statements include all those companies in which the Parent Company holds more than 50% of of the votes either directly or indirectly or where the Company has a de facto effective control. Subsidiaries acquired during the financial period have been consolidated from the date of their acquisition. Companies in which controlling interest has been given up during the financial year are included in the consolidated financial statements up to the time of relinquishing control.
Inter-company transactions, receivables and debts and the internal distribution of profit were eliminated. Mutual share ownership was eliminated with the acquisition cost method. The elimination difference between the acquisition price of affiliate shares and the equity of the affiliate at acquisition arising in conjunction with elimination was allocated primarily to those asset items which caused the elimination difference and was removed in accordance with the depreciation plan for fixed assets. The unallocated elimination difference, i.e. the consolidated goodwill, was eliminated at the moment of acquisition before year 2003 and after that the goodwill is amortized on a straight-line basis over its expected useful life. To the extent possible, the financial statements of the foreign subsidiaries were harmonized with the principles used by the Group before consolidation. Translation to euros took place at the official rate of exchange on the day the books were closed. The translation differences caused by elimination of equity were treated as adjustment items for consolidated unrestricted equity. Portions of the earnings of companies in which the Group owns from 20-50 % of the shares and votes were combined in the consolidated financial statements using the equity method. The portion of the profit for the financial year corresponding to the Group's holding is presented in the share of profits less losses of participating interests. The participating goodwill for the participating interest was entered as a non-recurring expense.
ITEMS DENOMINATED IN FOREIGN EXCHANGE
Receivables, debts and liabilities were translated into euros at the official middle rate on the day the books were closed. Parent company´s advance payments made and received were entered in the balance sheet at the rate on the date of payment. Exchange rate differences on trade receivables and payables were treated as adjustments of sales and purchases. Other exchange rate differences on other receivables and payables were entered as exchange rate differences under financial income and expenses. Accumulated exchange rate differences were entered in their entirety in the profit and loss statement.
DERIVATIVE AGREEMENTS
Interest related to derivative agreements made to hedge against foreign exchange and interest rate risks was entered on an accrual basis as either interest income or expense. Exchange rate differences related to hedging of business operations are included in the operating profit. However, exchange rate differences on separate derivative financial instruments that provided hedging for specific off-balance sheet items and operational business operations were deferred until recognition of the underlying item
THE FUEL PRICE RISK HEDGING
The results of using the various hedging instruments were entered on an accrual basis together with the fuel costs.
FIXED ASSETS AND DEPRECIATION
The balance sheet values for fixed assets are based on original acquisition costs less planned depreciation.
Planned depreciation is based on the economic service life of the asset and on the book acquisition cost.
Depreciation is calculated with the following principles, depending on the type of asset:
- Goodwill on a straight-line bases in five years
- Buildings between 3-5% of the undepreciated residual value.
- Aircraft and aircraft engines on a straight-line bases as follows:
- New Airbus A320 family aircraft in 20 years to a residual value of 10 %
- other jet aircraft acquired before as new in 15 years to a residual value of 10%
- used jet aircraft more than six years old in 10 years to a residual value of 10%
- turboprop aircraft in 12 years to a residual value of 10%
- turboprop aircraft acquired as used in 10 years to a residual value of 10 %
- aircraft withdrawn from use on a straight-line basis entirely in the operating time outlined in the fleet renewal plan
- Straight-line depreciation is 10 years for aircraft simulators and five years for computers worth more than EUR 170 000
- Depreciation of other tangible fixed assets is 23% of the undepreciated residual value
- Capitalized long-term expenditures are depreciated in 3-10 years, depending on their nature.
INVENTORIES
Inventories comprise the spare parts and materials needed for aircraft repair and maintenance and stocks for customer services. Inventories were evaluated at the average acquisition cost. The value of work in progress includes average salary costs, excluding salary-related costs, used stocks of materials and supplies and subcontracting work
CURRENT ASSETS
Securities entered under current assets are evaluated at the lower of original acquisition cost or market value.
LEASING
Lease payments for Group aircraft are significant. Annual lease payments are treated as rent expenses. Lease payments due in future years under aircraft lease contracts are presented as off-balance sheet items.
EXTRAORDINARY ITEMS
Items included in extraordinary items are typically substantial and one-off by nature. They also deviate from the ordinary course of business operations. Changes in accounting principles and procedures are implemented by using extraordinary items to show the impact on earnings.
EXPENDITURE ON RESEARCH AND DEVELOPMENT
Research and development on aircraft, systems and operations is conducted primarily by manufacturers. Research and product development expenditure for marketing and customer service is entered as an annual expense for the year in which it is incurred.
APPROPRIATIONS
The difference between total and planned depreciation is shown in the balance sheets as appropriations and the change during the financial year in the income statement. In the consolidated balance sheet the appropriations is divided into unrestricted equity and deferred tax liability and in the consolidated income statement into result and deferred tax liability.
TAXES AND THE CHANGE IN DEFERRED TAX LIABILITY
Estimated taxes on profits for the financial year, adjustments in taxes for previous financial years and the change in deferred taxes were entered in the profit and loss statement as taxes. The deferred tax liability is computed according to the tax rate in effect during the financial year. The balance sheet includes a deferred tax liability due to book gains in connection with sale of flight equipment. This is based on new accounting regulations on deferred tax liabilities caused by timing differences. In the parent company the deferred tax liability is eliminated and the amount is entered to equity, in preparation for the IFRS reporting.
PENSION SCHEMES
In the Group's domestic companies mandatory and other pension coverage for personnel has primarily been arranged through the Finnair pension fund and other mandatory pension coverage has been arranged through domestic insurance companies. The Finnair pension fund is a joint fund including the Parent Company and six affiliates at the end of the financial year. Both mandatory employment pension coverage and additional pension security are arranged by the fund for the Parent Company and five affiliates. Since 1992, the pension fund has no longer accepted employees other than pilots for additional pension coverage.
The Finnair pension fund's pension liability is fully paid up with respect to basic and additional coverage.
Pension fund liabilities are presented in the Notes to the Financial Statements.
The foreign affiliates pension coverage has been arranged according to local legislation and practice.
The retirement age of the CEO, the Group Board of Management members and managing directors of the affiliates vary between 60-65, based on agreements.
COMPARABILITY OF THE FINANCIAL YEARS
The previous year turnover has been changed as the sales bonuses are now shown as marketing expenses and not as deduction of sales. |