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FINANCIAL STATEMENTS, MANAGEMENT AND CORPORATE GOVERNANCE REPORT.
2011
• They are readily conver tible to cash.
• They mature within less than three months from the acquisition date.
• The risk of change in value is insignificant.
• They are par t of the Company’s standard cash management strategy.
In terms of the cash flow statement, occasional bank overdrafts used as par t of the Company’s cash management
strategy are recognised as a decrease in cash and cash equivalents.
Provisions and contingencies
Provisions are recognised in the balance sheet when the Company has a present obligation (derived from a contract
or a legal provision or from an explicit or implicit obligation) as a result of past events, and a quantifiable outflow of
resources is likely to be required to settle the obligation.
Provisions are measured at the present value of the best estimate of the amount that an entity would have to pay to
settle the obligation at the balance sheet date or to transfer it to a third par ty at that time, with provision discount
adjustments recognised as a finance cost as they accrue. No discounts are made on provisions falling due within twelve
months that do not have a significant financial effect. Provisions are reviewed at each balance sheet date and adjusted
to reflect the current best estimate.
Compensation receivable from a third par ty when provisions are settled is recognised as an asset, albeit not deducted
from the amount of the provision, and provided that there is no doubt that this compensation will actually be received,
and that it does not exceed the amount of the liability recognised.When a contractual or legal relationship exists by
vir tue of which the Company is required to externalize the risk, and thus it is not liable for the related obligation, the
amount of the reimbursement is deducted from the amount of the provision.
In addition, contingent liabilities are considered to be possible obligations that arise from past events whose materialization
depends on the occurrence of future events not wholly within the Company’s control, as well as present obligations
arising from past events regarding which it is not probable that an outflow of resources will be required to settle them or
which cannot be reliably measured. Contingent liabilities are not recognised in the financial statements but are disclosed
in the accompanying notes, unless the likelihood of an outflow of resources is considered remote.
Equity-settled transactions
The Company maintains share option plans related to the compensation system for executive directors and board
members that are settled by delivering Company shares. The employee benefits expense is determined based on the
fair value of the share options to be awarded on the date the option is granted. This expense is recognised over the
stipulated three-year period during which the services are rendered.The fair value of share options established at the
date the award was granted is not modified.
The options’ fair value is measured based on an internal valuation using valuation option models —specifically, the
binomial method— and taking into account the price of the option in the year, the life of the option, the price of the
underlying shares, the expected volatility of the share price, estimated dividend payments and the risk-free interest rate
for the life of the option.
The granting of Company shares to the other executive directors and directors of group companies is recognised in the
financial statements by increasing the value of the investment of said subsidiaries.