estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Management believes that the estimates are reasonable, and that the recognized liabilities for income tax-related uncertainties are adequate (notes 7 and 20).
Share-based payments
The Group operates several equity-settled share-based pay- ment programs: a performance share unit plan (PSUP), a share plan and an employee stock option program. At each balance sheet date, the Group revises its estimates of the number of awards that are expected to vest based on the related service and non-market vesting conditions. It rec- ognizes the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjust- ment to equity (note 19).
Provisions
Provisions are made, among other reasons, for returns, war- ranties, disputes and litigation. A provision is recognized in the balance sheet when the Group has a legal or construc- tive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. The nature of these costs is such that judgment has to be applied to estimate the timing and amount of cash outflows. Depending on the outcome of the respective transactions, actual payments may differ from these estimates.
in EUR ’000 Europe, Middle East and Africa
North America Asia/Pacific Latin America/ Rest of the world
Group total 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 External sales 261’144 289’410 196’084 199’981 114’005 109’471 10’208 20’297 581’441 619’159
Proportion of total revenue 45% 47% 34% 32% 19% 18% 2% 3% 100% 100%
Business expenses –129’119 –138’989 –97’820 –91’200 –56’765 –54’914 –10’251 –17’051 –293’955 –302’154
Business contribution 132’025 150’421 98’264 108’781 57’240 54’557 –43 3’246 287’486 317’005
Operating segments
Operating segments are determined based on the reports reviewed by the Board of Directors that are used to make strategic decisions and to allocate resources to the seg- ments.
Operating segments are identified geographically as the business is managed on a global basis and is run in four geographical areas. The business contribution is derived from sales, the cost of goods purchased from manufactur- ing sites and expenses related to the sale of products in the respective regions. Certain administrative expenses direct-
4
ly attributable to the sale of products are also allocated to four geographic regions. The Board of Directors reviews and assesses the business (i.e. sales and business expens- es) on this basis.
Revenue arises from two integrated product groups, Stan- dardized Products and Individualized Products, with similar risks and rates of return. These products are sold in all op- erating segments, often with both Standardized and Indi- vidualized products forming part of a combined offer as Nobel Biocare is a full-solution provider.
Certain expenses, presented in the reconciliation, are not attributable to a particular segment and are reviewed as a whole across the Group irrespective of geographic origin. Unallocated business expenses include certain production costs remaining with the manufacturing sites, as well as restructuring charges. Functional costs comprise headquar- ter and plant functions, which include global marketing, quality, logistics, research and development, and legal func- tions. Also included are reconciling and other items, e.g., adjustments and eliminations made in preparing the financial
statements. The business contribution also excludes the ef- fects of equity-settled share-based payments and deprecia- tion, amortization and impairment expenses. The revenue from external customers reported to the Board of Directors is measured in a manner consistent with that in the income statement. There are no significant sales between the seg- ments. Nobel Biocare is domiciled in Switzerland; revenue from external customers in Switzerland is EUR 6’482 k (2008: EUR 7’426 k). No individual customer represents a signifi- cant portion of the Group’s revenue.
111 Notes
Reconciliation
in EUR ’000 2009 2008
Business contribution 287’486 317’005
Unallocated business expenses –15’138 –24’647
Functional costs –109’458 –118’969
Depreciation, amortization and impairment losses –27’757 –28’231
Share-based payment expenses –6’602 –11’246
Reconciling and other items 62 –1’007
Operating profit (EBIT) 128’593 132’905
Net financial result 8’664 26’468
Profit before tax 137’257 159’373
Personnel expenses
in EUR ’000 Note 2009 2008
Wages and salaries 140’505 137’144
Social security costs 16’826 16’805
Defined contribution plan expenses 22 5’893 5’231
Defined benefit plan expenses 22 1’566 1’287
Share-based payment expenses 19 6’602 11’246
Total personnel expenses 171’392 171’713
5
At the end of 2009, Nobel Biocare employed 2’242 employ- ees worldwide, a decrease of 299 employees from the pre- vious year.
The reduction was driven by the Group’s focus on improv- ing cost efficiency and accelerating cost saving measures. These measures continue to streamline the Group’s work- force, mainly in the areas of production, IT/Logistics and
decentralized marketing functions, as well as realigning sales organizations in Latin America. In relation to these restructuring activities, the Group has recognized severance and indemnity charges amounting to EUR 5’160 k included in personnel expenses.
Personnel expenses are recognized in the following line items in the income statement:
in EUR ’000 2009 2008
Cost of goods sold 24’843 26’144
Selling expenses 103’852 101’424
Administrative expenses 31’403 32’975
Research and development expenses 11’294 11’170
Income tax expense
The following amounts are recognized in the income statement:
in EUR ’000 2009 2008
Income taxes relating to the current period, net –37’271 –35’777
Income taxes relating to past periods, net 2’622 –3’687
Current income tax expense –34’649 –39’464
Deferred income tax income/(expense) due to temporary differences 3’653 –10’787 Decrease/increase of recognition of tax loss carryforwards –426 537
Deferred income tax expense 3’227 –10’250 Total income tax expense –31’422 –49’714
7
In 2009, net foreign exchange gains primarily relate to the simplification of internal funding structures, which resulted in the reclassification of cumulative translation differences to the income statement in the amount of EUR 26’063 k (2008: EUR 46’874 k), which had been previously recog- nized in other comprehensive income as presented in eq- uity. The remainder of net foreign exchange gains arises from operating in multiple currencies and also takes into account the gains and losses resulting from hedging such exposures.
In 2009, other financial expenses mainly comprise fees for the EUR 330 million syndicated banking facility in place from 18 March 2009. As of 31 December 2009, this facility
remained undrawn. For additional information, refer to note 23. In 2008, other financial expenses mainly comprised the losses on financial instruments held for trading relating to the revaluation of an equity-linked structured note. As of 31 December 2008, the fair value of the remaining note was zero, and that note was subsequently disposed of during 2009 with a gain of EUR 598 k.
In addition, other financial expenses include the net present value adjustment of EUR 266 k (2008: EUR 677 k) for the contingent purchase price consideration for the 50 percent share in the Swedish individualized business, previously Procera Sandvik AB.
Financial income and finance cost
in EUR ’000 2009 2008
Interest income 1’604 5’204
Net foreign exchange gains 26’814 61’273
Financial income 28’418 66’477
Interest expenses –16’178 –17’632
Other financial expenses –3’576 –22’377
Finance cost –19’754 –40’009 Net financial result 8’664 26’468
113 Notes
The decrease in the effect of higher tax rates in other jurisdictions primarily related to a more favorable allocation of profit between the various countries in which Nobel Biocare operates.
Tax assets of EUR 1’029 k resulting from recognized tax loss carryforwards were written off in 2009. Tax effects on other comprehensive income are as follows:
in EUR ’000 2009 2008
Before tax Tax (expense)/
benefit
Net of tax Before tax Tax (expense)/
benefit
Net of tax
Foreign currency translation differences 1’538 – 1’538 –18’462 – –18’462 Reclassification of foreign currency translation
differences to income statement –31’049 4’986 –26’063 –42’142 –4’732 –46’874 Effective portion of changes in fair value of cash flow hedges 1’468 –158 1’310 –10’099 2’341 –7’758 Net change in fair value of cash flow hedges
reclassified to income statement 9’013 –2’344 6’669 217 –42 175 Net change in fair value of available-for-sale
financial assets reclassified to income statement – – – 580 –116 464
Total –19’030 2’484 –16’546 –69’906 –2’549 –72’455
Acquisitions Alpha-Bio Tec Ltd.
On 2 April 2008, the Group acquired 100 percent of the share capital of Alpha-Bio Tec Ltd. (Alpha-Bio Tec), a dental implant company based in Israel and the innovator of the predecessor to NobelActive, for consideration of EUR 62’625 k. Through this agreement the Group obtained all rights to Alpha-Bio Tec’s trademark, brand names, innova- tion pipeline, strong R&D network and proprietary manu- facturing facility in Tel Aviv. As of 31 December 2008, the fair value of the assets and liabilities had only been provi- sionally determined; however, after having completed the purchase accounting process in the first quarter 2009, these amounts did not change significantly.