Annual Report

at 31 December 2010
Annual report at 31 December 2010
Consolidated financial statements at 31 December 2010
Contents Report on operations Consolidated financial statements Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated cash flow statement Statement of changes in consolidated equity Consolidated financial statements - Explanatory notes Attachments 121
Draft Separate financial statements Separate income statement Statement of comprehensive income statement Separate statement of financial position Separate cash flow statement Statement of changes in equity Draft Separate financial statements - Explanatory notes Attachments

137 202

INDESIT COMPANY S.P.A.
Registered Offices: Viale A. Merloni 47 - 60044 Fabriano Secondary Offices: Via della Scrofa Rome Share Capital: Euro 102,759,269.40 fully paid Tax Code/VAT No. 00693740425 Ancona Companies Register No. 9677
Report on operations during the year ended 31 December 2010
2010 was marked by a two-speed world economic recovery: in the advanced economies, a moderate rise in private consumption expenditure was accompanied by ongoing high levels of unemployment and strong pressure on the euro, while in most emerging economies a significant upturn in the demand for goods and services fuelled a strong recovery in productive activities. Conditions in the household appliances sector essentially reflected the global situation. In Eastern Europe, the strong recovery was founded on the excellent performance of the Group's two key markets in the area: Russia and Ukraine. Demand for household appliances in the other countries of Eastern Europe remained variable, with growth over the year in Poland and Turkey, and contractions in all other countries despite signs of a recovery during the fourth quarter in Hungary and the Slovak Republic. In Western Europe, the moderate rise in the demand for household appliances was also a reflection of variable dynamics. Performance in the first half of the year was noticeably better than in the second while, in terms of geographical distribution, the growth seen in Northern Europe, the UK, Germany and Italy was offset by declines in the Iberian Peninsula and in France. Retail prices eased slightly in both Western and Eastern Europe, with a generalised deterioration during the second half of the year. Unlike in the past two years, the currency situation in 2010 was marked by the weakness of the euro1, which depreciated by 3.7% against the British pound, 8.8% against the Russian rouble, 7.6% against the Turkish lira and 7.7% against the Polish zloty.
Determined with reference to the average monthly rates reported by the European Central Bank
Accounting policies The consolidated and separate financial statements of Indesit Company have been prepared in accordance with the International Financial Reporting Standards IFRS (hereafter referred to as IFRS or IAS) issued by the International Accounting Standards Board (IASB), as interpreted by the International Financial Reporting Interpretations Committee (IFRIC) and endorsed by the European Union. The consolidated and separate financial statements at 31 December 2010 have been prepared in accordance with Consob's instructions regarding the format of financial statements, in application of art. 9 of Legislative Decree 38/2005 and the other regulations and Consob instructions concerning financial statements. They have been prepared on an historical cost basis (except for derivative financial instruments, financial assets held for sale and financial instruments classified as available for sale, which are stated at their fair value), as applicable to going concerns. Approach taken The Group headed by Indesit Company S.p.A. is hereafter referred to as Indesit Company or Indesit or simply the Group. When the commentary relates to the parent company or individual subsidiaries, their registered names are stated in full. This report on operations contains information about both the Indesit Group as a whole and the Parent Company, Indesit Company S.p.A. All the amounts presented in this report on operations and in the consolidated and separate financial statements and explanatory notes are stated in millions of euro; the comparisons made (in brackets) relate to information for the prior year. Percentages (margins and changes) are determined with reference to amounts stated in thousands of euro. The intermediate indicators of profitability, EBIT2 and EBITDA3 , utilised in this report are not identified as accounting measures in the IFRS endorsed by the European Union and their quantitative determination might not be unequivocal. These indicators represent a measure used by management to monitor and assess operating performance. Management believes that these indicators are important parameters for the measurement of operating performance, since they are not influenced by the effects of differing criteria for the determination of taxable income, or the amount and characteristics of capital invested. The criteria applied by the Group and the parent company for determining these indicators might not be consistent with those adopted, for example, in the contractual definitions of the financial covenants for borrowing, or with those adopted by other groups or companies and, accordingly, their values might not be comparable with those determined by such other groups or companies.

increasing quality, so that they can concentrate their resources on the management of their core businesses.
Principal risks and uncertainties faced by the Group and the Parent Company
The Indesit Group is exposed to a series of risks, which can be grouped in the following three macro-categories: strategic and operational; financial; legal and compliance. Indesit Company S.p.A., as the Parent Company, is essentially exposed - directly or indirectly - to the same risks and uncertainties as those described below in relation to the Group. The risk factors most directly affecting activities in 2011 are discussed in the section entitled Forecast for operations. Strategic and operational risks 1. Demand trends: the household appliances sector is part of the broader category of Consumer Durables and business is cyclical. Contractions in the property market, in consumer confidence, in the availability of consumer credit and, more generally, in the GDP growth rate have a rapid effect on the level of market demand and may result in lower sales and, consequently, in lower profits. Depending on the availability of data, Indesit monitors the trends in industry shipment, retail sales (sell out), retail prices, market share in volume/value terms, and other relevant parameters on a monthly or quarterly basis,, making reference to data for the Group's largest markets supplied by the principal independent research institutions. Analysis of this information allows the Group to react to current or expected changes within the shortest possible period of time. In addition to the lower sales and profits already mentioned, significant unexpected contractions in demand often lower the level of plant saturation which, at least in the short term, may have further adverse effects on profitability, the level of finished product inventories and borrowing. 2. Predictability of demand: Indesit mainly distributes its products via chain retailers, wholesalers and the manufacturers of fitted kitchens. The order backlog is typically one month. The visibility of demand beyond a one/three month planning horizon is therefore somewhat limited, and is largely based on statistical analysis. Conversely, industrial planning requires the adoption of a medium-term time horizon, especially when significant changes in production are required. In addition to the actions described in the previous point, Indesit minimises this risk by managing the level of finished product inventories in order to maintain a predetermined safety margin, compatible with the requirements of prudent financial management. Work has also commenced on a number of projects designed to further refine the mathematical models used to generate sales forecasts and the related production plans. 3. Price competition: the household appliances sector, still highly fragmented in Europe, may be affected at particular moments in the economic cycle by strong 30
price competition designed to capture market share or, in the short term, to boost the volume of sales and therefore production. Price pressures result in lower profit margins. At the same time, excessive fragmentation, structural excess capacity and the high elasticity of volume in response to changes in price, make it both difficult and risky to fully pass on sudden and/or significant increases in the cost of raw materials in the form of higher selling prices. Indesit mitigates this risk by ensuring a constant flow of new products that help to offset the deflationary pressures, while also guaranteeing a cost base that is among the most competitive in the sector. 4. Exposure to the prices of raw materials and components: the Group is directly or indirectly (via the purchase of components) exposed to the risk of increases in the prices of raw materials: principally steel, plastics, copper, nickel and aluminium. In 2010, the Group's costs for the consumption of raw materials, components and consumables totalled 1,571 million euro, including 208 million euro for steel, 205 million euro for plastics, 1,056 million euro for components and outsourced production, and 102 million euro for other materials. With regard to the purchase of steel, the Group's objective is to sign, usually before the end of the fourth quarter, annual contracts at fixed prices for the materials requirement estimated when preparing the budget for the following year. The generalised change in contracting procedures adopted during 2010 by the principal suppliers of raw materials has, however, partially limited this possibility (especially in Russia and Turkey). In the context of annual supply contracts, it has however been possible to fix steel prices at Group level for the first six months of 2011, but only for the first quarter in relation to steel supplies in Russia. With regard to the prices for purchases during that part of the year not covered, the contracts do however cap the level of possible price increases and decreases. Supply contracts for non-ferrous metals (nickel, copper and aluminium) have a duration of less than one year. Lastly with regard to plastics, the Group signs fixed price contracts for about 50% of its requirement, while the prices for the remaining 50% are indexed to sector parameters. These supply contracts have a duration of less than one year. 5. Country risk: a significant and increasing portion of the Group's manufacturing activities and sales takes place in non-OECD countries (respectively 21% of total fixed assets; 33% of the volume produced; 30% of sales). The Group is exposed to the risks associated with operating in countries that may not be as politically and economically stable as those in the OECD area. Such risks might include: a) restrictive policies on the import of components and/or the export of finished products; b) limitations on investment/divestments by non-resident parties; c) the convertibility and/or transferability of the local currency d) the introduction of restrictive laws and/or regulations, including the risks of nationalisation or expropriation. 6. Other operational risks: this category comprises the risks typically faced by the durable goods sector: risk of product obsolescence, risks associated with the warranties given on products sold, risks associated with the disposal of 31

The provision for agents' termination indemnity, determined with reference to the commissions earned in accordance with art. 1751 of the Italian Civil Code and collective agreements, represents the estimated liability for payments to agents should their mandates be terminated (for reasons not attributable to them) by Indesit Company S.p.A. The provision for restructuring covers charges associated with the industrial reorganisation plans being implemented at certain of the Group's factories. The provision for WEEE covers the charges deriving from application of the product disposal regulations, with sole reference to new waste in countries where local legislation adopting the EU Directive envisages the individual responsibility of manufacturers. The reduction reflects the adoption by the Netherlands, Portugal and Hungary of a system of collective responsibility that requires legal requirements to be met by making payments to specialist consortiums rather than by recording provisions. The provisions for onerous contracts relate to rentals, hire agreements and operating leases for which, due to termination of the use of the assets covered by such contracts as a result of business restructuring, a discounted liability for future instalments has been recognised. The reduction reflects the sale of Creda Ltd, which is party to the onerous contract for the site at Blythe Bridge that expires in 2059. The provision for disputes and other risks reflects the best possible estimate of the likely liability based on the information available. At 31 December 2010, this caption comprises the provisions for outstanding disputes, 11.1 million euro (21.4 million euro), the provision for environmental risks, 8.3 million euro (3.9 million euro), the provisions for tax risks, 4.2 million euro, and product liability, 2.4 million euro (not recorded in the prior year), and the provisions for other risks, 2,2 million euro (0.1 million euro). 95
The provision for tax risks relates to the Inspection Minutes, notified to Indesit Company S.p.A. by the Marche Regional Tax Office for Major Taxpayers on 19 October 2010, containing the matters identified during the tax audit covering IRES, IRAP and VAT performed recently in relation to the 2007 tax year. The issues raised predominantly relate to the methodology used when determining transfer prices for the intercompany movement of finished products and intangible assets, and the interest charged on the commercial deferral of payments allowed to Group companies. A minor issue also relates to the interest charged on the commercial deferral of payments by Group companies, but this time in relation to its allocation between accounting periods. At this time, the above-mentioned issues concerning the 2007 tax year have not resulted in notification of the assessment of additional taxation. Indesit believes that the procedures adopted for the management of relations between Group companies are appropriate and, consequently, that the considerations made by the inspectors with regard to the determination of transfer prices are largely unfounded. Nevertheless, in order to manage appropriately the potential risks associated with this area, Indesit has commenced an in-depth analysis, with support from economists and tax experts, that focuses in particular on the aspects to be considered when determining transfer prices, to which most of the issues raised relate. Based on the analysis performed and the information currently available, and considering the marked subjectivity of the transfer pricing issue, Indesit has identified the matters raised that could probably result in a liability if formally disputed by the tax authorities and, accordingly, has deemed it appropriate to set aside an adequate provision for the risk of additional taxation and penalties. This provision mostly relates to the issue raised about the interest charged on the commercial deferral of payments allowed to Group companies. The Other movements column of the table reporting the movements in the provisions for risks and charges principally comprises the exchange effect deriving from the translation of financial statements not denominated in euro, which is the Group's presentation currency. Total payables and provisions for non-recurring transactions at 31 December 2010 amount to 39.1 million euro (37.9 million euro) and the cash flow absorbed by them was 45.4 million euro (28.5 million euro).

(million euro) Trade payables for investments Trade payables for purchases Trade payables
Dec 31, 2010 35,1 794,1 829,2
Dec 31, 2009 17,1 642,8 659,9
The Trade payables caption has increased considerably due, above all, to the increase in the volume of production and investment.

9.27. Tax payables

The amounts due to tax authorities reflect the provision for current taxes and other tax payables.
(million euro) Current taxes payable Taxes withheld from employees and freelance workers Total tax payables Dec 31, 2010 18,6 9,7 28,3 Dec 31, 2009 23,9 12,6 36,5

9.28. Other payables

Other payables are analysed as follows:
(million euro) Due to social security and pension institutions Due to employees VAT payable Other payables Total other payables Dec 31, 2010 28,2 48,4 29,1 8,8 114,5 Dec 31, 2009 28,4 48,5 28,0 5,1 110,0
9.29. Share-based payments (stock options)
The resolutions adopted at the extraordinary meetings held on 19 September 1998 and 23 October 2001 authorised, pursuant to art. 2441 of the Italian Civil Code, two increases in share capital by up to 2,700,000 euro each, via the issue of a combined maximum of 6,000,000 ordinary shares, par value Euro 0.90, to service the stock option plan for the Group's executives and managers. The Board of Directors, in the person of the Chairman, determines the number of options to be granted each year and identifies - on the recommendation of the Chief Executive Officer - the beneficiaries. The options granted on 24 July 2003 (last grant date) envisage a vesting period of 3 years for the first 50% and 4 years for the remaining 50%, while the options granted previously envisaged vesting periods of 2 years and 3 years respectively. Certain stock options were exercised during the year, but no new stock options were granted. The parameters used to determine the fair value of stock options at the grant date are set out in the following table.
Parameters Exercise price Expected volatility Grant date No. of options Duration of option (years) Expected dividends Risk-free interest rate Fair value stock option (millions of euro)
12.65 31.39% 24 July 03 169,500 3.50 2.97% 4.00% 0.1
The stock option plans are analysed in the attachments to these consolidated financial statements.

CASH FLOW STATEMENT 9.30. Profit for the year, Income taxes, Depreciation and amortization, Taxes paid
Profit for the year, income taxes, depreciation and amortization, all non-monetary items, are reported in notes 9.5 and 9.7 to which reference is made. The provision for income taxes totalled 59.7 million euro, while tax payments during 2010 amounted to 57.3 million euro. These payments comprised the residual amount due for the prior year, together with tax advances determined with reference to current tax regulations in the various countries in which the Group operates.
9.31. Other non-monetary income and expenses, net, interest paid and received
The other non-monetary income and expenses, net, comprise all non-monetary items recorded in the income statement, except for income taxes, depreciation and amortization, the provisions deducted directly from asset captions (allowance for doubtful accounts and provisions for obsolescence). Accordingly, they include the increases/decreases in the hedging reserve, provisions for warranties, provisions for risks and charges, disposal gains and losses, unrealised exchange fluctuations, and accrued interest income and expense. Interest received is reported separately from interest paid.
9.32. Change in trade receivables, inventories, trade payables
This caption reports the cash absorbed or generated by the changes in net working capital, which comprises trade receivables, inventories and trade payables. The changes in trade payables relate solely to the supply of raw materials, goods and services, and exclude the changes in amounts due to suppliers of fixed assets, which are reported in the section of the cash flow statement that reports the cash flows generated (absorbed) by investing activities.
9.33. Change in other assets and liabilities
This caption reports the change in all other current and non-current assets and liabilities, net of the effect on them of provisions for non-monetary income and expenses. This represents the changes in the related balances with a direct effect on the absorption or generation of cash.
9.34. Payments for additions to property, plant and equipment and proceeds from their disposal
The cash flow from additions to property, plant and equipment reflects both the routine replacement of plant and new capital investment. The amount reported includes the change in payables relating to capital investment.
9.35. Acquisition of other intangible assets
The cash flow for investment in other intangible assets relates to the purchase of licences and software, and the capitalisation of development costs which are analysed in note 9.11. The cash flows generated (absorbed) by investing activities include the amounts capitalised since these involve payments for the related internal costs incurred (mainly payroll). These payments essentially reflect the costs capitalised during the year.

The matrix of significant risks faced by the Group is presented below:

10.1.1 Liquidity risk

The Group defines liquidity risk as the risk that a Group company, or the Group as a whole, may be unable to meet its obligations on a timely basis. This risk has two components: Funding Risk: the risk of not being able to meet financial obligations on the due dates and/or being unable, on a timely basis, to obtain the necessary liquidity on market terms; Market Risk: the risk of not being able to realise financial investments on a timely basis and/or on market terms. Liquidity risk is contained by: a capital structure that is balanced between own funds and borrowing; diversifying the various sources of finance; spreading the maturities of financial payables over an extended time horizon; establishing limits for maturities and credit counterparts in the management of liquidity; maintaining unused committed and uncommitted lines of credit. The unused committed lines of credit available at 31 December 2010 amount to 425.0 million euro (340.0 million euro), comprising 350.0 million euro in syndicated bank lines of credit expiring in 2011, 22.5 million euro, and in 2012, 327.5 million euro, and 75.0 million in relation to an amortising line of credit made available by the European Investment Bank, the final instalment on which is payable 7 years after the draw down. In addition, the Group also has significant unused uncommitted lines of credit available at 31 December 2010. The Group further diversified its sources of finance during 2010 via the arrangement of a securitisation programme, involving the without-recourse sale of a portfolio of trade receivables. As required by IAS 39, the receivables sold via the securitisation programme are not derecognised and remain reported as trade receivables, while the related financial payables are reported as liabilities. No significant available lines of credit were revoked during the year. The following table analyses by maturity the undiscounted contractual cash flows relating to financial liabilities, including trade payables and the derivative financial instruments with negative fair value at 31 December 2010. Loans have been included with reference to the first date on which repayment may be requested and those that may be revoked at any time have been treated as repayable upon demand.

Hierarchy of levels in the measurement of fair value
With regard to financial instruments recognised at fair value in the statement of financial position, IFRS 7 requires such values to be classified using a hierarchy of levels that reflect the meaningfulness of the input used for the determination of fair value. The following levels are identified: Level 1 prices quoted in an active market for the asset or liability to be measured; Level 2 input other than the quoted prices referred to above, which is directly (prices) or indirectly (derived from the prices) observable in the market; Level 3 input that is not based on observable market data. With regard to the derivative instruments outstanding at 31 December 2010: all the financial instruments measured at fair value are represented by Level 2 derivatives (same as in 2009); there were no transfers from Level 1 to Level 2, or vice versa, during 2010; there were also no transfers from Level 3 to other levels, or vice versa, during 2010.

10.1.3 Credit risk

Credit risk represents the Group's exposure to potential losses deriving from the failure of commercial and financial counterparts to meet their obligations.
Financial counterpart credit risk
The Group invests its liquidity and enters into currency contracts and/or other derivative transactions with various financial institutions, which may give rise to credit risks. Group Treasury Policy establishes guidelines and limits to be followed by the Treasury Front Office in the management of financial applications of funds, in order to limit the credit risk in relation to financial counterparts. The Treasury Back Office checks compliance with these rules. In particular, Group policy covers: minimum rating requirements for counterparts; the maximum level of counterpart risk that the Group can accept, based on the risk profile (rating) of each counterpart; the rules that specify how risk positions must be modified following a change in rating; the rules and limits that apply in the case of exposure to counterparts without a rating. Transactions involving the employment of liquidity and the use of hedging instruments are arranged with leading domestic and international banks.
Commercial counterpart credit risk
The management of trade receivables, which represent the Group's principal credit risk exposure, is the responsibility of the individual Country Managers working together with the market Credit Controllers, who evaluate counterparts and assign them credit limits. Credit risk is measured on a specific basis by allocating a risk rating to each customer, based on an assessment of creditworthiness that distinguishes between the various types of customer. The risk rating is assigned by the Credit Manager, on examination of the application for credit, following an assessment of creditworthiness that takes account of both subjective and objective information. The objective elements considered include: analysis of financial statements; competitive positioning of the company; information about the potential customer obtained from databases. The subjective elements considered include: accumulated experience; network of relations. 110

Financial assets available for Financial assets sale held for trading -
Investments held to maturity

Hedging instruments

Total carrying amount

Total fair value

Non-current financial assets Trade receivables Current financial assets Cash and cash equivalents

0,3 498,1 7,7 222,7

1,7 9,6 -
2,0 498,1 17,2 222,7 740,0
Financial assets measured at fair value thorugh profi or loss 31.12.2009 (million euro) Loans and receivables Financial assets measured at fair value upon initial measurement -

0,2 391,5 12,0 191,0

1,3 12,7 -
1,4 391,5 24,7 191,0 608,6
Financial liabilities measured at fair value thorugh profi or loss
31.12.2010 (million euro)
Financial liabilities measured at fair value upon initial measurement -
Financial liability held for trading
Other financial liabilities measured at amortised cost
Medium/long term financial liabilities Trade payables Banks and other medium/long term financial liabilities

169,4 829,2 240,4

5,2 5,8

174,6 829,2 246,2 1250,0

31.12.2009 (million euro)

312,5 659,9 162,8

24,7 7,3

337,2 659,9 170,1 1167,3

Financial assets and liabilities measured at amortised cost
Trade receivables and payables, bind deposits, bank borrowing, loans, bonds and other assets and liabilities measured at amortised cost (e.g. receivables sold and finance lease liabilities). Pursuant to IFRS 7, the fair value of these captions is re-measured by calculating the present value of the contractually-expected flows of principal and interest, based on the yield curve for government securities at the measurement date. In particular, the 113
fair value of long-term financial liabilities is determined using the risk-free curve, as adjusted to take account of the Group's credit rating. Although the US Private Placement bonds fall into the category of financial liabilities measured at amortised cost, they are actually recorded at fair value. This is determined with reference solely to the hedged risk factors, using the accounting rules applicable to fair value hedges. The interest rate and currency risks associated with these bonds have in fact been hedged by the Group using the specific derivative instruments described in the note on financial instruments. The carrying amount of trade receivables and payables is a reasonable approximation of their fair value.
Financial assets and liabilities measured at fair value
The financial instruments arranged for hedging and trading purposes (operational hedges) are measured at fair value. Information about the determination of fair value is provided in the section on Derivative financial instruments outstanding at year end.

10.3 Derivative financial instruments outstanding at year end
The transactions outstanding at 31 December 2010 and their fair values are reported in the following table, which also indicates the change in the value of the underlyings (where applicable).
Notional amount Fair value of derivates Change in fair value of underlyings at 31.12.2010 vs 31.12.2009 Change in fair value of derivatives at 31.12.2010 vs 31.12.2009 Change in fair value of underlyings at 31.12.2010 vs inception date Change in fair value of derivatives 31.12.2010 vs inception date 31 December 2010
Nature of risk hedged (million euro) Cash flow hedges Currency options IRS on loans short term Forward Total Fair value hedges CCS on bonds IRS on bonds Totale Currency/ Interest rate Interest rate Currency Interest rate Price/currency

31.12.2010

31.12.2009
Other noncurrent financial assets

Current financial assets

Medium/lo ng-term financial payables
Banks and other financial payables

254,5 570,9 69,2 894,5

222,0 370,9 43,1 636,0

3,3 (6,1) 2,2 (0,5)

2,6 (6,0) 1,5 (1,9)

0,7 (0,1) 0,7 1,3

na na na -

0,1 0,1

4,0 2,5 6,5

(3,8) (3,8)

(0,7) (2,3) (0,3) (3,3)

202,7 18,3 221,0

0,2 1,8 2,0

(17,0) 1,7 (15,3)

17,2 0,1 17,3

(16,8) (0,5) (17,3)

(2,1) (1,8) (3,9)

(0,0) 1,6 1,6

0,5 1,2 1,7

2,0 0,6 2,6

(1,4) (1,4)

(0,9) (0,9)

Other hedges Forwards Total Grand total

Currency

(33,6) (33,6) 1.082,0

74,1 74,1 931,1

(1,1) (1,1) 0,3

(0,8) (0,8) (18,0)

(0,3) (0,3) 18,3

(17,3)

0,4 0,4 9,6

(1,5) (1,5) (5,8)

(a) The currency options recognised as cash flow hedges were purchased principally to hedge the risk of an appreciation of the euro against the British pound, the Polish zloty against the British pound, and the US dollar against the euro. The hedged currency risks mainly relate to highly probable future transactions expected to take place within one year, with the consequent release of the cash flow reserve to the income statement.

(b) The

float-to-fix interest rate swaps have been designated as cash flow hedges of the interest rate risk on part of the short-term loans, the use of which is expected to be equivalent to such interest-rate swaps in terms of their nominal value and maturities. The interest rate hedges outstanding at 31 December 2010 comprise IRS with a total notional of 570.9 million euro. This hedges the interest rate risk on an average of about 200 million euro of underlying payables (short term) with the following maturities: 220.9 million euro from 31 December 2010 to 17 March 2011; 150 million euro from 17 March 2012 to 17 March 2014; 150 million euro from 17 March 2014 to 17 March 2015; 50 million euro from 17 March 2012 to 17 March 2015. (c) The forwards, designated as cash flow hedges, were arranged to hedge the currency risk on highly probable future transactions, and the price risk on highly probablefuture purchases of commodities and semi-finished products. (d) The cross currency swap was arranged to hedge the interest-rate and exchange rate risks deriving from commitments in relation to the US private placement of bonds. This transaction converted the fixed rate US dollar bonds into floating rate euro. (e) The interest rate swap relates to the euro tranche of the US private placement, and was arranged to hedge the interest rate risk that was swapped from fixed to floating at the time the loan was arranged. (f) The forwards not recognised as cash flow hedges were arranged to hedge currency risk.

Share capital, including the portion represented by savings shares, is stated at nominal value. The repurchase of treasury shares, stated at cost including related charges, is recorded as a change in equity; the nominal value of treasury shares is classified as a reduction of share capital, while the difference between cost and nominal value is 146
deducted from the equity reserves. Dividends to shareholders are recognised as a liability in the year in which they are declared.
Financial liabilities are initially recognised at their fair value, net of related charges, and subsequently measured at amortised cost using the effective interest method. The difference between amortised cost and repayment value is recognised in the income statement over the life of the liability in proportion to the related interest accrued. Where hedge accounting applies, the financial liabilities hedged by derivative instruments are measured on a basis consistent with the hedging instrument. If Indesit Company S.p.A. agrees to reimburse a third party on the insolvency of a specified debtor, this guarantee is initially recorded at the fair value of the consideration received and, subsequently, at the amount determined in accordance with IAS 37 or, if greater, at the amount initially recognised less the amount released on a pro-rata temporis basis to the income statement in accordance with IAS 18, where applicable. Guarantees given without charge to subsidiaries are measured at fair value and added to the carrying amount of the equity investment.
Obligations for employee pensions and other benefits deemed to represent defined contribution plans are charged to the income statement on an accruals basis. The net liability to employees under defined benefit plans, principally represented by severance indemnities (TFR) in Italy, is recorded at the expected future value of the benefits to be received by employees and accrued by them in the current and prior years. These benefits are discounted and the resulting obligation is stated net of the fair value of any pension plan assets. The net obligation is determined separately for each plan using actuarial assumptions and is calculated each year, or more frequently, with the support of an independent actuary using the projected unit credit method. The benefits are discounted using the rate for a bond with an AA rating and a maturity date that is consistent with the timing of the related payments to employees. The actuarial gains and losses arising subsequent to 1 January 2004, the IFRS transition date, are recognised in the income statement on a straight-line basis over the residual working lives of employees, to the extent that their cumulative net value exceeds 10% of the greater of the obligation arising under defined benefit plans or the fair value of the plan assets servicing these plans (corridor method) at the end of the prior year. As a result of the reform of supplementary pensions, the TFR accrued from 1 January 2007 is treated as a defined contribution plan, while that accrued up to 31 December 2006 continues to be treated as a defined benefit plan. 147

Assets held for sale are measured at the lower of their carrying amount at the time their sale was decided or their fair value, net of estimated selling costs. All costs, income and impairment losses, if any, are recorded in the income statement and reported separately. 151
Operating activities that represent a separate major line of business or geographical area of operations are classified separately in the income statement and the statement of financial position at the time of disposal, or when they meet the conditions for classification as assets held for sale.
Earnings per share is calculated and presented at Group level. See note 9.19 to the consolidated financial statements.
5.2 Amendments and revised accounting standards applied for the first time by the Company
On 6 May 2010, the IASB issued Improvements to IFRS. The accounting standards and related improvements are presented below. IAS 1 Presentation of Financial Statements. The improvement requires the changes in each component of equity to be reconciled in the notes or on the face of the financial statements. IAS 34 Interim Financial Reporting. The improvement clarifies the disclosures required in relation to: changes during the period with an effect on the fair value of financial instruments; transfers between levels in the fair value hierarchy used to measure financial instruments; changes in the classification of financial instruments as a result of changes in their use and their purpose; changes in contingent assets and liabilities.
5.3 Amendments and interpretations applicable from 1 January 2010 but not relevant to the Company
On 6 May 2010, the IASB issued Improvements to IFRSs. The accounting standards and related improvements are presented below. IFRS 1 - First-time Adoption of International Financial Reporting Standards. The improvement exempts first-time adopters from disclosing certain information about the changes in accounting policy in both their annual and interim financial statements. IFRIC 13 Customer Loyalty Programmes. The improvement clarifies that if the fair value of award credits is measured with reference to the amount for which they could be sold separately, such value must also take account of expected losses and any discounts or incentives that may be offered to customers that have not yet earned the awards concerned. IFRS 3 Business Combinations. The improvement clarifies that the measurement of non-controlling interests at fair value, or in proportion to their interest in the net identifiable assets of the acquired entity, is limited solely to instruments giving them current rights equivalent to those of ordinary shares including, in particular, the right to obtain a proportionate share of its net assets on liquidation. All other components of 152

(million euro) Company name Trade Place Bv Total associates % 20,00 Dec. 31, 2010 0,5 0,5 Dec. 31, 2009 0,5 0,5
6.22. Investments in subsidiaries and other investments Investments in subsidiaries and other investments comprise investments in subsidiaries, investments in companies which generally represent less than 20% of their equity capital or voting rights, and other non-current financial assets. Investments in direct and indirect subsidiaries and other companies are analysed in the table below, which indicates the direct interest held.
(million euro) Company name Subsidiaries: Aermarche S.p.A. Aeradriatica S.p.A. Argentron SA Indesit Company UK Holding Ltd Merloni Domestic Appliances Ltd Indesit Company Portugal Electrodomesticos SA Indesit Electrodomesticos Sa (Spain) Indesit Company Beyaz Esya Pazarlama As Indesit Company Beyaz Esya Sanayi As Indesit Company Ceska S.r.o. Indesit Company Bulgaria Ltd Indesit Company UK Finance LLP Indesit Company RUS Ltd Closed Joint Stock Company Indesit International Indesit IP Srl Total subsidiaries Other companies: Consorzio CONAI Consorzio Ecodom Consorzio delle Dennie Distretto dellelettrodomestico SCARL Emittente Titoli S.p.A. UNIFABRIANO Scarl Radio A Korasidis AE Total other companies Total invest. in subsidiaries and other investments
% 100,00 3,00 100,00 19,60 0,01 78,95 100,00 47,36 100,00 100,00 100,00 100,00 100,00 100,00 100,00
Dec. 31, 2010 20,5 0,2 68,1 13,6 3,8 22,2 182,3 0,1 143,2 0,1 454,1 0,1 0,1 454,3
Dec. 31, 2009 20,5 0,2 68,1 13,6 3,8 22,1 133,5 143,2 405,0 0,1 0,1 405,2
0,07 5,00 14,28 6,45 1,10 10,41 3,80
The companies listed as subsidiaries despite being less than 50% owned are, via other subsidiaries, subject to the indirect control of the majority of their voting rights. Further information about the overall control percentages is provided in Attachment 1 (List of companies consolidated on a line-by-line basis) to the consolidated financial statements. The investments held by Indesit Company S.p.A. in other companies related to unlisted companies whose securities are not traded in a regulated market. Accordingly, their fair value cannot be determined reliably since there were no transactions involving these securities during the past year. The cost of the securities held is analysed below. The composition of and changes in investments are analysed below:
(million euro) Description OPENING BALANCES at 01/01/2009 Historical cost Accumulated depreciation Total 01/01/2009 CHANGES Purchases Reclassifications Impairment losses Reversal of impairment losses Disposal/delate historical cost Disposal/delate fund Total BALANCES at 31/12/2009 Historical cost Accumulated depreciation Total 31/12/2008 CHANGES Purchases Reclassifications Impairment losses Reversal of impairment losses Disposal/delate historical cost Disposal/delate fund Total BALANCES at 31/12/2010 Historical cost Accumulated depreciation Total 31/12/2010

4,75% 0,00% 2,00% 5,20% N/A N/A 2,00%
5,20% 0,00% 2,00% 5,75% N/A N/A 2,00%
6.31. Provisions for risks and charges The provisions for risks and charges cover estimated current and non-current liabilities the exact timing and/or extent of which are uncertain. This caption is analysed as follows:
2010 Opening balance Provisions Utilisations Closing balance Current portion Non current portion
Provision for warranties Provision for agents' termination indemnity Provisions for restructuring Provision for WEEE Provision for disputes and other risks Other risk provisions Total (million euro)
27,4 1,5 17,3 2,6 19,8 68,7
4,2 0,2 18,9 5,0 8,0 36,3
(7,3) (0,2) (5,9) (15,1) (28,5)
24,4 1,5 30,3 7,7 12,7 76,5

10,8 10,1 5,0 7,0 33,0

13,5 1,5 20,1 2,6 5,6 43,5

Opening balance

Provisions

Utilisations

Closing balance

Current portion

Non current portion
Provision for warranties Provision for agents' termination indemnity Provisions for restructuring Provision for WEEE Provision for disputes and other risks Other risk provisions Total

28,8 1,4 18,7 0,1 49,0

9,3 0,2 17,3 2,6 17,3 46,7
(10,6) (0,1) (16,2) (0,1) (27,0)

13,0 6,4 17,7 37,1

14,5 1,5 10,9 2,6 2,1 31,6
The provision for warranties represents the estimated costs to be incurred for work under warranty on products sold. The reduction reflects the steady improvement in the quality of products and, therefore, the lower expected volume of under warranty work. The provision for agents' termination indemnity, determined with reference to the commissions earned in accordance with art. 1751 of the Italian Civil Code and collective agreements, represents the estimated liability for payments to agents should their mandates be terminated (for reasons not attributable to them) by Indesit Company S.p.A. The provision for restructuring covers the estimated costs to be incurred on the reorganisation of the None factory in Italy, and for the closure of the Brembate and Refrontolo factories in Italy. The provision for WEEE covers plant exposed to environmental risks including, in particular, the replacement of asbestos roofing at the Italian factories. The provision for disputes and other risks reflects the best possible estimate of the probable liability based on the information available. In particular, it includes a provision for fiscal risks of 4.2 million euro to cover possible additional tax charges and penalties. This provision was recorded in relation to Inspection Minutes notified to Indesit Company S.p.A. by the Marche Regional Tax Office for Major Taxpayers on 19 October 2010, containing the matters identified during the tax audit covering IRES, IRAP and VAT performed recently in relation to the 2007 tax year. 185