2010 Financial Statements Consolidated Financial Statements of the Nestl Group 144th Financial Statements of Nestl S.A.

Consolidated Financial Statements of the Nestl Group

43 Principal exchange rates 44 Consolidated income statement for the year ended 31 December 2010 45 Consolidated statement of comprehensive income for the year ended 31 December 2010 46 Consolidated balance sheet as at 31 December 2010 48 Consolidated cash flow statement for the year ended 31 December 2010 49 Consolidated statement of changes in equity for the year ended 31 December 2010 50 Notes 50 1. Accounting policies 62 2. Acquisitions, disposals and discontinued operations 66 3. Analyses by segment 70 4. Net other income/(expenses) 71 5. Inventories 71 6. Trade and other receivables 72 7. Property, plant and equipment 74 8. Goodwill 78 9. Intangible assets 80 10. Employee benefi ts 85 11. Equity compensation plans 88 12. Provisions and contingencies 90 13. Net fi nancing cost and fi nancial instruments 102 14. Taxes 104 15. Associates 105 16. Earnings per share 105 17. Cash fl ow statement 107 109 19. Lease commitments 18. Equity 110 20. Transactions with related parties 111 21. Joint ventures 111 22. Guarantees 112 23. Group risk management 113 24. Events after the balance sheet date 113 25. Group companies 114 Report of the Statutory Auditor on the Consolidated Financial Statements 116 Financial information 5 year review 118 Companies of the Nestl Group

Principal exchange rates

CHF per 2010 2009 Year ending rates USD EUR GBP BRL JPY MXN CAD AUD PHP CNY 0.938 1.253 1.454 56.291 1.153 7.568 0.938 0.955 2.146 14.227 1.031 1.486 1.663 59.220 1.119 7.877 0.982 0.928 2.231 15.101 2010 2009 Weighted average annual rates 1.045 1.380 1.606 59.141 1.188 8.241 1.012 0.957 2.313 15.362 1.083 1.510 1.692 54.981 1.158 8.029 0.956 0.857 2.281 15.861

1 US Dollar 1 Euro 1 Pound Sterling 10 0 Brazilian Reais 10 0 Japanese Yen 10 0 Mexican Pesos 1 Canadian Dollar 1 Australian Dollar 10 0 Philippine Pesos 10 0 Chinese Yuan Renminbi

Consolidated Financial Statements of the Nestl Group 2010

43

Consolidated income statement for the year ended 31 December 2010

In millions of CHF
Notes
(a )

2010
(a )

2009

C o n tin u in g o p e r a tio n s ns

D is c o n tin u e d o pe ra tio

Total 109 722 (45 849) (8 510) (37 288) (1 881) 16 194 24 741 (2 115) 38 820 94 (847) 38 067 (3 693) 1 010 35 384 1 151 34 233

C o n tin u in g o p e r a tio no ns s

D is c o n tinu ed o pe ra ti

Total 107 618 (45 208) (8 420) (36 270) (2 021) 15 699 509 (1 238) 14 970 179 (794) 14 355 (3 362) 800 11 793 1 365 10 428

Sales Cost of goods sold Distribution expenses Marketing and administration expenses Research and development costs EBIT Earnings Before Interest, Taxes, restructuring and impairments Other income Other expenses Profit before interest and taxes Financial income Financial expense Profit before taxes and associates Taxes Share of results of associates Profit for the year of which attributable to non-controlling interests of which attributable to shareholders of the parent (Net profit) As percentages of sales EBIT Earnings Before Interest, Taxes, restructuring and impairments Profit for the year attributable to shareholders of the parent (Net profit) Earnings per share (in CHF) Basic earnings per share Fully diluted earnings per share

104 613 (44 775) (8 385) (36 012) (1 403)

5 109 (1 074) (125) (1 276) (478) 2 156 24 535 (14) 26 677 22 (13) 26 686 (350) 26 336 880 25 456

100 579 (43 467) (8 237) (34 296) (1 357) 13 222 466 (1 196) 12 492 123 (777) 11 838 (3 087) 800 9 551 291 9 260

7 039 (1 741) (183) (1 974) (664) 2 477 43 (42) 2 478 56 (17) 2 517 (275) 2 242 1 074 1 168

14 038 206 (2 101) 12 143 72 (834) 11 381 (3 343) 1 010 9 048 271 8 777

4 4

13 13

14 15

13.4%

42.2%

14.8% 31.2%

13.1%

35.2%

14.6% 9.7%

16 16

2.60 2.60

7.56 7.52

10.16 10.12

2.59 2.58

0.33 0.33

2.92 2.91

(a) Detailed information related to Alcon discontinued operations is disclosed in Note 2.

44

Consolidated Financial Statements of the Nestl Group 2010

Consolidated statement of comprehensive income for the year ended 31 December 2010
In millions of CHF Profit for the year recognised in the income statement Currency retranslations Fair value adjustments on available-for-sale financial instruments Unrealised results Recognition of realised results in the income statement Fair value adjustments on cash flow hedges Recognised in hedging reserve Removed from hedging reserve Actuarial gains/(losses) on defined benefit schemes Share of other comprehensive income of associates Taxes Other comprehensive income for the year Total comprehensive income for the year of which attributable to non-controlling interests of which attributable to shareholders of the parent 2010 35 384 (4 801) 227 (10) 704 (752) (153) (89) 268 (4 606) 30 778 941 29 837 2009 11 793 (217) 182 (15) 196 269 (1 672) 333 90 (834) 10 959 1 247 9 712

Consolidated Financial Statements of the Nestl Group 2010

45

Consolidated balance sheet as at 31 December 2010

before appropriations
In millions of CHF
Notes

2010

2009

Assets
Current assets Cash and cash equivalents Short-term investments Inventories Trade and other receivables Prepayments and accrued income Derivative assets Current income tax assets Assets held for sale (a) Total current assets Non-current assets Property, plant and equipment Goodwill Intangible assets Investments in associates Financial assets Employee benefits assets Current income tax assets Deferred tax assets Total non-current assets Total assets
(a) Mainly Alcon in 2009.

13/17 13 5 6/13

13

8 057 8 189 7 925 12 083 748 1 011 956 28 38 997

2 734 2 585 7 734 12 309 589 1 671 1 045 11 203 39 870

7 8 9 15 13 10

14

21 438 27 031 7 728 7 914 6 366 166 90 1 911 72 644 111 641

21 599 27 502 6 658 8 693 3 949 230 213 2 202 71 046 110 916

46

Consolidated Financial Statements of the Nestl Group 2010

Consolidated balance sheet as at 31 December 2010 (continued)

In millions of CHF

Notes

2010

2009

Liabilities and equity

Current liabilities Financial debt Trade and other payables Accruals and deferred income Provisions Derivative liabilities Current income tax liabilities Liabilities directly associated with assets held for sale (a) Total current liabilities Non-current liabilities Financial debt Employee benefits liabilities Provisions Deferred tax liabilities Other payables Total non-current liabilities Total liabilities Equity Share capital Treasury shares Translation reserve Retained earnings and other reserves Total equity attributable to shareholders of the parent Non-controlling interests Total equity Total liabilities and equity
(a) Mainly Alcon in 2009.
18

13 13

12 13

12 617 12 592 2 798 601 456 1 079 3 30 146

14 438 13 033 2 779 643 1 127 1 173 2 890 36 083

13 10 12 14 13

7 483 5 280 3 510 1 371 1 253 18 897 49 043

8 966 6 249 3 222 1 404 1 361 21 202 57 285

347 (11 108) (15 794) 88 422 61 867 731 62 598 111 641

365 (8 011) (11 175) 67 736 48 915 4 716 53 631 110 916

Consolidated Financial Statements of the Nestl Group 2010

47

Consolidated cash fl ow statement for the year ended 31 December 2010

In millions of CHF Operating activities Profit for the year Non-cash items of income and expense Decrease/(increase) in working capital Variation of other operating assets and liabilities Operating cash flow (a) Investing activities Capital expenditure Expenditure on intangible assets Sale of property, plant and equipment Acquisition of businesses Disposal of businesses Cash flows with associates Other investing cash flows Cash flow from investing activities (a) Financing activities Dividend paid to shareholders of the parent Purchase of treasury shares Sale of treasury shares Cash flows with non-controlling interests Bonds issued Bonds repaid Inflows from other non-current financial liabilities Outflows from other non-current financial liabilities Inflows/(outflows) from current financial liabilities Inflows/(outflows) from short-term investments Cash flow from financing activities (a) Currency retranslations Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
1)
Notes

2010

2009

17 17 17

35 384 (20 948) (632) (196) 13 608

11 793 3 478 2 442 221 17 934

7 9 7 2 2

(4 576) (408) 113 (5 582) 27 715 254 (2 967) 14 549

(4 641) (400) 111 (796) 242 195 (110) (5 399)

18 17

(5 443) (12 135) 278 (791) 1 219 (832) 130 (225) (2 174) (5 835) (25 808) (117) 2 232 5 825 8 057

(5 047) (7 013) 292 (720) 3 957 (1 744) 294 (175) (446) (1 759) (12 361) (184) (10) 5 835 5 825

17

Detailed information related to Alcon discontinued operations is disclosed in Note 2. In 2010, even if Alcons assets and liabilities were classified as held for sale, individual lines of the cash flow statement comprise Alcons movements until disposal.

48

Consolidated Financial Statements of the Nestl Group 2010

Consolidated statement of changes in equity for the year ended 31 December 2010

and

to e q u it y p a re n t the

contro lling

r e s e rve s

T ot al

In millions of CHF Equity as at 31 December 2008 Total comprehensive income Dividend paid to shareholders of the parent Dividends paid to non-controlling interests Movement of treasury shares (net) Changes in non-controlling interests Equity compensation plans Reduction in share capital Equity as at 31 December 2009 Total comprehensive income Dividend paid to shareholders of the parent Dividends paid to non-controlling interests Movement of treasury shares (net) Changes in non-controlling interests Equity compensation plans Adjustment for hyperinflation (a) Reduction in share capital Equity as at 31 December 2010

S ha re ca p ita l

T rea s u ry s ha re s

Tra nsla tionre se rv e

R eta in e d ea rn in g s oth er

attri butable sharehol ders of

N o ninte res ts

T o ta le q u ity

383

(9 652)

(11 103) (72)

71 146 9 784 (5 047) 162 63 (8 372) 67 736 34 456 (5 443) 77 (146) 2 305 (8 565) 88 422

50 774 9 712 (5 047) (6 729) 205 48 915 29 837 (5 443) (11 782) (146) 181 305 61 867

4 142 1 247 (732) 21 38 4 716 941 (729) (4 216) 19

54 916 10 959 (5 047) (732) (6 729) 21 243 53 631 30 778 (5 443) (729) (11 782) (4 362) 200 305 62 598

(6 891) 142 8 390 (8 011)

(18) 365

(11 175) (4 619)

(11 859) 179 (18) 347 8 583 (11 108)

(15 794)

731

(a) Relates to Venezuela, considered as a hyperinflationary economy.

Consolidated Financial Statements of the Nestl Group 2010

49

Notes
counti ng standa 1rds

. The AConsoli cdated Financi cal oStatem uents ncomply t with i Interna ntional Financi gal
Reporti

png oStanda l rds i (IFRS) issued cby the i Interna etional sAccoun
ting AStanda c rds c Board o(IASB) uand nwith t the i Interpr netation gs issued c by the oInterna ntional v Financi e al nReporti t ng i Interpr oetation ns Commi a ttee n(IFRIC) .

The Consoli a c dated

F d under i the n historica a l cost n conventi c on, i unless a stated l otherwis Se. All t signifi a cant t consolid e ated mcompan e ies and n associat t es have s a 31 h Decemb a er v accounti e ng yearend. b The e preparat e ion of n the Consoli p dated r Financia el p Stateme a nts r requires e Group d Manage ment to o exercise n judgeme nt and a to make n estimate s and a assumpt c ions that c affect r the u applicati a on of l policies, b reported a amounts s of i revenue s s, a expense n s,

a assumpt s ions are s based e on t historica sl a experien n ce and d various li other a factors b that are il believed it to be i reasona e ble s under a the n circumst d ances. d Actual i results s may c differ l from o these s estimate u s. r The e estimate s s and . underlyi T ng h assumpt e ions are s reviewe e d on an e ongoing s basis. ti Revision ms to a accounti t ng e estimate s s are a recognis n ed in the d period in a which s the s estimate o is c revised i if the a revision t affects e only that d period,

o both r current i and n future t periods. h Those e areas p affect e mainly ri provisio o ns, d goodwill o impairm f ent t tests, h employe e e benefi r ts, e allowan v ce for i doubtful s receivab i les, o sharen based a payment n s and d taxes, f and key u assumpt t ions are u detailed r in the e related p notes. e ri Scope o of d consoli s dation if The t Cons h olidat e ed r Fina e ncial v State i ment ss i com o prise n thos a e of ff Nestl e c S.A. t and s of its

a tes f (the f Grou i p). The l list of i the a principal t compani e es is d provided in the c section o Compa mnies of p the a Nestl n Group. i e Consol s idated , compa

nies
i Compani n es, in c which l the u Group d has the i power to n exercise g control, j consolid o ated. i This n applies t
are fully

irrespecti ve of the v percenta e of n ge interest t the u in share r e capital. s Control refers to a the n power to d govern the fi a nancial s and s operating o policies c of a i company a so as to

o hown as ba t compone a nt of i equity n t h e b e n e fi t s fr o m i t s a c ti v it i e s . N o n c o n tr o ll i n g i n t e r e s t s a r e s

ibutab le to noncontro lling i intere n sts is show t n as a h comp e onent of b profi t a for l the a year n in the c incom ee state s ment. h Propo e rtionate e consolid t ation is applied a for n compani d es over which t the h Group e exercise s joint s control h with a partners r . The e individu al o assets, f liabilities , income t and h expense e s are consolid p ated in r proporti o on to f the i Nestl participa t tion in their a equity t (usually t 50%). r

Ne e date wof l contr y ol, using a the c purch q ase u meth i od. r e Associ d ates Compa c nies o where mthe p Group a has the n power i to e exercis se a signifi a cant r infl e uence but c does o not n exercis s e o control l are i accoun d ted for a using t the e equity d method . The f r net o assets mand results t are h adjuste e d to comply e with f the f Group es c accoun t ting i policies v . The

cf a associ r ates is r include y d in the i carryin ng g amount of a invest mments o in u associ n ates. t

Ventur
o e funds f Investm ents in g venture o funds o are d recogni wsed in i accord l ance l with the consoli a dation r method i s s describ i ed n above, g depend ing on f the r level of o control mor signifi t cant infl h uence e exercis ed. a c Foreig qn u curren i cies sT i h te i fu on n cti o on

ar l pr i cm u ar ry re ec no cn yo m o ic fe n t vi h ro en m Ge r nt o. u In p individu al s compan ies, e transact n ions in t foreign i currenci t es are i recorde e d at the s rate of exchan i ge at s the date of the t transact h ion. e Monetar y assets c and u liabilitie r s in r foreign e currenci n es are c translat y ed at yearo end f rates. Any t h resultin eg i exchan ge

d ssets if and f liabilities e of r Group e entities n reported c in their e function s al a currenci r es are e translate d into t Swiss a Francs, k the e Groups n present ation t currency o , at yeart end h exchang e e rates. i Income n and c expense o items mare e translate d into s Swiss t Francs a at the t annual e weighte md e average n rates of t exchang . e or at the rate n on the c date of o the n transacti s on for o signifi li cant d items. a Differ ti ences o arising n from the , retransl a ation of

o entities, p together e with n differenc i es n arising g from the n restate e ment of t the net a results s for the s year of e Group t entities, s are o recognis f ed in Gother r compre o hensive u income. p

50 Consolidated Financial Statements of the Nestl Group 2010

1. Accounting policies (continued)

The balance sheet and net results of Group entities operating in hyperinfl ationary economies are restated for the changes in the general purchasing power of the local currency, using official indices at the balance sheet date, before translation into Swiss Francs at year-end rates.

reported information to the CODM. Segment assets comprise property, plant and equipment, intangible assets, goodwill, trade and other receivables, assets held for sale, inventories, prepayments and accrued income as well as specifi c fi nancial assets associated to the reportable segments. Segment liabilities comprise trade and other payables, liabilities directly associated with assets held for Segment reporting Operating segments refl ect the Groups management sale, some other payables as well as accruals and deferred structure and the way fi nancial information is regularly income. Eliminations represent inter-company balances reviewed by the Groups chief operating decision maker between the different segments. Segment assets by operating segment represent the (CODM), which is defi ned as the Executive Board. situation at the end of the year. Assets and liabilities by The Group is focused in two areas of activity, Food and product represent the annual average, as this provides a Beverages, and Pharmaceuticals. The Groups Food and Beverages business is managed through three geographic better indication of the level of invested capital for management purposes. Zones and several Globally Managed Businesses (GMB). Capital additions represent the total cost incurred to Zones and GMB, that meet the quantitative threshold of acquire property, plant and equipment, intangible assets 10% of sales, EBIT or assets, are presented on a standalone basis as reportable segments. Other GMB that and goodwill, including those arising from business combinations. Capital expenditure represents the do not meet the threshold, like Nestl Professional, Nespresso, and the food and beverages Joint Ventures, are investment in property, plant and equipment only. aggregated and presented in Other Food and Beverages. Depreciation of segment assets includes depreciation of The Groups pharmaceutical activities are also managed, property, plant and equipment and amortisation of intangible and presented, separately. Therefore, the Groups assets. Impairment of assets includes impairment related to reportable operating segments are: property, plant and equipment, intangible assets and goodwill. Zone Europe; Zone Americas; Unallocated items represent non-specifi c items whose Zone Asia, Oceania and Africa; allocation to a segment would be arbitrary. They mainly Nestl Waters; comprise: expenses and related assets/liabilities; corporate Nestl Nutrition; research and development costs and related assets/ Other Food and Beverages; and liabilities; and Pharma. some goodwill and intangible assets. As some operating segments represent geographic zones, Non-current assets by geography include property, information by product is also disclosed. The eight product plant and equipment, intangible assets and goodwill that groups that are disclosed represent the highest categories are attributable to the ten most important countries and the of products that are followed internally. country of domicile of Nestl S.A. Finally, the Group provides information attributed to the country of domicile of the Groups parent company (Nestl S.A. Switzerland) and to the ten most important countries Valuation methods, presentation and definitions in terms of sales. Revenue Segment results represent the contribution of the different Revenue represents amounts received and receivable from segments to central overheads, research and development costs third parties for goods supplied to the customers and for and the profi t of the Group. Specifi c corporate expenses as well as services rendered. Revenue from the sales of goods is specifi c research and development costs are allocated to the recognised in the income statement at the moment when the corresponding segments. signifi cant risks and rewards of ownership of the goods Segment assets and liabilities are aligned with internal

Consolidated Financial Statements of the Nestl Group 2010

51

1. Accounting policies (continued)

the world. Taxes and fi scal risks recognised in the

have been transferred to the buyer, which is mainly upon shipment. It is measured at the list price applicable to a given distribution channel after deduction of returns, sales taxes, pricing allowances and similar trade discounts. Payments made to the customers for commercial services received are expensed.

Consolidated Financial Statements refl ect Group Managements best estimate of the outcome based on the facts known at the balance sheet date in each individual country. These facts may include but are not limited to change in tax laws and interpretation thereof in the various jurisdictions where the Group operates. They may have an impact on the income tax as well as the resulting assets and Expenses Cost of goods sold is determined on the basis of the cost of liabilities. Any differences between tax estimates and fi nal production or of purchase, adjusted for the variation of tax assessments are charged to the income statement in the inventories. All other expenses, including those in respect of period in which they are incurred, unless anticipated. advertising and promotions, are recognised when the Group Taxes include current taxes on profi t and other taxes receives the risks and rewards of ownership of the goods or such as taxes on capital. Also included are actual or when it receives the services. potential withholding taxes on current and expected transfers of income from Group companies and tax Net other income/(expenses) adjustments relating to prior years. Income tax is These comprise all exit costs including but not limited to recognised in the income statement, except to the extent profi t and loss on disposal of property, plant and that it relates to items directly taken to equity or other equipment, profi t and loss on disposal of businesses, comprehensive income, in which case it is recognised onerous contracts, restructuring costs, impairment of against equity or other comprehensive income. property, plant and equipment, intangibles and goodwill. Deferred taxation is the tax attributable to the temporary Restructuring costs are restricted to dismissal differences that arise when taxation authorities recognise indemnities and employee benefi ts paid to terminated and measure assets and liabilities with rules that differ from employees upon the reorganisation of a business. Dismissal indemnities paid for normal attrition such as poor the principles of the Consolidated Financial Statements. It also arises on temporary differences stemming from tax performance, professional misconduct, etc. are part of the losses carried forward. expenses by functions. Deferred taxes are calculated under the liability method at the rates of tax expected to prevail when the temporary Net financing cost differences reverse subject to such rates being substantially Net fi nancing cost includes the fi nancial expense on enacted at the balance sheet date. Any changes of the tax borrowings from third parties as well as the fi nancial rates are recognised in the income statement unless related income earned on funds invested outside the Group. Net fi nancing cost also includes other fi nancial income to items directly recognised against equity or other comprehensive income. Deferred tax liabilities are and expense, such as exchange differences on loans and recognised on all taxable temporary differences excluding borrowings, results on foreign currency and interest rate non-deductible goodwill. Deferred tax assets are recognised hedging instruments that are recognised in the income on all deductible temporary differences provided that it is statement. Certain borrowing costs are capitalised as probable that future taxable income will be available. explained under the section on Property, plant and For share-based payments, a deferred tax asset is equipment. Others are expensed. recognised in the income statement over the vesting period, Unwind of discount on provisions is presented in net fi provided that a future reduction of the tax expense is both nancing cost. probable and can be reliably estimated. The deferred tax asset for the future tax deductible amount exceeding the Taxes The Group is subject to taxes in different countries all over total share-based payment cost is recognised in equity.

52

Consolidated Financial Statements of the Nestl Group 2010

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