HSBC 2011 Annual Report Download - page 292

HSBC HOLDINGS PLC
Financial Statements (continued)
Footnotes // Notes on the Financial Statements > 1 – Basis of preparation
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Footnotes to Financial Statements
1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line
basis, as details cannot be determined without unreasonable expense.
2 Share premium includes the deduction of US$2m in respect of issuance costs incurred during the year (2010: US$1m; 2009: US$1m).
3 Cumulative goodwill amounting to US$5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to
1 January 1998, including US$3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of
US$1,669m has been charged against retained earnings.
4 Retained earnings include 98,498,019 (US$1,320m) of own shares held within HSBC’s insurance business, retirement funds for the
benefit of policyholders or beneficiaries within employee trusts for the settlement of shares expected to be delivered under employee
share schemes or bonus plans, and the market-making activities in Global Markets (2010: 123,331,979 (US$1,799m); 2009:
179,964,968 (US$2,572m)).
5 The movement in reserves relating to equity-settled share-based payment arrangements is recognised in ‘Retained earnings’ in the
‘Consolidated statement of change in equity’ and ‘HSBC Holdings statement of changes in equity’, with effect from 1 January 2011.
Previously, it was disclosed separately in a ‘Share-based payment reserve’ within ‘Other reserves’. Comparative data have been
restated accordingly. The adjustment reduced ‘Other reserves’ and increased ‘Retained earnings’ by US$2,274m at 31 December 2011
(2010: US$1,755m; 2009: US$1,925m). There was no effect on basic or diluted earnings per share following this change.
6 Amounts transferred to the income statement in respect of cash flow hedges include US$104m gain (2010: US$605m gain; 2009:
US$502m loss) taken to ‘Net interest income’ and US$893m loss (2010: US$441m loss; 2009: US$306m loss) taken to ‘Net trading
income’.
7 Statutory share premium relief under Section 131 of the Companies Act 1985 (the ‘Act’) was taken in respect of the acquisition of
HSBC Bank plc in 1992, HSBC France in 2000 and HSBC Finance Corporation in 2003 and the shares issued were recorded at their
nominal value only. In HSBC’s consolidated financial statements the fair value differences of US$8,290m in respect of HSBC France
and US$12,768m in respect of HSBC Finance Corporation were recognised in the merger reserve. The merger reserve created on the
acquisition of HSBC Finance Corporation subsequently became attached to HSBC Overseas Holdings (UK) Limited (‘HOHU’),
following a number of intra-group reorganisations. At 31 December 2011, nil (2010: nil; 2009: US$5,945m) was transferred from this
reserve to retained earnings as a result of impairment in HSBC Holdings’ investment in HOHU. During 2009, pursuant to Section 131
of the Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and US$15,796m was recognised in
the merger reserve. The merger reserve includes the deduction of US$614m in respect of costs relating to the rights issue, of which
US$149m was subsequently transferred to the income statement. Of this US$149m, US$121m was a loss arising from accounting for
the agreement with the underwriters as a contingent forward contract. The merger reserve excludes the loss of US$344m on a forward
foreign exchange contract associated with hedging the proceeds of the rights issue.
8 Including distributions paid on preference shares and capital securities classified as equity.
9 During June 2010, HSBC Holdings issued US$3,800m of Perpetual Subordinated Capital Securities, Series 2 (‘capital securities’), on
which there were US$82m of external issuance costs and US$23m of intra-group issuance costs which are classified as equity under
IFRSs. The capital securities are exchangeable at HSBC Holdings’ option into non-cumulative US dollar preference shares on any
coupon payment date. Interest on the capital securities is paid quarterly and may be deferred at the discretion of HSBC Holdings. The
capital securities may only be redeemed at the option of HSBC Holdings.
10 Retained earnings include 33,557,764 (US$563m) of own shares held to fund employee share plans (2010: 39,814,107 (US$562m)).