LM Wind Power Holding A/S is a public limited company based in Denmark. The Annual Report for 1 January - 31 December 2010 includes the consolidated financial statements for LM Wind Power Holding A/S and its subsidiaries (the Company) plus a separate financial statement for the parent company.

The consolidated financial statements for LM Wind Power Holding A/S for 2010 are prepared in accordance with the International Financial Reporting Standard (IFRS) as adopted by the EU and additional Danish disclosure requirements for annual reports and the statutory order on IFRS, published in accordance with the Danish Financial Statements Act.

The parent company's financial statement is prepared in accordance with the provisions of the Danish Financial Statements Act for reporting class C companies.

Comparative figures have been changed due to error in the financial reporting from the Company's subsidiaries in Spain. The error has occurred as a consequence of lack of adherence to the Company's internal accounting policies. Please note that the Company’s accounting policies are unchanged compared to last year. The effect of the change to the 2008 and 2009 figures is presented at the end of this chapter.

The Annual Report is presented in EUR rounded up to the nearest 1,000 EUR.

IFRS accounting standards adopted as from 2010

With effect from 1 January 2010, LM Wind Power Holding A/S adopted the following standards, amendments and interpretations that have been endorsed by the EU and relevant to the Company:

Revision to IFRS 3 “Business Combinations”
The revision introduces significant changes in the accounting for business combinations. Important changes include the valuation of non-controlling interest, the accounting for acquisition-related costs, the initial recognition and subsequent measurement of a contingent consideration and business combination acquired in stages. The effect of the changes has been presented in the relevant sections of the consolidated financial statements.

Amendments to IFRS 7 “Financial Instruments – Disclosures”
The amendments require enhanced disclosures about fair value measurements and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial instruments recognised at fair value. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. These amendments do not have any impact on the consolidation financial statements.

Revision to IAS 27 “Consolidated and Separate Financial statements”
The amended standard requires that a change in the ownership interest of a subsidiary without losing of control is accounted for as a transaction with owners in their capacity as owners and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. The Company will apply this revision prospectively to any future transactions with non-controlling interests.

IFRIC 18 “Transfer of Assets from Customers”
IFRIC 18 applies to all agreements in which an entity receives from a customer an item of property, plant and equipment (or cash to construct or acquire an item of property, plant and equipment) that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both. The adoption of this interpretation does not have any material impact on the consolidated financial statements.

Improvements to IFRSs 2009
The Improvements to IFRSs 2009 that amends 12 IFRS standards was endorsed by the EU in March 2010. Important amendments include amendments relating to the current/non-current classification of convertible instruments, the classification of expenditures on unrecognised assets in the statement of cash flows and the classification of leases of land. The effective date and transitional provisions vary by standard. Most of the amendments that are effective for annual periods beginning on or after January 1, 2010 have been adopted and which do not have any material impact on the consolidated financial statements.

The following amendments and interpretation became effective in 2010 but have had no impact on the Company’s consolidated financial statements as the Company did not have such transactions:

- Amendments to IFRS 2 “Group Cash-settled and Share-based Payment Transactions”
- Amendment to IAS 39 “Financial Instruments: recognition and Measurement – Eligible Hedged Items”
- Amendments to IFRIC 9 and IAS 39 “Embedded Derivatives
- IFRIC 17 “Distribution of Non-cash Assets to Owners”

IFRS accounting standards effective as from 2011 and onwards

The following new and revised standards, amendments and interpretations have been endorsed by the EU and are mandatory for the Company beginning on or after January 1, 2011 or later periods, but the Company has not early adopted them:

Revision to IAS 24 “Related Party Disclosures”
The revised standard has removed the inconsistencies in the definition of a related party and modified the disclosure requirements for government-related entities. The Company will apply the revision retrospectively from January 1, 2011. As the change only impacts the disclosures, we expect no material impact on the consolidated financial statements.

Amendment to IAS 32 “Classification of Rights Issues”
The amendment addresses the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. The amendment requires that if the rights to acquire a fixed number of equity instruments are issued pro-rate to all existing shareholders of the same class of non-derivative equity instruments and are exercisable for a fixed amount of any currency, then these rights should be classified as equity instruments. This amendment is applicable to the Company on January 1, 2011 and is not expected to have a material impact on the consolidated financial statements.

Amendment to IFRIC 14 “Prepayment of Minimum Funding Requirement”
The amendment was endorsed by the EU in July 2010. It corrected an unintended consequence of IFRIC 14. The amendment allows for the recognition of an asset for any surplus arising from the voluntary prepayment of minimum funding contributions for defined benefit plans in respect of future service. The amendment will be adopted on January 1, 2011 and is not expected to have a material impact on the consolidated financial statements.

IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”
IFRIC 19 clarifies the accounting when a debtor and creditor renegotiate the terms of a financial liability with the result that the liability is fully or partially extinguished by the debtor issuing equity instruments to the creditor (refer to as a ‘debt for equity swap’). The interpretation requires a gain or loss to be recognised in profit or loss when a liability is settled through the issuance of the entity’s own equity instruments. IFRIC 19 will be adopted retrospectively on January 1, 2011. The application is not expected to have a material impact on the consolidated financial statements.

Accounting policies applied

Consolidated financial statements
The consolidated financial statements concern LM Wind Power Holding A/S (the parent company) and companies in which LM Wind Power Holding A/S directly or indirectly holds more than 50% of the voting rights or in any other way exercises a controlling interest (subsidiaries). LM Wind Power Holding A/S and its subsidiaries are jointly referred to as the Company.

The consolidated financial statements are prepared on the basis of the financial statements of the parent company and subsidiaries by consolidating items of a similar nature and elimination intro-group transactions, intra-group shareholdings and accounts, and unrealised intra-group gains and losses. The consolidated financial statements are prepared in accordance with the accounting practices applied for the LM Wind Power Company.

Business combinations
Newly acquired or newly established companies are recognised in the consolidated financial statements from the date of acquisition.

The date of acquisition is when LM Wind Power Holding A/S (or the parent company) actually achieved control over the company acquired. Sold or wound-up companies are recognised in the consolidated income statement up to the date they were sold or closed. Comparative data is not adjusted for companies newly acquired, sold or wound up. However, discontinued operations will be presented as a separate item.

When acquiring companies in which the parent company achieves controlling interest, the acquisition method is used. The identifiable assets, liabilities and possible liabilities of acquired companies are measured at their fair value at the time of acquisition.

Identifiable intangible assets are recognised
where they can be separated or arise from a contractual right, and the fair value can be accurately calculated. Deferred tax on re-evaluations performed is recognised.

If there are any uncertainties as to measurement of acquired identifiable assets, liabilities or possible liabilities on the date of acquisition, recognition will first occur based on provisional fair values. Should it subsequently transpire that identifiable assets, liabilities and possible liabilities had a different fair value on the date of acquisition to that envisaged, it will be adjusted up to 12 months after acquisition. The effects of adjustments are recognised in the primary equity capital and comparative data adjusted. Goodwill is subsequently adjusted only as a result of revised estimates for conditional purchase price, unless there are major errors involved.

For business combinations completed on
1 January 2004 or later, the positive difference (goodwill) between cost price for the company and fair price of the identifiable assets, liabilities and possible liabilities is recognised as goodwill under intangible assets. A negative difference (negative goodwill) is recognised in the income statement on the date of acquisition.

Goodwill is not amortised but is tested for impairment annually and whenever impairment indicators require. The first test is performed at the end of the year of acquisition. At the time of acquisition, goodwill is attributed to the cash flow generating units, which subsequently form the basis for impairment testing.

For business combinations completed prior to 1 January 2004, account classification is retained in accordance with former accounting policy. The accounting treatment of business combinations before 1 January 2004 has not been adjusted in connection with the opening balance as at 1 January 2004. Goodwill at 1 January 2004 is therefore recognised based on the cost price at which it was recognised in accordance with the previous accountancy practice (the Danish Financial Statements Act and Danish Accounting Standards) less amortisation and impairment up until 31 December 2003. Goodwill is not amortised after 1 January 2004.

Conversion of foreign currencies
A functional currency is determined for each of the reporting companies. The functional currency is the currency of the primary economic environment in which the reporting company operates. Transactions in other currencies are transactions in foreign currencies. The parent company's functional currency is Danish kroner (DKK), but due to the Company's international relations the consolidated financial statements are presented in euro (EUR).

Transactions in foreign currencies are converted when first recognised to the functional currency at the exchange rate on the day of transaction. Exchange rate differences arising between the rate on the day of transaction and payment are recognised into the income statement under financial income or expenses.

Receivables, payables and other monetary items in foreign currencies are converted to the exchange rate effective on the balance sheet date. The difference between balance sheet date rate and that at the time when the receivables or payables arose or the rate in the most recent annual report are recognised in the income sheet under financial income and expenses. Non-monetary items measured at historical cost are not retranslated. Non-monetary items measured at fair value are translated at the exchange rate when the fair value was determined.

For the consolidated financial statements, foreign entities with a non-euro functional currency will be translated. Assets and liabilities are translated using the exchange rates on the respective balance sheet date. Items of revenue and expenses are translated into Euro using the average rate of exchange for the period involved. The resulting translation adjustments are recognised in other comprehensive income and are presented within equity (translation reserve).

Derivative financial instruments

The Company uses derivative financial instruments primarily to manage its foreign currency risks and to some extent also for managing interest rate and commodity price risks. The Company does not use derivative financial instruments for speculative purposes. Derivative financial instruments are recognised from the date of transaction and measured in the balance sheet at fair value. Gains or losses arising from changes in fair value of derivatives are recognised in the income statement, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting. Fair values for derivative financial instruments are calculated on the basis of current market data and approved capital valuation methods.

Cash flow hedging
Changes to that part of the fair value of derived financial instruments classified as and fulfilling the conditions for hedging future payment flow, and which effectively hedge changes in the value of the item hedged, are recognised in the equity  under a special reserve for hedging transactions, until the hedged cash flow affects the income statement. At that point, the gain or loss made is transferred from the equity and recognised in the same accounting item as the hedged transaction.

If the hedged instrument no longer fulfils the criteria for accountancy hedging, the hedging will cease to apply. The accumulated change in value recognised in the equity is transferred to the income statement when the hedged cash flow affects the income statement.

If the hedged cash flow is no longer expected to be realised, the accumulated change in value is transferred to the income statement immediately.

The income statement

Revenue
Revenue consists of sale of products and render of services.

Revenue from the sale of goods is recognised when all the following specific conditions have been met:

• all significant risk and rewards of ownership of the goods have been transferred to the buyer;
• the amount of revenue can be measured reliably;
• recovery of consideration associated with the transaction is probable; and
• costs incurred or which will be incurred
related to the transaction can be measured reliably.

These conditions are usually met when the products are produced by the delivery date agreed with the customer and the products are physically delivered or stored at the LM Wind Power company's storage facilities.

Revenue from the service rendered is recognised when the services are performed using the percentage of completion method over the term of the agreements.

Revenue for sale of products and services is measured as the fair value of the agreed price excluding VAT and fees collected on behalf of a third party less discounts and similar allowances.

Other external costs
Other external costs include those incurred for distribution, sales, advertising, administration, premises, loss on debtors, operational leasing agreements etc.

Personnel costs
Wages, social insurance contributions, paid leave and sick leave, bonuses and non-monetary payments are recognised in the financial year in which the Company's employees have performed the associated work.

Special items
Special items include items of a special size or character relative to the Company's earnings-generating operations, such as restructuring of processes and basic structural changes, gains and losses in connection with the sale of activities. These items are presented separately to facilitate comparison in the income statement.

Financial income and costs
Financial income and expenses contain interest, exchange rate gains and losses, amortisation of financial assets and liabilities. Realised and unrealised gains and losses from derivative financial instruments that cannot be qualified under hedge accounting are also included here.

Income tax
Income tax comprises current and deferred tax. Income tax is recognised in the income statements except to the extent that it relates to an item recognised directly in other comprehensive income, in which case the tax effect is also recognised in other comprehensive income.

The charge for current tax is calculated based on the income for the period reported by the Company, as adjusted for items that are non-taxable or disallowed and using rates that have been enacted or substantially enacted by the balance sheet date.

The balance sheet

Intangible assets
Goodwill
Goodwill is recognised initially in the balance sheet at cost as described under "business combination". Goodwill is subsequently measured at cost less accumulated impairment losses.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit and loss recognised in the statement on disposal.

Development projects
Development projects which are clearly definable and identifiable, where the technical utilisation ratio, sufficient resources and a potential market or potential use in the business can be established, and when there is an intention to produce, market or use the project, are recognised as intangible assets if the cost can be reliably established, and if there is sufficient certainty that the present value of future earnings can cover production costs and development costs.

The Company expenses all research costs as incurred. Recognised development costs are measured at cost, which include wages and other costs directly and indirectly attributable to the development activities.

Recognised development costs are amortised on a straight-line basis after completion of the development work over the expected economic life from the time the asset is ready for use. The amortisation period is four years. The basis for amortisation is reduced by any impairment made.

The carrying amount for development projects in progress is not amortised but tested for impairment at least annually and where necessary, the project is written down to its recoverable amount in the income statement.

Other intangible assets
Other intangible assets, including those acquired due to business combinations, are measured at cost price less accumulated amortisations and impairments. Other intangible assets are amortised on a straight line basis over their expected economic life as follows:

Customer relationship 1-2 years

Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and impairment costs.

Cost includes the cost of purchase and expenses directly attributable to the purchase until the asset is ready for use. In the case of assets produced in-house, cost comprises direct and indirect costs for materials, labour, components and third party suppliers.

Subsequent costs, e.g. for replacement of components of a material asset, are recognised at the book value of the asset concerned when it is likely that these costs will generate future financial benefits for the Company. The parts replaced cease to be recognised in the balance sheet and the book value is transferred to the income statement. All other costs for general repair and maintenance are recognised in the income statement upon incurred.

The cost price of a composite asset is broken down into the separate components which are depreciated individually, providing their service lives are deemed to vary significantly. Property, plant and equipment are depreciated on a straight-line basis over the expected useful life based on individual assessment determined as follows:

Buildings: 25 years
Leasehold improvements: Over the lease period, not exceeding 5 years
Moulds: Over the expected useful life, 2-4 years
Other assets: 0-5 years

Land is not depreciated.

The depreciation is calculated after taking into account of the asset’s scrap value. Scrap value is determined at the time of acquisition and reviewed annually. In the event that the scrap value exceeds the book value of the asset, depreciation will cease.

Depreciation is recognised as a separate line item in the income statement. Gains and losses on the sale of property, plant and equipment are included in other income/other external expenses.

Leasing
Leasing contracts in which the Company bears substantially all the risks and rewards of ownership (financial leasing) are initially recognised in the balance sheet as assets at the lower of their fair value or present value of future minimum lease payments. When calculating present value, the internal interest rate for the leasing agreement is used as discount factor or an approximate value for the same. The corresponding liability to the lessor is included in the liability as a finance lease obligation.

Assets under finance lease are subsequently depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

Gains from the sale and leaseback under finance leaseback transactions are recognised as a liability and taken into income over the term of the lease.

All other leases are considered as operating leases. Payments in connection with operating leases are recognised using the straight-line method in the income statement over the term of the lease.

Impairment of assets
Goodwill
For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Impairment losses recognised for goodwill are not reversed in a subsequent period.

Recoverable amount is the higher of fair value less costs to sell and value in use. Details of the impairment test are provided in note 1 under “critical accounting estimates and judgements”. Impairment of goodwill is recognised under depreciation and amortisation.

Property, plant and equipment and finite lived intangible assets
The book value of other long term assets is evaluated annually to determine if there is any indication of impairment. If there is, the asset's recovery value is calculated. This will be the highest of the asset's fair value less expected disposal costs or the value in use. Value in use is calculated as present value of expected future cash flow from the asset.

An impairment loss will be recognised when the book value of an asset exceeds the recovery value of the asset. Impairment loss  is recognised in the income statement under depreciation and amortisation.

Impairment for these assets is reversed if changes have been made to the conditions and estimates that led to the impairment. Impairments are reversed only if the new book value of the asset does not exceed the amount that it would have had after amortisation/depreciation, if it had not been impaired.

Inventories
Inventories are measured according to the FIFO method at cost or net realisation value, whichever is lower.

The cost of goods for resale, raw materials and
consumables comprises all direct costs (including transportation) related to the purchase and bringing them to their existing location and condition.

The cost of finished goods and goods under manufacture includes the cost of raw materials, consumables, direct wages and indirect production costs. Indirect production costs include indirect materials and wages plus maintenance of the machines, factory buildings and equipment used in the production process. However, costs of idle facility/plant and abnormal waste are expensed.

Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and future demand.

Receivables
Receivables are recognised initially at fair value based on amounts exchanged and subsequently at present value of estimated future cash flows. The present value of estimated future cash flows is determined through the use of allowances for uncollectible amounts. As soon as individual trade receivables cannot be collected in the normal way and are expected to result in a loss, they are designated as doubtful trade receivables and valued at the expected collectible amounts. They are written down when they are deemed to be uncollectible.

All individually significant receivables are assessed for specific impairment. Receivables for which there is no objective indication of impairment at individual level are evaluated at portfolio level for objective indication of impairment. The objective indicators used for portfolios are determined based on historic loss experience.

Prepaid expenses
Prepaid expenses recognised as assets included costs incurred concerning the subsequent fiscal year. These typically comprise rent, insurance premiums and subscriptions.

Prepaid expenses are measured at nominal value.

Equity

Dividends
Proposed dividend if there is any, is recognised as a liability at the time of declaration before the financial statements are authorised for issue. Dividends expected to be paid for the year are shown as a separate item under equity.

Treasury shares
Treasury reserves include purchase and sales prices for the company's own shares, which
are recognised directly in equity. A capital reduction through cancellation of treasury shares reduces the share capital by an amount
equivalent to the nominal value of the shares
and increases retained earnings. Dividends for
treasury shares are recognised directly in equity under retained earnings.

Translation reserve
Translation reserve comprises mainly exchange rate differences arising from conversion of financial statements of foreign operations that have a functional currency other than euro (EUR).

Hedging reserve
The hedging reserve includes the accumulated net change in fair value of hedge transactions which fulfil the criteria for hedging future payment flows, and for which the hedged transaction has not yet realised.

Provisions
A provision is recognised when the Company has a legal or constructive liability arising from an event before or on the balance sheet date, and it is likely that some financial benefit will have to be given as payment for the liability.

Provisions are measured at the management’s best estimate of the amount required to pay off the liability. The unwinding of the discount will be taken into account if it will have a significant effect on measurement. A pre-tax discounting factor is used which reflects the general level of interest and the specific risks associated with the liability.

Warranty commitments comprise obligations to repair blades delivered within their warranty period. A general provision is made based on previous experience and expected future costs. In addition, individual provisions are made to cover the cost of any retrofits.

Costs for restructuring are recognised as liabilities when a detailed, formal plan for the restructuring is published no later than the balance sheet date for the notification of the people affected by the plan.

Loans and borrowings
Interest bearing loans and borrowings are initially measured at fair value and are subsequently measured at amortised cost. Any difference between the proceeds net of transaction costs and the settlement or redemption of borrowings is recognised over the term of the loan or borrowing.

Trade payables
Trade payables are not interest bearing and are stated at the amortised cost which largely corresponds to the nominal value.

Tax payable and deferred tax
Current tax liabilities and receivable are recognised in the balance sheet as projected tax on the year’s taxable income adjusted for tax on previous taxable income and for prepaid taxes.

Deferred tax is measured using the balance sheet method on all temporary differences between accounting and tax values of assets and liabilities. However, deferred tax on temporary differences concerning goodwill is recognised, which cannot be deducted from taxable income.

Deferred tax assets, including the tax value of presentable tax losses and negative deferred tax, are recognised under other long term assets at a value they are expected to be used at, either in settlement of tax on future earnings or counterbalancing deferred tax liabilities within the same legal tax unit.

Adjustment of deferred tax for eliminated non-realised internal group gains and losses is performed.

Deferred tax is measured on the basis of the tax rules and rates applicable on balance sheet date for the respective countries, when deferred tax is expected to become tax payable. Changes to deferred tax as a result of changed tax rates are recognised in the income statement.

Deferred income
Deferred income is related to the government grants. Government grants are recognised when the Company has obtained reasonable assurance that the grants will be received and the Company will comply with all relevant conditions attaching to the grants. Government grants to finance fixed assets are not offset against the cost of the asset but deferred in the balance sheet and recognised as income over the useful lives of the assets to which they relate.

Assets held for sale
Assets are classified as "held for sale" when their book value will be primarily realised through sale within 12 months in accordance with a formal plan, as opposed to continued use.

Assets held for sale are measured at the lower of the carrying amount at the time of classification as "held for sale" or fair value less costs to sell. Depreciation and amortisation stop when assets are classified as "held for sale".

At subsequent reporting date, assets held for sale will be remeasured using the above method. If fair value less costs to sell is less than the assets remeasured carrying amount an impairment loss will be recorded. In the opposite case, a gain will be recorded to the extent of any previous impairment. Gains and losses are disclosed in the relevant notes.

Cash flow statement
The cash flow statement shows cash flows
for the year broken down by operating, investment and financing activities, cash and cash equivalent provisions for the year and opening and closing balances for cash and cash equivalents.

Cash flows from operating activities are stated according to the indirect method as profit/loss for the year before tax adjusted for non-cash operating items such as amortisation and impairment and provisions, plus changes in working capital, interest received and paid, dividends received and corporation tax paid.

Cash flow from investment activities
comprises payments from the purchase and sale of companies and activities, intangible assets, property, plant and machinery and other long-term assets. The cash flow effect of acquisitions and disposals of companies is shown separately in cash flows from investing activities. Cash flows from companies acquired are shown in the cash flow statement from the date of acquisition and cash flows from companies sold is recognised up to the date of sale.

Cash flow from financing activities
comprises changes to the size of composition of share capital and borrowing, payments of interest-bearing debt and payment of dividends to shareholders. Cash flows concerning financial leased assets are recognised as payment of interest and repayment of debt.

Cash and cash equivalents include cash on hand, call deposits and other short-term highly liquid financial assets such as bank drafts that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.

Cash flows in other currencies than the functional currency are converted at average currency exchange rates, unless they differ significantly from the rate on the transaction day.

Key figures
Key figures have been produced in accordance with the Danish Society of Financial Analysts' "Financial Ratios and Key Figures 2005".