Recognition of Income and Expense
Revenues are measured at the fair value of the compensation
received or receivable and reduced by anticipated reductions
in price, trade discounts and similar other deductions.
Revenues from the sale of goods are recognized when the
Bertelsmann Group has transferred the significant risks and
rewards associated with ownership of the goods to the purchaser
and the amount of revenue can be reliably measured,
except for revenues from transactions applying the percentage
of completion method in accordance with IAS 11. The latter
includes income from services measured by reference to the
stage of completion to the extent the point of completion can
be reliably estimated at the end of the reporting period. The
stage of completion is determined using the input-oriented
method. Under the input-oriented method, contract costs
accruing up to the end of the reporting period are applied
as a percentage of total estimated contract costs (cost-tocost
Revenues from advertising are recognized when the corresponding advertisement or commercial appears in the respective medium. Income from royalties (licenses) is recognized on an accrual basis in line with the provisions of the underlying contract. Revenues from services rendered are recognized based on their percentage of completion. Interest income and expenses are recognized on an accrual basis using the effective interest method in accordance with IAS 39. Dividends are only recognized in profit or loss when the shareholder’s legal entitlement to payment is established. Other income is recognized when the economic benefits are probable and the amount can be measured reliably. Expenses are deferred on the basis of underlying facts or the period of time to which they relate.
In accordance with IFRS 3 , goodwill resulting from a business combination is initially recognized at acquisition cost, with subsequent recognition at acquisition cost less accumulated impairment losses. Goodwill is subject to (Impairment testing at least annually by comparing the carrying amount of the cash-generating unit to which goodwill has been allocated, with the recoverable amount of the cash-generating unit. If the carrying amount of a cash-generating unit exceeds its recoverable amount, an impairment loss is immediately recognized in profit or loss. Impairment, including impairment losses recognized during the year, is not reversed. In the Bertelsmann Group, goodwill is tested for impairment each year as of December 31, as outlined in the “Impairment Losses” section, and if a triggering event arises.
Other Intangible Assets
Non-current internally generated intangible assets are capitalized
at cost, if the requirements set out in IAS 38 have
been met. Intangible assets acquired separately are carried at
acquisition cost less accumulated amortization and accumulated
impairment losses. Intangible assets acquired as part of
a business combination are initially recognized at fair value at
the acquisition date in accordance with IFRS 3.
Intangible assets with finite useful life are amortized on a straight-line basis over their estimated useful life. Impairment losses and reversal of impairment losses are determined by applying the requirements for impairment testing (IAS 36). As a rule, capitalized software has a useful life of between three and five years. Supply rights and subscriber portfolios are amortized over a period of two to 15 years, while the amortization period for trademarks and music and publishing rights is three to 25 years. Licenses are amortized on a straight-line basis over the term of the license agreement or depending on performance (based on the ratios of income from use generated in the reporting period to the estimated total income from use over the whole useful life). The estimate of useful life and amortization methods are reviewed annually and prospectively adjusted to reflect changes in expectations. Intangible assets with indefinite useful life are not amortized. Instead, they are subject to at least annual impairment testing and written down to their recoverable amount if applicable.
Property, Plant and Equipment
Items of property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of items of property, plant and equipment produced internally within the Bertelsmann Group includes direct costs and a portion of overhead costs directly attributable to their production. The cost of property, plant and equipment produced over a longer period of time also includes borrowing costs accrued up to the completion date. The amounts involved are insignificant to the Bertelsmann Group. All other borrowing costs are expensed in the period in which they occurred. Maintenance costs are carried as expenses of the period, whereas expenses for activities that lead to a longer useful life or improved use are generally capitalized. Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful life. Estimates of useful life and the depreciation method are reviewed annually in line with IAS 16 and are adjusted prospectively according to the changed expectations. In the financial year 2015, depreciation is generally based on the following useful lives:
- buildings: ten to 50 years
- technical equipment and machinery: four to 15 years
- other equipment, fixtures, furniture and office equipment: three to 15 years
Land is not subject to depreciation.
Individually significant components of property, plant and equipment are recognized and depreciated separately (component approach).
Goodwill and intangible assets with indefinite useful life are
tested for impairment at least annually. Intangible assets
with a finite useful life and property, plant and equipment are
tested for impairment at the end of each reporting period
in accordance with IAS 36 if there are any indications of
An impairment loss is recognized when the recoverable amount of a cash-generating unit has fallen below its carrying amount. The recoverable amount is the higher of fair value less costs of disposal and value in use. Fair value less costs of disposal and the value in use are generally determined using the discounted cash flow method, which is based on future cash flow forecasts which are part of company forecasts. For determining the value in use, estimated future cash inflows or outflows from future restructurings or from improvement or enhancement of the cash-generating units’ performance are excluded unless, as of the end of the reporting period, the cash-generating unit is committed to the restructuring and related provisions have been made. For assets held for sale, only fair value less costs to sell is used as a basis for comparison.
As long as an active market exists, the market price or the price in the most recent comparable transaction is used for measuring fair value. If there is no active market, fair value less costs of disposal is generally calculated using the discounted cash flow method. If it is not possible to allocate cash flows to assets, the relevant impairment losses are determined on the basis of cash flows attributable to the cash-generating unit to which the assets belong. Projected cash flows are based on internal estimates for three planning periods. Generally, two further detailed planning periods are applied in addition. Based on historical data, the company’s internal forecasts take into account expectations relating to the market development. For periods beyond this detailed horizon, a perpetual annuity is recognized, taking into account individual business-specific growth rates of generally -1.5 to 2.5 percent. Discounting is generally based on the weighted average cost of capital (WACC) after tax. Specific WACCs are derived for cash-generating units with different risk profiles. Management estimates of cash flow are based on factors including assumptions of economic trends and the associated risks, the regulatory environment, the competitive environment, market share, investments and growth rates. The growth rates applied are based on longterm real growth figures for the relevant economies, growth expectations for the relevant sectors and long-term inflation forecasts for the countries in which the cash-generating units operate. The values allocated to the key assumptions are in line with external sources of information. The figures obtained using the respective discount rates reflect the recoverable amount of the cash-generating units. Material changes in the market or competitive environment may impair the value of cash-generating units. If the reasons for an impairment loss recognized in prior periods no longer exist, the impairment loss is reversed up to a maximum of the carrying amount of the respective asset if the impairment loss had not been recognized. The latter does not apply to goodwill.
If the Bertelsmann Group bears all material rewards and risks
as part of leasing agreements and is thus to be regarded as the
economic owner (finance lease), the leased item is capitalized
at its fair value at the inception of the lease term or the lower
net present value of the future minimum lease payments.
Payment obligations arising from finance leases are recognized
as financial liabilities in the same amount. In the subsequent
periods, the minimum lease payments are apportioned
between the finance charge and the reduction of the outstanding
liability such that this results in a constant interest rate
on the remaining balance of the liability. As a rule, financing
costs are recognized in profit or loss as “Interest expenses.”
The leased item is subject to depreciation. If it is reasonably
certain that ownership of the leased assets will pass to the
lessee at the end of the lease term, the assets are depreciated
over their useful life. Otherwise, they are depreciated over
the term of the lease or the useful life, whichever is shorter.
Contingent lease payments are recognized as an expense in
the period in which they result.
Leased assets primarily relate to buildings. Finance leases for buildings are generally subject to non-cancelable minimum lease terms of approximately 20 years. Upon expiry of the lease term, the lessee is as a rule entitled to purchase the leased asset at its residual value. The operating leases entered into by the Bertelsmann Group primarily relate to rental agreements for buildings and technical transmission facilities. Based on the substance of transaction, the leased assets are allocated to the lessor. The lease installments constitute expenses for the period and are carried as “Other operating expenses” using the straight-line method over the term of the lease.
Financial assets are recognized initially at fair value, taking into account transaction costs that are directly attributable to the acquisition of the financial asset. In the case of financial assets that are recognized at fair value through profit or loss, transaction costs are recognized directly in the income statement. Regular purchases and sales of financial assets are recognized on the trade date – the day on which the Bertelsmann Group enters into an obligation to buy or sell the asset.
For subsequent measurement, financial assets are classified into the following categories and subcategories:
- held-to-maturity investments
- available-for-sale financial assets
- financial assets recognized at fair value through profit
- primary and derivative financial assets held for trading)
- financial assets initially recognized at fair value through profit or loss
- loans and receivables
- originated loans and trade receivables
- cash and cash equivalents
Financial instruments are held to maturity if they have fixed or determinable payments and a fixed maturity that the Bertelsmann Group is to hold to maturity. Subsequent measurement is at amortized cost using the effective interest method. In the financial year, no held-to-maturity investments were recognized.
Available-for-sale financial assets:
The available-for-sale category primarily includes current and non-current securities and equity investments not classified as held-to-maturity investments, as loans and receivables, or at fair value through profit or loss. In accordance with IAS 39, available-for-sale financial assets are measured at their fair value at the end of the reporting period to the extent that this value can be reliably measured. Otherwise these are measured at cost. With deferred taxes taken into consideration, gains and losses resulting from fluctuations in the fair value are recognized in other comprehensive income. However, if there is objective evidence of impairment, this is recognized in profit or loss. A significant or prolonged decline in the fair value of an equity instrument below its acquisition cost is also to be regarded as objective evidence of impairment. If these assets are sold, the accumulated gains and losses previously recognized in other comprehensive income are reclassified from equity to the income statement.
Primary and derivative financial assets held for trading:
As a rule, this category includes derivatives that do not meet the formal requirements of IAS 39 for hedge accounting. They are measured at their fair value. Gains or losses from changes to the fair values are recognized in profit or loss.
All derivatives that fulfill the formal requirements of IAS 39 for hedge accounting are carried separately as derivative financial instruments used in hedging relationships and are measured at fair value. Further details are presented in the section “Derivative Financial Instruments”.
Financial assets initially recognized at fair value through profit
This category includes financial assets that are designated upon initial recognition at fair value through profit or loss. Changes in fair value are recognized in the other financial result.
Originated loans and trade receivables:
Originated loans and trade receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost using the effective interest method. Long-term interestfree or low-interest loans and receivables are discounted. Foreign currency items are translated using the closing rate. If there is objective evidence of impairment, the carrying amount is reduced through use of an allowance account and the loss is recognized in profit or loss.
Cash and cash equivalents:
Cash includes bank balances and cash on hand. Cash equivalents include short-term, highly liquid securities with a term to maturity on acquisition of a maximum of three months. Foreign currency items are translated using the closing rate.
Measurement at fair value:
In the case of financial assets measured at fair value, the valuation technique applied depends on the respective inputs present in each case. If listed prices can be identified for identical assets on active markets, they are used for valuation (level 1). If this is not possible, the fair values of comparable market transactions are applied, and financial methods that are based on observable market data are used (level 2). If the fair values are not based on observable market data, they are identified using recognized financial methods (level 3).
Impairment losses and reversals of financial assets:
The carrying amounts of financial assets not recognized at fair value through profit or loss are examined at the end of each reporting period in order to determine whether there is objective evidence of impairment. Such evidence exists in the following cases: information concerning financial difficulties of a customer or a group of customers; default or delinquency in interest or principal payments; the probability of being subject to bankruptcy or other financial restructuring; and recognizable facts that point to a measurable reduction in the estimated future cash flows, such as an unfavorable change in the borrower’s payment status or the economic situation that corresponds to the delayed performance. In the case of financial assets carried at amortized cost, the loss in case of impairment corresponds to the difference between the carrying amount and the present value of the anticipated future cash flows – discounted using the original effective interest rate for the financial asset. If it is established that the fair value has increased at a later measurement date, the impairment loss previously recognized is reversed up to a maximum of amortized cost in profit or loss. Impairment losses are not reversed in the case of unlisted equity instruments that are classified as available-for-sale assets and carried at cost. In case of impairment on available-for-sale assets carried at cost, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of the estimated future cash flows discounted using the risk-adjusted interest rate.
Offsetting financial instruments:
Financial assets and liabilities are offset and the net amount is presented in the consolidated balance sheet if there is a legally enforceable right to offset the recognized amounts against each other and if it is intended to settle on a net basis. Settlement on a net basis must thus be legally valid both as part of ordinary business activities and also in the event of payment default, insolvency or bankruptcy by one of the parties.
Inventories – including raw materials and supplies, finished
goods and work in progress as well as merchandise – are
recognized at the lower of historical cost and net realizable
value at the end of the reporting period. Similar inventories are
measured at average cost or using the FIFO (first-in, first-out)
method. Inventories originating from intragroup suppliers
are adjusted to eliminate intercompany earnings and are
measured at the Group’s cost.
Inventories are tested for recoverability at the end of each reporting period. For this purpose, net realizable value is determined. Net realizable value is defined as the estimated sales price less expected costs to complete and estimated selling expenses. A write-down is recognized if the net realizable value is lower than its historical cost. Write-downs are reversed if the circumstances causing their recognition no longer exist. The new carrying amount then represents the lower of historical cost and adjusted net realizable value. In addition to raw materials and supplies, finished goods, work in progress and merchandise, inventories include all shortterm film, television and similar rights that are intended for broadcast or sale within the Group’s normal operating cycle. In particular, this includes films and TV shows currently in production, co-productions and acquired broadcasting rights. The carrying amount of such items at the end of the reporting period is the lower of historical cost or net realizable value.
The consumption of film and television rights starts from the date of initial broadcast and depends either on the number of planned broadcasts or the expected revenues. The broadcast-based consumption of film and television rights is as follows:
- Free television thematic channels: Program rights are consumed on a straight-line basis over a maximum of six runs.
- Free television other channels:
- Entertainment programs such as soap operas, documentaries and sports, quiz or music programs are written off in full at the initial broadcast date.
- 50 percent of the carrying amount of children’s programs and cartoons is written off at each of the first two broadcast dates.
- The consumption of cinema productions, TV feature films and series also spans a maximum of two broadcasts: 67 percent of the value is consumed upon the first broadcast, the remaining 33 percent upon the second broadcast.
- Pay television channels: Program rights are consumed on a straight-line basis over the license period.
The consumption of inventories and film and television rights is recognized in the income statement in the cost of materials and changes in inventories, respectively.
Customer-Specific Production Contracts
To the extent that they meet the requirements of IAS 11, customer-specific production contracts are recognized using the percentage of completion method. Revenues and gains on customer-specific production contracts are recognized by reference to the stage of completion of the respective projects. The stage of completion is calculated as the proportion of the contract costs incurred up to the end of the reporting period to the total estimated project cost (cost-to-cost method). Irrespective of the extent to which a project has been completed, losses resulting from customer-specific production contracts shall be recognized as an expense immediately. In the financial year 2015, no material revenues were recognized from customer-specific production contracts.
In accordance with IAS 12, deferred tax assets and liabilities
are recognized for temporary differences between the tax
base and the carrying amounts shown on the IFRS
consolidated balance sheet, and for as yet unused tax loss
carryforwards and tax credits.
Deferred tax assets are recognized only to the extent it is probable that taxable income will be available against which the deductible temporary difference can be utilized. Deferred tax assets that are unlikely to be realized within a clearly predictable period are reduced by valuation allowances. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets and liabilities resulting from business combinations are recognized with the exception of temporary differences on goodwill not recognizable for tax purposes. The tax rates applied for computation are those expected as of the date of reversal of temporary differences and use of tax loss carryforwards respectively. As a rule, deferred taxes are recognized in profit or loss unless they relate to items recognized in other comprehensive income. In this case, deferred taxes are recognized in other comprehensive income.
Cumulated Other Comprehensive Income
Cumulated other comprehensive income includes foreign
exchange gains and losses as well as unrealized gains and
losses from the fair value measurement of available-for-sale
financial assets and derivatives used in cash flow hedges
or hedges of net investments in foreign operations in
accordance with IAS 39.
In addition, in accordance with IAS 28.10, changes in other comprehensive income for entities accounted for using the equity method are recognized. Remeasurement effects of defined benefit pension plans (actuarial gains and losses on the defined benefit obligation, differences between actual investment returns and the return implied by the net interest cost on the plan assets, and effects of the asset ceiling) are recognized in the retained earnings in the year in which these gains and losses have been incurred as part of the reconciliation of total comprehensive income for the period in the statement of changes in equity. Deferred taxes on the aforementioned items are also recognized directly in equity.
Provisions for pensions and similar obligations are calculated
using the projected unit credit method in accordance with
IAS 19. This method involves the use of biometric calculation
tables, current long-term market interest rates and current
estimates of future increases in salaries and pensions.
The net interest expense included in pension expense is recognized in the financial result. Remeasurement effects of defined benefit pension plans (actuarial gains and losses on the defined benefit obligation, differences between actual investment returns and the return implied by the net interest cost on the plan assets, and effects of the asset ceiling) are recognized immediately in equity under other comprehensive income and are not reclassified to profit or loss in a subsequent period (recycled).
With the exception of the other personnel-related provisions calculated in accordance with IAS 19, all of the other provisions are established on the basis of IAS 37 where there is a legal or constructive obligation to a third party, the outflow of resources is probable and it is possible to reliably determine the amount of the obligation. Provisions are measured in the amount of the most likely outcome. Long-term provisions are discounted. The discount rates take into account current market expectations and, if necessary, specific risks for the liability. As a rule, income from the reversal of provisions is generally included in the income statement line item to which the provision was previously charged.
Trade payables and other primary financial liabilities including profit participation certificates are initially measured at their fair value less transaction costs. Subsequent measurement is based on amortized cost using the effective interest method (financial liabilities at amortized cost), unless the financial liability is classified as initially recognized at fair value through profit or loss. In the case of financial liabilities measured at fair value, the valuation technique applied depends on the respective inputs present in each case. If listed prices can be identified for identical assets on active markets, they are used for valuation (level 1). If this is not possible, the fair values of comparable market transactions are applied, and financial methods that are based on observable market data are used (level 2). If the fair values are not based on observable market data, they are identified using established financial methods (level 3). Foreign currency liabilities are translated at the exchange rate at the end of the reporting period. Finance lease liabilities, which are also recognized under financial liabilities, are carried at their net present value in accordance with IAS 17.
Derivative Financial Instruments
As set out in IAS 39, all derivative financial instruments are
recognized at fair value on the balance sheet. Derivative
financial instruments are recognized as of the transaction
date. When a contract involving a derivative is entered into,
it is initially determined whether that contract is intended to
serve as a fair value hedge or as a cash flow hedge. Some
derivatives do not meet the requirements included in IAS 39
for recognition as hedges, despite this being their economic
Changes in the fair values of derivatives are recognized as follows:
- Fair value hedge: Changes in the fair value of these derivatives used to hedge assets or liabilities are recognized in profit or loss; the corresponding gain or loss on the change in fair value of the underlying balance sheet item is also directly included in the income statement.
- Cash flow hedge: The effective portion of the changes in the fair value of derivatives used to hedge future cash flows is recognized in other comprehensive income. The amounts carried here are included in the initial measurement when an underlying non-financial asset or a non-financial liability is received (basis adjustment). In other cases, the reclassification of the previously recognized gains and losses from equity to the income statement is performed when the hedged underlying transaction affects profit or loss. The ineffective portion of the changes in the fair value of the hedging instrument is recognized in profit or loss.
- Hedge of a net investment in a foreign operation: For this type of hedge, the effective portion of the gains and losses on changes in the fair value of the hedging instrument is taken directly to other comprehensive income. The ineffective portion is recognized in profit or loss. On disposal of the investment, the changes in the fair value of the hedging instruments that are contained in equity are recognized in profit or loss.
- Stand-alone derivatives (no hedge relationship): Changes in the fair value of derivatives that do not meet the criteria for recognition as hedges are recognized in profit or loss in accordance with the held-for-trading category and are therefore classified as at fair value through profit or loss.
In the financial year 2015, no hedge transactions were recognized with fair value hedges or to hedge a net investment in foreign operations.
Share-based payments for employees of the Bertelsmann
Group include equity-settled share-based payment transactions
and cash-settled share-based payment transactions.
Equity-settled share-based payment transactions are granted
to certain directors and senior employees in the form of share
options. The options are granted at the market price on the
grant date and are exercisable at that price. For share options,
the fair value of the options granted is recognized as personnel
costs with a corresponding increase in equity. The fair value
is measured at the grant date and allocated over the vesting
period during which the employees become unconditionally
entitled to the options. The fair value of the options granted is
measured using a binomial option pricing model, taking into
account the terms and conditions at which the options were
granted. The amount recognized as an expense is adjusted
to reflect the actual number of share options vesting. Share
options forfeited solely due to share prices not achieving the
vesting threshold are excluded.
The financial liability of cash-settled share-based payment transactions is measured initially at fair value at grant date using an option pricing model. Until the liability is settled, its fair value shall be remeasured at the end of each reporting period and at the date of settlement, with any value changes recognized in profit or loss as personnel costs of the period.
Non-Current Assets Held for Sale and Related Liabilities
Non-current assets or disposal groups are classified as held
for sale if the associated carrying amount will be recovered
principally through a sale transaction and not from continued
use. These non-current assets and the associated liabilities
are presented in separate line items in the balance sheet
in accordance with IFRS 5. They are measured at the lower
of the carrying amount and fair value less costs to sell.
Depreciation/amortization is not recognized if a non-current
asset is classified as held for sale or forms part of a disposal
group that is classified as held for sale.
Components of entities that fulfill the requirements of IFRS 5.32 are classified as discontinued operations and thus are carried separately in the income statement and cash flow statement as well. All of the changes in amounts made during the reporting period that are directly connected with the sale of a discontinued operation in any preceding period are also stated in this separate category. If a component of an entity is no longer classified as held for sale, the results of this entity component that were previously carried under discontinued operations are reclassified to continuing operations for all of the reporting periods shown.
A government grant is not recognized until there is reasonable assurance that the entity will comply with the conditions attached to it and that the grant will be received. Grants for assets are deducted when the carrying amount is calculated and are recognized in profit or loss over the useful life of the depreciable asset as a reduced depreciation expense. Grants related to income are recognized as income in the periods in which the expenses to be compensated by the grants were incurred.
Significant Accounting Judgments, Estimates and Assumptions
The preparation of Consolidated Financial Statements requires the use of accounting judgments, estimates and assumptions that may impact the carrying amounts of assets, liabilities, income and expenses recognized. Amounts actually realized may differ from estimated amounts. The following section presents accounting judgments, estimates and assumptions that are material in the Bertelsmann Consolidated Financial Statements for understanding the uncertainties associated with financial reporting.
- Recognition of income and expense: In the event of return rights, mostly for print products, estimates must be made with regard to the anticipated return volume as revenues are recognized taking the anticipated returns into account. Return ratios determined using statistical methods are used to identify the anticipated returns.
- Control of entities in which the Bertelsmann Group holds less than half of the voting rights: Management considers that the Bertelsmann Group has de facto control of Groupe M6, which belongs to RTL Group, even though it holds less than 50 percent of the voting rights. RTL Group is the majority shareholder of Groupe M6 while the balance of other holdings remains highly dispersed, and the other shareholders have not organized their interest in such a way that they intend to vote differently from the Bertelsmann Group.
- Trade receivables and other receivables: Valuation allowances are recognized for doubtful receivables based on risk factors such as a customer’s financial difficulties and unfavorable changes in the economic situation, taking into account the maturity structure of the receivables. Sales estimates and assumptions on future sales success are also made in connection with advances paid to authors to secure exploitation rights in their publications. In addition, in the case of sports and film rights, estimates are made with regard to anticipated revenues.
- Impairment losses: Goodwill and intangible assets with indefinite useful life are tested for impairment at least annually. Intangible assets with finite useful life and property, plant and equipment are tested for impairment in accordance with IAS 36 if there are indications that an asset may be impaired. Impairment loss has occurred when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and value in use. Fair value less costs of disposal and the value in use are generally determined using the discounted cash flow method, which is based on future cash flow forecasts which are part of company forecasts. The cash flow forecasts are based on the management’s best possible estimates with regard to future performance. The Bertelsmann Group has used a combination of longterm trends, industry forecasts and in-house knowledge, with special emphasis on recent experience, in forming the assumptions about the development of the various relevant markets in which the Bertelsmann Group operates. This is an area highly exposed to the general economic conditions. The state of the relevant market is just one of the key operational drivers which the Bertelsmann Group uses when assessing individual business models. The most important assumptions include estimated growth rates, the weighted average cost of capital and tax rates. All of these different elements are variable, interrelated and difficult to isolate as the main driver of the various business models and respective valuations. Changes to these estimates as a result of more recent information could have a material impact on the amount of the possible impairment. The Bertelsmann Group performs sensitivity analyses on the cash-generating units, especially on those where the headroom between the recoverable amount and the carrying value is low. Detailed information on the assumptions and estimates that are used in impairment testing for intangible assets (including goodwill) in the Bertelsmann Group is presented in note 11 “Intangible Assets”.
- Pension obligations: Pension obligations are measured using the projected unit credit method. Using this approach, biometric calculations, the prevailing long-term capital market interest rates and, in particular, assumptions about future salary and pension increases are taken into account. The discount rate determination for the eurozone was modified regarding the data selection in the financial year 2015. Further refinements were also implemented. If the discount rate at December 31, 2015, had been determined without these changes, the discount rate would have been around 10 basis points higher. The actuarial gains attributable thereto would have reduced the pension provisions by €53 million. Information on the assumptions made in pension accounting is presented in note 19 “Provisions for Pensions and Similar Obligations”.
- Provisions for onerous contracts and warranties are also based to a significant extent on management estimates with regard to their amount and probability of occurrence. Assessments of whether there is a present obligation, whether an outflow of resources is probable and whether it is possible to reliably determine the amount of the obligation are generally based on the expertise of in-house or third-party specialists. More recent information could change the estimates and thus impact the Group’s financial position and performance. The legal and regulatory environment in which Bertelsmann operates does not bear significant litigation risks. With regard to risk provisioning, a provision for potential losses from litigation is recognized when the risks of a loss are considered to be probable and when a reliable estimate of the anticipated financial impact is possible. For significant contingent liabilities for which the possibility of a future loss is more than remote but less than probable, the Bertelsmann Group estimates the possible loss where the Group believes that an estimate can be made. At the end of the reporting period, there were no reportable contingent liabilities from litigation. Management regularly reviews the recognition, measurement and use of provisions as well as the disclosure requirements for contingent liabilities.
In the case of purchase price allocations, assumptions are also made regarding the measurement of assets and liabilities assumed as part of business combinations. This applies in particular with regard to the acquired intangible assets, as measurements are based on fair value. As a rule, this is the present value of the future cash flows after taking into account the present value of the tax amortization benefit. In addition, the definition of uniform useful lives within the Group is based on the management’s assumptions. General information on useful lives is presented in the sections “Other Intangible Assets” and “Property, Plant and Equipment”.
Assessments of the ability to realize uncertain tax positions and future tax benefits are also based on assumptions and estimates. Recognition of an asset or liability from an uncertain tax position is performed in accordance with IAS 12 if payment or refund of an uncertain tax position is probable.
Measurement of the uncertain tax position is at its most likely amount. Deferred tax assets are only carried to the extent that it is probable that they can be utilized against future taxable profits. When assessing the probability of the ability to use deferred tax assets in the future, various factors are taken into account, including past earnings, company forecasts, tax forecast strategies and loss carryforward periods. Information relating to the ability to realize tax benefits is presented in note 10 “Income Taxes”.
Assumptions are also made for measuring fair values of financial assets and financial liabilities. In this regard, Bertelsmann uses various financial methods that take into account the market conditions and risks in effect at the end of the respective reporting periods. The inputs to these models are taken from observable markets where possible, but where this is not feasible, measuring fair values is based on assumptions by management. These assumptions relate to input factors such as liquidity risk and default risks.
Estimates and assumptions also relate to the share-based payments. The conditions of the cash-settled share-based payment transactions and the stock option plans are presented in greater detail in the “Share-Based Payments” section in note 18 “Equity”.
Estimates and the underlying assumptions are reviewed on an ongoing basis. As a rule, adjustments to estimates are taken into account in the period in which the change is made and in future periods.
Prior Year Information
The purchase price allocations of the business combinations SpotX (formerly SpotXchange) and StyleHaul in the financial year 2014 have been finalized in the financial year 2015.
The following table shows the slightly adjusted final fair values of the assets and liabilities and the final resulting goodwill on their dates of initial consolidation:
|in € millions||SpotX|
|Other intangible assets||10||4|
|Property, plant and equipment||3||–|
|Trade and other receivables||–||–|
|Other non-current assets||5||12|
|Trade and other receivables||32||5|
|Other current assets||–||–|
|Cash and cash equivalents||4||1|
|Provisions for pensions and similar obligations||–||–|
|Other financial and non-financial liabilities||29||5|