CONSOLIDATION CRITERIA AND CHANGES IN THE CONSOLIDATION SCOPE
Information and the criteria governing the application of full consolidation, proportional consolidation and the equity method as well as those cases in which these criteria are departed from, and justification for such departures
(Pursuant to Article 165, I. of the Royal Decree of 30 january 2001 in implementation of Company Law).
This applies to the parent company and to those of its subsidiaries over which it has exclusive control, i.e. it exercises control of the company in question alone or together with one of its subsidiaries. This control situation arises from:
- ownership of the majority of the votes attaching to the shares of a company;
- the right to appoint or dismiss the majority of the directors or managers;
- having power of control according to the by-laws of the company in question or under the terms of agreements concluded in this respect;
- holding the majority of the voting rights attached to the total shares of a company under an agreement with other partners of the company concerned.
Applies to associated companies, i.e. any company other than a subsidiary or a joint subsidiary in which a company included in the consolidation has a shareholding and in which it has a significant influence on the direction of policy (participating interest of 20%).
Information which makes a comparison meaningfull with the consolidated annual accounts of the previous financial period in case the composition of the consolidated aggregate in the course of the current financial period has changed significantly (Pursuant to Article 112 of aforementioned Royal Decree).
On July 9, 2009 De Persgroep NV acquired a majority interest in PcM Holding BV (now de Persgroep Nederland BV): by subscribing to a capital increase of EUR 130 million, De Persgroep acquired 58.5% of PcM's share capital, while the existing shares - owned by three foundations - were converted into preferential share capital with a nominal value of
EUR 92.2 million. On this share capital de Persgroep Nederland is required to pay a preference dividend of 4.5%, but only from 2014 onwards and only provided enough profit is recorded in the year in question.
On these preference shares the foundations have a right of sale towards de Persgroep Nederland, exercisable from January 1, 2014 at nominal value, but only insofar and to the extent that profit has been reserved in the "Repurchase Reserve - Preference Shares. To this reserve the profits of de Persgroep Nederland from 2010 to 2013 are assigned in full, and thereafter in an amount of 50%, until the nominal value of the preference share capital, i.e. EUR 92.2 million, is reached.
At December 31, 2010 the reserve stood at € 0. De Persgroep Nederland in turn has a purchase option on approximately 70% of the preferred shares, also exercisable from January 1, 2014 at their nominal value.
In 2009 it was deemed, under Article
29 of Royal Decree of 30.1.2001, that in order to give a true and fair view, the aforementioned acquisition was best reflected in the consolidation by analogy with IFRS 3R according to the 'full goodwill' method. This led to a preliminary goodwill allocation of EUR 235.9 million and minority interests of EUR 92.2 million.
During 2010 the company proceeded to the final determination of the acquisition goodwill by taking into account (i) the definitive establishment of the minority interests as a de facto interest-bearing debt, (ii) an adjusted estimate of the deferred tax assets and (iii) a precise determination of the pre-acquisition results based on a run-off control of provisions
and (iv) the final results realized on the sale of NRC Media and PcM Algemene Uitgeverijen. These final allocations resulted in a goodwill at July 1, 2009 of EUR 215.5 million and a minority interest at present value of EUR 80.8 million at December 31, 2010.
Indeed, given the restrictions attached to the claimability of the preference share capital, this de facto debt continues to be shown under "Minority interests", though at present value with a discount rate of 4.5%. Minority interests will evolve in following years as a result of the accrued interest: EUR 84.5 million at December 31, 2011, EUR 88.3 million at December 31, 2012 and EUR 92.2 million at December 31, 2013. The interest effect is shown under financial expenses. Minority interests will therefore no longer evolve up or down with the results of de Persgroep Nederland BV.
In the final determination of goodwill it was decided to reduce the estimated lifetime of 20 years to 10 years given the rapidly evolving media landscape. At year-end 2010, the goodwill on the acquisition of de Persgroep Nederland therefore has a remaining amortisation period of 8.5 years.
SUMMARY OF VALUATION RULES AND METHODS OF CALCULATING OF DEFERRED TAXES
Disclosure of the criteria governing the valuation of the various items in the consolidated annual accounts, and in particular :
the application and adjustments of depreciation, amounts written down and provisions for liabilities and charges, and revaluations (pursuant to article 165, VI.a. of the Royal Decree of 30 january 2001 in implementation of Company Law)
the bases of translation applied to express in the consolidated accounts items which are, or originally were, expressed in a currency other than the currency in which the consolidated accounts are stated, and the translation in the consolidated accounts of the accounting statements of subsidiaries and associated enterprises governed by foreign law (pursuant to Article 165, VI.b. of the aforementioned Royal Decree)
1. Formation expenses
Formation expenses are capitalised and charged to the income statement in full in the year in which they are incurred.Restructuring costs are capitalised only in the case of well-defined costs relating to major changes in the structure or organisation of the enterprises, and when this expenditure has a positive and lasting impact on the profitability of the enterprises
Restructuring costs are amortised by the straight-line method over 5 years.
2. Intangible assets
Intangible fixed assets are recorded at their acquisition value. Titles are not recorded, except when purchased from third parties. Research and development costs and goodwill purchased within the group are charged in full to operating earnings. Goodwill can be retained on the balance sheet only when a return is expected from the underlying activities.
Amortisation period: 5-20 years Software is amortised over 3 years on a straight-line basis.
3. Consolidation differences
Consolidation goodwill consists of both positive differences arising on full consolidations and of positive differences arising
where companies are consolidated by the equity method. Positive consolidation differences are amortised on a straight-line basis over 5, 10 or 20 years depending on the sector in which the participation is situated..
4. Tangible assets
Tangible assets are recorded at their acquisition cost, i.e. their purchase price (including ancillary costs), their production cost or their acquisition value. The following depreciation percentages are applied:
• Land: land is not depreciated
• Buildings: 10-50 years
• Usufruct: straight-line over the life of the agreement in question
• Plant, machinery and equipment: 4-15 years
• Other assets: 2-10 years
• Advance payments on fixed assets and assets under construction: The above depreciation methods and percentages are applied according to the type of assets in question.
5. Financial assets
Unconsolidated participating interests are recorded at acquisition cost or at a lower value when the condition of these enterprises requires such reduction in value. Receivables and guarantees are recorded at nominal value. Reductions in value are applied
where repayment of either all or part of the amount is uncertain.
Raw materials and consumables are recorded at the weighted average cost price. Goods purchased for resale are recorded at acquisition or production cost. A reduction in value is taken where the market value is lower at the balance sheet closing date. Unbroadcast broadcasting rights on films and other productions are recorded under ‘inventory’ at acquisition value.
7. Amounts receivable
Amounts receivable are recorded in the balance sheet at their nominal value. Reductions in value are applied where uncertainty exists with regard to the repayment of all or part of a receivable at due date. Foreign currency receivables are converted into euros at the rate prevailing on the balance sheet closing date.
Short-term investments are recorded at their nominal value. Accounts denominated in foreign currencies are converted into euros at the rate prevailing on the balance sheet closing date.
9. Cash at bank and in hand
Cash at bank and in hand is recorded at its nominal value. Accounts denominated in foreign currencies are converted into euros at the rate prevailing on the balance sheet closing date.
1. Government grants
Government grants are recorded in the balance sheet at their nominal value at the time of granting by the authorised body. They are recognized as financial income pro rata to the charging of depreciation on the tangible fixed assets to which they refer.
2. Amounts payable
Amounts payable are recorded in the balance sheet at their nominal value. Foreign currency payables are converted into euros at the rate prevailing on the balance sheet closing date.
3. Costs of major and minor maintenance and repair work
Minor maintenance and repairs are charged in the financial year in which they are carried out. Every year a provision is charged to operating income to cover major repair and maintenance work.
4. Pension obligations
Pension obligations are provided for on the basis of the projected unit credit method. No net liability is recorded on defined benefit plans in place in the Dutch subsidiaries and which are lodged with sector pension funds. This is in line with the Dutch guidelines (RJ271) and IAS 19 on sector pension funds. These plans are treated for accounting
purposes as defined contribution plans.
5. Negative consolidation differences
Negative consolidation differences (‘badwill’) are recorded in the equity item provided.
This consolidation difference is taken into the income statement pari passu with the losses when these were originally recognized as a result of expected unfavourable results of the subsidiary in question, being deducted from the amortization of the positive consolidation difference ('goodwill').