The consolidated financial statements of the Company include 20 (2014: 22) subsidiaries inGermany and 49 (2014: 49) subsidiaries abroad, in which ALTANA either directly or indirectly may exercise control. ALTANA controls an investee when it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
In 2015, in the BYK Additives & Instruments division two German subsidiaries were merged and a new subsidiary was founded in Korea. In the ACTEGA Coatings & Sealants Division two Brazilian subsidiaries were merged.
Since 2014, ALTANA has held 75 % of the listed company ELANTAS Beck India Ltd. (Beck India), India. The remaining shares are free float.
ALTANA holds a 39 % interest in Aldoro Indústria de Pós e Pigmentos Metálicos Ltda. (Aldoro), Brazil, and accounts for it by applying the equity method of accounting. In addition, ALTANA holds a 33 % interest in Landa Corp. (Landa), Israel, and also accounts for it by applying the equity method of accounting (see note 16).
All intercompany balances and transactions are eliminated in consolidation. The financial statements of the consolidated subsidiaries are prepared in accordance with the Company’s accounting policies.
The list of all consolidated companies and ALTANA’s full ownership in accordance with section 313 (2) of the German Commercial Code (HGB) is part of the audited consolidated financial statements published in the electronic Federal Gazette (Bundesanzeiger). This list is also published on the internet at www.altana.com.
New Accounting Pronouncements Endorsed by the EU
The following Standards and Interpretations were initially adopted in the financial year 2015:
The following Standards and Interpretation were early adopted in the financial year 2015:
The following Standards and Interpretations are applicable at the earliest for financial years beginning after December 31, 2015. ALTANA has not early adopted these Standards and Interpretations.
New Accounting Pronouncements not yet Endorsed by the EU
The following new Standards and Interpretations have not yet been endorsed by the European Union. ALTANA has not early adopted these Standards and Interpretations.
The consolidated financial statements of ALTANA are expressed in Euro.
Financial statements of subsidiaries where the functional currency is a currency other than the Euro are translated using the functional currency principle. For these entities, assets and liabilities are translated using the middle rate at year end, while revenues and expenses are translated using the average exchange rates prevailing during the year. Equity is translated at historical exchange rates. Adjustments for cumulative foreign currency translation fluctuations are excluded from profit or loss and are reported in other comprehensive income.
Transactions realized in foreign currencies are translated to the local currency using the exchange rate prevailing at the transaction dates. Transaction gains and losses that arise from exchange-rate fluctuations on transactions denominated in a currency other than the functional currency are generally included in other operating income or other operating expenses and to the extent that they relate to the translation of financial assets or liabilities, in financial income or expenses.
The following table provides the exchange rates for ALTANA’s most important currencies to
Revenue mainly results from the sale of products and goods and is recognized when the revenue can be measured reliably, it is probable that the economic benefits of the transaction will flow to the Company and all related costs can be measured reliably. As such, ALTANA recognizes revenue from product sales when the significant risks and rewards of ownership of the goods are transferred to the customer. Provisions for discounts and rebates to customers and for returns of goods are recognized in the same period in which the related revenue is recognized and are based on management’s best estimate.
Research and Development Expenses
In accordance with IAS 38, “Intangible Assets,” research costs, defined as costs of original and planned research performed to gain new scientific or technical knowledge and understanding, are expensed as incurred. Development costs are defined as costs incurred to achieve technical and commercial feasibility. When the recognition criteria of IAS 38 are fulfilled, the directly attributable development costs are recognized as intangible assets. In the majority of the cases, the recognition criteria are not completely fulfilled due to the uncertainties regarding the commercialization of products inherent to the development of ALTANA’s products.
Personnel and Interest Expense
The net interest expense from employee benefit obligations is reported under interest expense and not under personnel expense or functional cost.
Income taxes include current and deferred income taxes. Current income taxes relate to all taxes levied on taxable income of the consolidated companies. Other taxes such as property taxes or excise taxes (power supply, energy) are classified as functional costs.
Under IAS 12, “Income Taxes,” deferred tax assets and liabilities are recognized in the consolidated financial statements for all temporary differences between the carrying amounts of assets and liabilities and their tax bases, for tax credits and operating loss carry-forwards. For purposes of calculating deferred tax assets and liabilities, the Company applies the tax rates that have been enacted or substantively enacted at the reporting date. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period the legislation is substantively adopted. Deferred tax assets are recognized only to the extent that it is probable that future taxable income will be available against which the tax credits and tax loss carry-forwards can be used.
IFRS 13, “Fair Value Measurement,” applies to IFRS that require or permit fair value measurement or disclosure and provides a single IFRS framework for measuring fair value and requires disclosures about fair value measurement. The fair value is the price that would be received to sell an asset or paid to transfer a liability. The three level fair value hierarchy in accordance with IFRS 13 is applied. Fair value hierarchy level 1 is assigned to financial assets or liabilities for which quoted market prices for identical assets or liabilities in active markets exist. The allocation to fair value hierarchy level 2 is applied when valuation models are used or prices are derived from similar transactions. Financial assets and liabilities are measured at fair value hierarchy level 3 if unobservable input factors are applied to determine fair value. When measuring assets and liabilities the effect of non-performance risk is also reflected in the fair value.
Intangible assets, including software, are accounted for in accordance with IAS 38, and are recognized if (a) the intangible asset is identifiable (i. e., it is separable or arises from contractual or other legal rights), (b) it is probable that the expected future economic benefits (e. g., cash or other benefits such as cost savings) that are attributable to the asset will flow to the entity, and (c) the cost of the intangible asset can be measured reliably. Intangible assets with definite useful lives are measured at cost less accumulated amortization. Borrowing costs that are directly attributable to qualifying assets are capitalized. Intangible assets are amortized straight-line over the shorter of their contractual term or their estimated useful lives.
The following useful lives are applied:
Amortization expense relates to intangible assets with definite useful lives and is recorded based on their function in cost of sales, selling and distribution expenses, research and development expenses or general administration expenses.
Intangible assets with indefinite useful lives as well as goodwill are not amortized but tested for impairment regularly. Impairment losses on these assets are recorded in other operating expenses (see “Impairments of Intangible Assets and Property, Plant and Equipment”).
Property, Plant and Equipment
Property, plant and equipment are measured at acquisition or manufacturing cost less accumulated depreciation. Cost includes certain costs that are capitalized during construction, including material, payroll and direct overhead costs. Borrowing costs that are directly attributable to qualifying assets are capitalized. Government grants are deducted from the acquisition or manufacturing costs.
Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets:
Maintenance and repairs are expensed as incurred while replacements and improvements are capitalized, if the item qualifies for recognition as an asset, as well as an asset retirement obligation. Gains or losses resulting from the sale or retirement of assets are recognized in other operating income or expenses.
Depreciation expense of property, plant and equipment is recorded based on their function in cost of sales, selling and distribution expenses, research and development expenses or general administration expenses.
Investment property comprises land and buildings not used in the production or for administrative purposes and is measured at amortized cost. The fair value is measured using the discounted cash flow method or with the support of an external expert by applying input factors for comparable assets not traded on active markets (fair value hierarchy level 2).
Impairment of Intangible Assets and Property, Plant and Equipment
Irrespective of whether there is any indication of impairment, the Company tests goodwill acquired in a business combination and intangible assets with an indefinite useful life for impairment at least annually. For the purpose of testing goodwill for impairment, such goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the business combination. In accordance with IAS 36, “Impairment of Assets,” an impairment loss is recognized when the carrying amount of the cash-generating unit, to which goodwill was allocated, exceeds the higher of its fair value less costs to sell or its value in use. In the event that facts and circumstances indicate that the Company’s property, plant and equipment or intangible assets including goodwill, may be impaired, an impairment test is performed. This is the case regardless of whether they are to be held and used or to be disposed of. An impairment loss is recognized when an asset’s carrying amount exceeds the higher of its fair value less costs to sell and its value in use. Value in use is based on the discounted cash flows expected to arise from the continued use of the asset or from its eventual disposal.
Any impairment loss resulting from this test is reported in other operating expenses. If there is any indication that the considerations which led to an impairment of property, plant and equipment or intangible assets no longer exist, the Company considers the need to reverse all or a portion of the impairment loss except for goodwill.
Taxable and non-taxable government grants for the acquisition of certain non-current assets are recognized as a reduction of the cost basis of the acquired or constructed assets. Nonrefundable reimbursement of cost is recorded as other operating income or as a deduction from the related expenses if all the conditions stipulated are met.
Long-term Investments and Marketable Securities
In accordance with IAS 39, “Financial Instruments: Recognition and Measurement,” the Company classifies all marketable securities and certain long-term investments (see note 15) as available-for-sale. At the reporting date these financial instruments are carried at fair value or amortized cost, with unrealized gains and losses recorded in the item “Financial assets available-for-sale” in other comprehensive income, net of income tax.
Long-term investments and marketable securities are recognized on the settlement date. The Company derecognizes these assets when the contractual right to the cash flows expires or the assets are transferred and the Company retains no contractual rights to receive cash and assumes no obligations to pay cash from the assets.
Impairment losses on marketable securities are recognized in the financial result if the decrease in value is material or permanent in nature at the reporting date.
Investments in Associated Companies
Associated companies are companies in which ALTANA can exercise significant influence, which is generally the case when it holds from 20 up to 50 % of the voting power of the investee.
Investments in associated companies are accounted for by applying the equity method in accordance with IAS 28, “Investments in Associates and Joint Ventures.” The respective investment is initially recognized at cost and the carrying amount is increased or decreased to recognize ALTANA’s share of changes in the investee’s equity after the acquisition. ALTANA’s share of profit or loss of the investee is recognized in the Company’s income statement while changes in the investee’s other comprehensive income are recognized in the Company’s other comprehensive income. An impairment test is performed for investments in associated companies if there is an indication of impairment. Goodwill included in such investments is not tested for impairment separately. Instead, the entire carrying amount of the investment is tested for impairment. Therefore, impairment losses recognized are not allocated to goodwill but included in the investment and as a result may be reversed completely in subsequent reporting periods.
Inventories are measured at the lower of acquisition or manufacturing costs or net realizable value at the reporting date. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated selling expense. Acquisition and manufacturing costs are determined on the basis of weighted average costs. Manufacturing costs comprise material, payroll and directly attributable overhead costs, including depreciation and amortization.
Trade Accounts Receivable
Trade accounts receivable are initially recognized at their fair values. Subsequently, accounts receivable are measured at amortized cost. The Company estimates an allowance for doubtful accounts for individual trade receivables based on historical collection experience.
Cash and Cash Equivalents
ALTANA considers cash on hand and in banks and highly liquid investments with maturities of three months or less from the date of acquisition as cash and cash equivalents. The components of cash and cash equivalents are consistent with the financial resource fund in the cash flow statement.
Assets Held for Sale
An asset is classified as an asset held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Assets that meet the criteria to be classified as held for sale are measured at the lower of the carrying amount and fair value less costs to sell and are presented in the statement of financial position as current assets. Depreciation and amortization on such assets is ceased. A gain or loss recognized on the sale of the assets is reported in other operating income or other operating expense.
In accordance with IAS 39, the Company recognizes all financial assets and liabilities, as well as all derivative financial instruments, as assets or liabilities in the statement of financial position and measures all at fair value apart from some exceptions (e. g., loans and receivables). For financial instruments measured at fair value the following rules apply: The fair value Group Management Report Corporate Governance Environment, Safety, and Corporate Social Responsibility Consolidated Financial Statements 93 of marketable securities corresponds to prices quoted for identical financial assets in active markets (hierarchy level 1). The fair value of equity instruments, derivative financial instruments and debts is determined by applying valuation techniques for which inputs are based on observable market data (hierarchy level 2) or on unobservable input factors (hierarchy level 3).
Changes in the fair value of derivative financial instruments qualifying for hedge accounting are recognized in profit or loss or in other comprehensive income depending on whether the derivative is designated as a fair value or a cash flow hedge. For derivatives designated as fair value hedges, changes in the fair value of the hedged item and the derivative financial instrument are recognized in profit or loss. For derivative financial instruments designated as a cash flow hedge, changes in the fair value of the effective portion of the hedging instrument are recognized in other comprehensive income until the hedged item is recognized in profit or loss. The ineffective portion of derivative financial instruments designated as cash flow hedges and fair value changes of derivative financial instruments which do not qualify for hedge accounting are recognized in profit or loss immediately. This is also applicable to components excluded from hedging instruments qualifying as cash flow hedges. At the inception of the hedge ALTANA documents the hedging relationship between the hedged item and the hedging instrument. Additionally, at the inception of the hedge and on an ongoing basis, the Company documents its assessment on whether the hedging instrument actually compensates the change in the fair value of the hedged item (assessing hedge effectiveness).
Share-Like Employee Incentive Plans
In line with its long-term incentive program, ALTANA has issued instruments similar to shares to its employees and accounts for them in accordance with IFRS 2 “Share-based Payment.” These instruments are therefore measured at fair value at the grant date, taking into account the vesting conditions upon which those instruments were granted. The cost of employee compensation is expensed over the required service period. Until settlement of the instruments in cash, the liability is remeasured at its fair value at each reporting date as well as at the exercise date. Changes in the fair value are recognized in profit or loss.
Employee Benefit Obligations
The accounting for pension liabilities is based on the projected unit credit method in accordance with IAS 19, “Employee Benefits,” and the liabilities are measured based on actuarial valuations. Remeasurement gains or losses are fully recognized in other comprehensive income in the period they occur (see Consolidated Statement of Comprehensive Income). The provisions therefore generally equal the fair value of the obligations at the respective reporting dates.
In accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets,” the Company recognizes other provisions when it has a present legal or constructive obligation 94 Notes to Consolidated Financial Statements as a result of a past event, it is more likely than not that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The warranty provision is estimated based on the average warranty expenses of the last two to three years, depending on the division they relate to. Based on this experience, the Company calculates a warranty percentage, applies it to net product sales and recognizes the estimated obligation in the warranty provision. The provision is adjusted to reflect changes in estimates. Other provisions include personnel related obligations measured in accordance with IAS 19.
In accordance with IAS 17, “Leases,” lease agreements in which ALTANA, as the lessee, assumes substantially all the risks and rewards are classified as finance leases. Accordingly, the leased item is recognized at the lower of its fair value or the present value of the minimum lease payments. The item is depreciated over the shorter of its estimated useful life or the lease term. Simultaneously, a corresponding lease obligation is recognized and measured at amortized cost by applying the effective interest method. All other lease agreements are classified as operating leases and lease payments are expensed as incurred.
Use of Estimates and Assumptions
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts of assets, liabilities and disclosure of contingent assets and liabilities reported at the end of any given period and the amounts of revenues and expenses for that reported period. Actual results may differ from these estimates.
At the reporting date, management mainly made the following key assumptions concerning the future and identified key sources of estimation uncertainty that might pose a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:
Employee Benefit Obligations: The measurement of the pension plans is based on the projected unit credit method applying current parameters as of the reporting date, including the expected discount rate, the rate of compensation and pension increase, and the return on plan assets as of the reporting date. A significant change in the underlying parameters could have a material impact on the defined benefit obligations (see note 24).
Impairments: Impairment testing for goodwill, other intangible assets and property, plant and equipment is generally based on discounted estimated future cash flows generated from the continuing use and ultimate disposal of the assets. Factors such as lower than anticipated operating income (EBIT) and resulting reduced net cash flows as well as changes in the discount rates used could lead to impairments. For information on the carrying amounts of goodwill, other intangible assets and property, plant and equipment see notes 13 and 14.