Annual Report 2010 - Frauenthal Holding AG

Consolidated Financial Statements Frauenthal Holding Group 2010
[15] Estimates
The preparation of consolidated financial statements requires management to make estimates and assumptions that may
affect amounts recognised for assets and liabilities, contingent liabilities at the end of the reporting period, and income and
expense during the reporting period. Actual outcomes may differ from these estimates.
The Executive Board has made estimates in applying the Company’s accounting policies. The Executive Board has also made
key assumptions concerning the future, and identified key sources of estimation uncertainty at the end of the reporting
period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, namely:
Employee benefit plans: The valuation of pension plans, and termination and jubilee benefit obligations is based on a
method that uses parameters such as the expected discount rate, salary and pension increases, and staff turnover. If the
relevant parameters diverge significantly from expectations this may have a material impact on the provisions in question,
and thus in turn on the Company’s net pension expense. A discount rate of 4.5 % was applied to the calculation of the
pension provisions. The corridor for future salary and pension increases is between zero and 2 %. A discount rate of 4.5 %
was applied to the calculation of the termination benefit provisions. Staff turnover rates were estimated for all Group
companies. The future increases in salaries and pensions were assumed to average 3 %; here, too, staff turnover at all
Group companies was assumed. See Note 20 Long-term provisions for additional information on employee benefit plans.
Deferred tax: When making judgments about the recoverability of deferred tax, the Executive Board assesses the likelihood
that it will be possible to recover all deferred tax assets.
The ultimate recoverability of deferred tax assets depends on whether taxable profit is made in periods during which the
temporary differences are deductible. If the Company does not generate sufficient taxable profit, then deferred tax assets
cannot be utilised as tax loss carryforwards.
Impairment testing of goodwill, other intangible assets, and property, plant and equipment is normally based on the
projected discounted net cash inflows from continuing use of the assets and their disposal at the end of their useful lives.
Factors such as lower revenue and resultant lower net cash inflows or changes in the discount rates applied may lead to
impairments. Valuations of cash-generating units are based on estimated cash inflows, which are discounted at a rate
of 7.08 % (2009: 8 %) for the cost of capital (WACC) after tax. The value of goodwill is yielded by the approved budget
figures for 2011, and conservative estimates for subsequent years, partly based on authoritative market studies, and the
projected cash flows over a period of five years, derived from those estimates. The current carrying amounts were compared
to the valuations so calculated (the recoverable amount is the higher of the value in use or net fair value [fair value
less costs to sell]), and impairment recognised where necessary. The impairments recognised for the period under review
reflect the restructuring actions described in the previous year’s annual report — which led to the closure of some cash
generating units in 2010 and will result in further shutdowns in 2011 — as well as conservative assumptions as to future
market developments which make it questionable whether the use of some assets will continue to generate cash inflows.
The budget figures used to calculate net present value are based on the assumption of a moderate recovery in the commercial
vehicle market over the first two to three years of the projections. No goodwill impairment losses were recognised
in 2010. Details of goodwill impairment in 2009 are given in Note 16 Non-current assets.
In 2010 the carrying amounts of non-current assets (machinery at Automotive Components Division facilities) were
increased by EUR 1,500,000 (2009: nil) in the course of impairment tests, as a result of the improvement in market
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