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(15) Goodwill and Intangible Assets

 

Goodwill and Intangible Assets

€ millions   Goodwill   Software and Database Licenses   Acquired Technology/IPRD   Customer Relationship and Other Intangibles   Total
Historical cost                    
January 1, 2015   21,099   667   2,587   4,644   28,997
Foreign currency exchange differences   1,666   15   204   379   2,264
Additions from business combinations   27   0   6   5   38
Other additions   0   53   0   6   59
Retirements/disposals   0   −8   −1   −1   −10
December 31, 2015   22,792   727   2,796   5,033   31,348
Foreign currency exchange differences   566   7   71   135   779
Additions from business combinations   57   0   41   22   120
Other additions   0   74   0   21   95
Retirements/disposals   0   −17   −1   −92   −110
December 31, 2016   23,415   791   2,907   5,119   32,232
                     
Accumulated amortization                    
January 1, 2015   99   448   1,357   1,489   3,393
Foreign currency exchange differences   4   10   84   89   187
Additions amortization   0   76   372   361   809
Retirements/disposals   0   −8   −1   −1   −10
December 31, 2015   103   526   1,812   1,938   4,379
Foreign currency exchange differences   1   5   54   59   119
Additions amortization   0   74   321   351   746
Retirements/disposals   0   −16   −1   −92   −109
December 31, 2016   104   589   2,186   2,256   5,135
                     
Carrying amount                    
December 31, 2015   22,689   201   984   3,095   26,969
December 31, 2016   23,311   202   721   2,863   27,097

 

Other additions to software and database licenses in 2016 and 2015 were individually acquired from third parties and include cross-license agreements and patents.

 

Significant Intangible Assets

€ millions, unless otherwise stated   Carrying Amount   Remaining Useful Life
(in years)
2016   2015
Business Objects – Customer relationships   84   104   1 to 7
Sybase – Customer relationships   325   400   5 to 7
SuccessFactors – Acquired technologies   99   148   3
SuccessFactors – Customer relationships   353   397   9
Ariba – Acquired technologies   97   137   4
Ariba – Customer relationships   483   530   2 to 11
hybris – Acquired technologies   62   100   4
hybris – Customer relationships   106   127   1 to 11
Fieldglass – Acquired technologies   73   89   6
Fieldglass – Customer relationships   69   74   11
Concur – Acquired technologies   296   387   5
Concur – Customer relationships   1,281   1,299   14 to 18
Total significant intangible assets   3,328   3,792    

 

Goodwill Impairment Testing

SAP had four operating segments in 2016, of which two are reportable segments. For more information about our segments, see Note (28).

The carrying amount of goodwill has been allocated for impairment testing purposes to those operating segments expected to benefit from goodwill. Allocated goodwill to non-reportable segments is not material and disclosed under “Other” – the carrying amount did not exceed the recoverable amount.

Goodwill by Reportable Operating Segment

€ millions Applications, Technology & Services SAP Business Network Other Total
January 1, 2016 15,497 7,191 0 22,689
Reallocation due to changes in segment composition −33 0 33 0
Additions from business combinations 25 31 0 57
Foreign currency exchange differences 349 216 1 566
December 31, 2016 15,839 7,439 34 23,311

The key assumptions on which management based its cash flow projections for the period covered by the underlying business plans are as follows:

 

Key Assumption   Basis for Determining Values Assigned to Key Assumption
Budgeted revenue growth   Revenue growth rate achieved in the current fiscal year, adjusted for an expected increase in SAP’s addressable cloud, mobility, and database markets; expected growth in the established software applications and analytics markets. Values assigned reflect our past experience and our expectations regarding an increase in the addressable markets.
Budgeted operating margin   Operating margin budgeted for a given budget period equals the operating margin achieved in the current fiscal year, increased by expected efficiency gains. Values assigned reflect past experience, except for efficiency gains.
Pre-tax discount rates   Our estimated cash flow projections are discounted to present value using pre-tax discount rates. Pre-tax discount rates are based on the weighted average cost of capital (WACC) approach.
Terminal growth rate   Our estimated cash flow projections for periods beyond the business plan were extrapolated using segment-specific terminal growth rates. These growth rates do not exceed the long-term average growth rates for the markets in which our segments operate.

 

 

Key Assumptions

Percent   Applications, Technology & Services   SAP Business Network
2016   2015   2016   2015
Budgeted revenue growth (average of the budgeted period)   6.7   4.5   15.0   16.2
Pre-tax discount rate   10.4   11.7   11.7   13.0
Terminal growth rate   2.0   3.0   3.0   3.0

 

Applications, Technology & Services

The recoverable amount of the segment has been determined based on a value-in-use calculation. The calculation uses cash flow projections based on actual operating results and a group-wide four-year (2015: five-year) business plan approved by management.

We believe that any reasonably possible change in any of the above key assumptions would not cause the carrying amount of our Applications, Technology & Services segment to exceed the recoverable amount.

SAP Business Network

The recoverable amount of the segment has been determined based on fair value less costs of disposal calculation. The fair value measurement was categorized as a level 3 fair value based on the inputs used in the valuation technique. The cash flow projections are based on actual operating results and specific estimates covering a nine-year (2015: nine-year) planning period and the terminal growth rate thereafter. The projected results were determined based on management’s estimates and are consistent with the assumptions a market participant would make. The segment operates in a relatively immature area with significant growth rates projected for the near future. We therefore have a longer and more detailed planning period than one would apply in a more mature segment.

We are using a target operating margin of 34% (2015: 33%) for the segment at the end of the budgeted period as a key assumption, which is within the range of expectations of market participants (for example, industry analysts).

The recoverable amount exceeds the carrying amount by €6,404 million (2015: €1,764 million).

The following table shows amounts by which the key assumptions would need to change individually for the recoverable amount to be equal to the carrying amount:

 

Sensitivity to Change in Assumptions

Percentage points   SAP Business Network
2016   2015
Budgeted revenue growth (average of the budgeted period)   −6.9   −2.1
Pre-tax discount rate   4.4   1.4
Target operating margin at the end of the budgeted period   −15   1)

1) The recoverable amount would equal the carrying amount if a margin of only 27% was achieved by 2022.

 

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