UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of April, 2020

Commission File Number: 001-38438

Spotify Technology S.A.

(Translation of registrant’s name into English)

42-44, avenue de la Gare

L- 1610 Luxembourg

Grand Duchy of Luxembourg

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F      Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes      No  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes      No  

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Spotify Technology S.A.

Interim condensed consolidated financial statements

For the three months ended March 31, 2020

 


Table of contents

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

1

Interim condensed consolidated statement of operations

 

1

Interim condensed consolidated statement of comprehensive (loss)/income

 

2

Interim condensed consolidated statement of financial position

 

3

Interim condensed consolidated statement of changes in equity

 

4

Interim condensed consolidated statement of cash flows

 

5

Notes to the interim condensed consolidated financial statements

 

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

34

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

37

Item 1A. Risk Factors

 

37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

38

Item 3. Defaults Upon Senior Securities

 

38

Item 5. Other Information

 

38

Signatures

 

39

 

 

 


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Interim condensed consolidated statement of operations

(Unaudited)

(in € millions, except share and per share data)

 

 

 

 

 

Three months ended March 31,

 

 

 

Note

 

2020

 

 

2019

 

Revenue

 

5

 

 

1,848

 

 

 

1,511

 

Cost of revenue

 

 

 

 

1,376

 

 

 

1,138

 

Gross profit

 

 

 

 

472

 

 

 

373

 

Research and development

 

 

 

 

162

 

 

 

155

 

Sales and marketing

 

 

 

 

231

 

 

 

172

 

General and administrative

 

 

 

 

96

 

 

 

93

 

 

 

 

 

 

489

 

 

 

420

 

Operating loss

 

 

 

 

(17

)

 

 

(47

)

Finance income

 

6

 

 

70

 

 

 

34

 

Finance costs

 

6

 

 

(12

)

 

 

(156

)

Finance income/(costs) - net

 

 

 

 

58

 

 

 

(122

)

Income/(loss) before tax

 

 

 

 

41

 

 

 

(169

)

Income tax expense/(benefit)

 

7

 

 

40

 

 

 

(27

)

Net income/(loss) attributable to owners of the parent

 

 

 

 

1

 

 

 

(142

)

 

 

 

 

 

 

 

 

 

 

 

Earnings/(loss) per share attributable to owners of the parent

 

 

 

 

 

 

 

 

 

 

   Basic

 

8

 

 

0.00

 

 

 

(0.79

)

   Diluted

 

8

 

 

(0.20

)

 

 

(0.79

)

Weighted-average ordinary shares outstanding

 

 

 

 

 

 

 

 

 

 

   Basic

 

8

 

 

185,046,324

 

 

 

180,613,539

 

   Diluted

 

8

 

 

185,632,113

 

 

 

180,613,539

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 


-1-


Table of Contents

Interim condensed consolidated statement of comprehensive (loss)/income

(Unaudited)

(in € millions)

 

  

 

 

 

Three months ended March 31,

 

 

 

Note

 

2020

 

 

2019

 

Net income/(loss) attributable to owners of the parent

 

 

 

 

1

 

 

 

(142

)

Other comprehensive (loss)/income:

 

 

 

 

 

 

 

 

 

 

Items that may be subsequently reclassified to

   condensed consolidated statement of operations

   (net of tax):

 

 

 

 

 

 

 

 

 

 

   Change in net unrealized gain or loss on short term investments

 

13, 19

 

 

3

 

 

 

3

 

   Change in net unrealized gain or loss on cash flow

   hedging instruments

 

13, 19

 

 

11

 

 

 

(3

)

   Change in foreign currency translation adjustment

 

 

 

 

1

 

 

 

4

 

Items not to be subsequently reclassified to

   condensed consolidated statement of operations

  (net of tax):

 

 

 

 

 

 

 

 

 

 

   (Loss)/gain in the fair value of long term investments

 

13, 19

 

 

(155

)

 

 

518

 

Other comprehensive (loss)/income for the

   period (net of tax)

 

 

 

 

(140

)

 

 

522

 

Total comprehensive (loss)/income for the period

   attributable to owners of the parent

 

 

 

 

(139

)

 

 

380

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

-2-


Table of Contents

Interim condensed consolidated statement of financial position

(in € millions)

 

 

 

Note

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

Lease right-of-use assets

 

 

9

 

 

 

491

 

 

 

489

 

Property and equipment

 

 

10

 

 

 

291

 

 

 

291

 

Goodwill

 

 

11

 

 

 

627

 

 

 

478

 

Intangible assets

 

 

11

 

 

 

87

 

 

 

58

 

Long term investments

 

 

19

 

 

 

1,312

 

 

 

1,497

 

Restricted cash and other non-current assets

 

 

12

 

 

 

69

 

 

 

69

 

Deferred tax assets

 

 

7

 

 

 

6

 

 

 

9

 

 

 

 

 

 

 

 

2,883

 

 

 

2,891

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other receivables

 

 

15

 

 

 

363

 

 

 

402

 

Income tax receivable

 

 

 

 

 

 

3

 

 

 

4

 

Short term investments

 

 

19

 

 

 

733

 

 

 

692

 

Cash and cash equivalents

 

 

 

 

 

 

951

 

 

 

1,065

 

Other current assets

 

 

 

 

 

 

93

 

 

 

68

 

 

 

 

 

 

 

 

2,143

 

 

 

2,231

 

Total assets

 

 

 

 

 

 

5,026

 

 

 

5,122

 

Equity and liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

 

 

 

 

 

 

 

 

 

 

Other paid in capital

 

 

 

 

 

 

4,079

 

 

 

4,192

 

Treasury shares

 

 

13

 

 

 

(180

)

 

 

(370

)

Other reserves

 

 

13

 

 

 

822

 

 

 

924

 

Accumulated deficit

 

 

 

 

 

 

(2,708

)

 

 

(2,709

)

Equity attributable to owners of the parent

 

 

 

 

 

 

2,013

 

 

 

2,037

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Lease liabilities

 

 

9

 

 

 

624

 

 

 

622

 

Accrued expenses and other liabilities

 

 

17

 

 

 

46

 

 

 

20

 

Provisions

 

 

18

 

 

 

2

 

 

 

2

 

Deferred tax liabilities

 

 

7

 

 

 

2

 

 

 

2

 

 

 

 

 

 

 

 

674

 

 

 

646

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

 

16

 

 

 

547

 

 

 

549

 

Income tax payable

 

 

 

 

 

 

8

 

 

 

9

 

Deferred revenue

 

 

 

 

 

 

317

 

 

 

319

 

Accrued expenses and other liabilities

 

 

17

 

 

 

1,389

 

 

 

1,438

 

Provisions

 

 

18

 

 

 

12

 

 

 

13

 

Derivative liabilities

 

 

19

 

 

 

66

 

 

 

111

 

 

 

 

 

 

 

 

2,339

 

 

 

2,439

 

Total liabilities

 

 

 

 

 

 

3,013

 

 

 

3,085

 

Total equity and liabilities

 

 

 

 

 

 

5,026

 

 

 

5,122

 

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

-3-


Table of Contents

Interim condensed consolidated statement of changes in equity

(Unaudited)

(in € millions)

 

 

 

Note

 

Share

capital

 

 

Other

paid in

capital

 

 

Treasury

Shares

 

 

Other

reserves

 

 

Accumulated

deficit

 

 

Equity

attributable to

owners of the parent

 

Balance at January 1, 2019

 

 

 

 

 

 

 

3,801

 

 

 

(77

)

 

 

875

 

 

 

(2,523

)

 

 

2,076

 

Loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(142

)

 

 

(142

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

522

 

 

 

 

 

 

522

 

Issuance of share-based payments in

   conjunction with business combinations

 

4

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

13

 

Repurchases of ordinary shares

 

13

 

 

 

 

 

 

 

 

(121

)

 

 

 

 

 

 

 

 

(121

)

Issuance of shares upon exercise of stock

   options and restricted stock units

 

14

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

 

 

 

33

 

Share-based payments

 

14

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

Income tax impact associated with

   share-based payments

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

54

 

Balance at March 31, 2019

 

 

 

 

 

 

 

3,834

 

 

 

(198

)

 

 

1,491

 

 

 

(2,665

)

 

 

2,462

 

Balance at January 1, 2020

 

 

 

 

 

 

 

4,192

 

 

 

(370

)

 

 

924

 

 

 

(2,709

)

 

 

2,037

 

Income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(140

)

 

 

 

 

 

(140

)

Issuance of shares upon exercise of stock

   options, restricted stock units, and

   contingently issuable shares

 

14

 

 

 

 

 

(113

)

 

 

190

 

 

 

 

 

 

 

 

 

77

 

Restricted stock units withheld for

   employee taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Share-based payments

 

14

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

39

 

Income tax impact associated with

   share-based payments

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Balance at March 31, 2020

 

 

 

 

 

 

 

4,079

 

 

 

(180

)

 

 

822

 

 

 

(2,708

)

 

 

2,013

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

-4-


Table of Contents

Interim condensed consolidated statement of cash flows

(Unaudited)

(in € millions)

 

 

 

 

Three months ended March 31,

 

 

 

Note

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

 

 

Net income/(loss)

 

 

 

 

1

 

 

 

(142

)

Adjustments to reconcile net income/(loss) to net cash flows

 

 

 

 

 

 

 

 

 

 

Depreciation of property and equipment and lease right-of-use assets

 

9, 10

 

 

21

 

 

 

17

 

Amortization of intangible assets

 

11

 

 

5

 

 

 

4

 

Share-based payments expense

 

14

 

 

37

 

 

 

26

 

Finance income

 

6

 

 

(70

)

 

 

(34

)

Finance costs

 

6

 

 

12

 

 

 

156

 

Income tax expense/(benefit)

 

7

 

 

40

 

 

 

(27

)

Other

 

 

 

 

4

 

 

 

8

 

Changes in working capital:

 

 

 

 

 

 

 

 

 

 

Decrease in trade receivables and other assets

 

 

 

 

22

 

 

 

35

 

(Decrease)/increase in trade and other liabilities

 

 

 

 

(63

)

 

 

155

 

(Decrease)/increase in deferred revenue

 

 

 

 

(4

)

 

 

13

 

Decrease in provisions

 

18

 

 

(1

)

 

 

 

Interest received

 

 

 

 

3

 

 

 

4

 

Interest paid on lease liabilities

 

9

 

 

(15

)

 

 

(4

)

Income tax paid

 

 

 

 

(1

)

 

 

(2

)

Net cash flows (used in)/from operating activities

 

 

 

 

(9

)

 

 

209

 

Investing activities

 

 

 

 

 

 

 

 

 

 

Business combinations, net of cash acquired

 

4

 

 

(137

)

 

 

(288

)

Purchases of property and equipment

 

10

 

 

(12

)

 

 

(37

)

Purchases of short term investments

 

19

 

 

(498

)

 

 

(104

)

Sales and maturities of short term investments

 

19

 

 

477

 

 

 

383

 

Change in restricted cash

 

12

 

 

 

 

 

1

 

Other

 

 

 

 

(14

)

 

 

(4

)

Net cash flows used in investing activities

 

 

 

 

(184

)

 

 

(49

)

Financing activities

 

 

 

 

 

 

 

 

 

 

Payments of lease liabilities

 

9

 

 

(4

)

 

 

(5

)

Lease incentives received

 

9

 

 

7

 

 

 

 

Proceeds from exercise of share options

 

14

 

 

77

 

 

 

33

 

Repurchases of ordinary shares

 

13

 

 

 

 

 

(126

)

Other

 

 

 

 

(3

)

 

 

 

Net cash flows from/(used in) financing activities

 

 

 

 

77

 

 

 

(98

)

Net (decrease)/increase in cash and cash equivalents

 

 

 

 

(116

)

 

 

62

 

Cash and cash equivalents at beginning of the period

 

 

 

 

1,065

 

 

 

891

 

Net foreign exchange gains on cash and cash equivalents

 

 

 

 

2

 

 

 

13

 

Cash and cash equivalents at March 31

 

 

 

 

951

 

 

 

966

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

 

 

Deferred consideration liability recognized in conjunction

   with business combination

 

4

 

 

32

 

 

 

 

Recognition of lease right-of-use asset in exchange for lease liabilities

 

9

 

 

12

 

 

 

27

 

Purchases of property and equipment in trade and

   other liabilities

 

10

 

 

13

 

 

 

25

 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

-5-


Table of Contents

Notes to the interim condensed consolidated financial statements

(Unaudited)

1.

Corporate information

Spotify Technology S.A. (the “Company” or “parent”) is a public limited company incorporated and domiciled in Luxembourg. The Company’s registered office is 42-44 avenue de la Gare, L-1610, Luxembourg, Grand Duchy of Luxembourg.

The principal activity of the Company and its subsidiaries (the “Group,” “we,” “us,” or “our”) is audio streaming. The Group’s premium service (“Premium Service”) provides users with unlimited online and offline high-quality streaming access to its catalog of music and podcasts. The Premium Service offers a music listening experience without commercial breaks. The Group’s ad-supported service (“Ad-Supported Service,” and together with the Premium Service, the “Service”) has no subscription fees and provides users with limited on-demand online access to the catalog of music and unlimited online access to the catalog of podcasts. The Group depends on securing content licenses from a number of major and minor content owners and other rights holders in order to provide its service.

2.

Basis of preparation and summary of significant accounting policies

The interim condensed consolidated financial statements of Spotify Technology S.A. for the three months ended March 31, 2020 and 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim financial information is unaudited. The interim financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim condensed consolidated financial statements should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2019, as they do not include all the information and disclosures required in the annual consolidated financial statements. Interim results are not necessarily indicative of the results for a full year. The interim condensed consolidated financial statements are presented in millions of Euros.

New and amended standards and interpretations adopted by the Group

The IASB has issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. It has also issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The Group has adopted these amendments as of January 1, 2020. There was no impact on the Group’s accounting policies or the interim condensed consolidated financial statements. There are no other IFRS or IFRIC interpretations effective as of January 1, 2020 that are expected to have a material impact.

3.

Critical accounting estimates and judgments

In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation and uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31, 2019.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events.

-6-


Table of Contents

4.Business combinations

Bill Simmons Media Group, LLC

On March 6, 2020, the Group acquired 100% of Bill Simmons Media Group, LLC (“The Ringer”), a leading creator of sports, entertainment, and pop culture content. The acquisition allows the Group to expand its content offering, audience reach, and podcast monetization.

The fair value of the purchase consideration was €170 million, comprising €138 million in cash paid at closing and a liability of €32 million, being the present value of payments of €44 million over five years. The acquisition was accounted for under the acquisition method. Of the total purchase consideration, €140 million has been recorded to goodwill, €26 million to acquired intangible assets, €1 million to cash and cash equivalents, and €3 million to other tangible net assets. The Group incurred €3 million in acquisition related costs, which were recognized as general and administrative expenses.

The goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including an increase in content development capabilities, an experienced workforce, and expected future synergies. The goodwill recognized is expected to be deductible for tax purposes. The goodwill was included in the Ad-Supported segment.

The intangible assets, which consist of trade names, were valued by the Group using the relief from royalty method under the income approach. The relief from royalty method is based on the application of a royalty rate to forecasted revenue under the trade names. The assets have useful lives ranging from five to eight years.

In addition to the purchase consideration, there are cash payments of €47 million that are contingent on the continued employment of certain Ringer employees. In addition, €12 million of equity instruments were offered to and accepted by certain Ringer employees, which have vesting conditions contingent on continued employment and are accounted for as equity-settled share-based payment transactions. These cash payments and share-based payment transactions are recognized as post-combination expense over employment service periods of up to five years, if not forfeited by the employees.

For the three months ended March 31, 2020, revenues and operating results of The Ringer were not significant to the Group’s condensed consolidated statement of operations.

5.

Segment information

 

The Group has two reportable segments: Premium and Ad-Supported. The Premium Service is a paid service in which customers can listen on-demand and offline. Revenue for the Premium segment is generated through subscription fees. The Ad-Supported Service is free to the user. Revenue for the Ad-Supported segment is primarily generated through the sale of advertising across the Group’s music and podcast content. Royalty costs are primarily recorded in each segment based on specific rates for each segment agreed to with rights holders. Effective January 1, 2020, all podcast content costs are recorded in the Ad-Supported segment. Certain reclassifications have been made to the amounts for prior year in order to conform to the current year’s presentation. The remaining costs that are not specifically associated to either of the segments are allocated based on user activity or the revenue recognized in each segment. The operations of businesses acquired during 2019 and 2020 are included in the Ad-Supported segment. No operating segments have been aggregated to form the reportable segments.

 

-7-


Table of Contents

Key financial performance measures of the segments including revenue, cost of revenue, and gross (loss)/profit are as follows:

 

  

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in € millions)

 

Premium

 

 

 

 

 

 

 

 

Revenue

 

 

1,700

 

 

 

1,385

 

Cost of revenue

 

 

1,219

 

 

 

1,023

 

Gross profit

 

 

481

 

 

 

362

 

Ad-Supported

 

 

 

 

 

 

 

 

Revenue

 

 

148

 

 

 

126

 

Cost of revenue

 

 

157

 

 

 

115

 

Gross (loss)/profit

 

 

(9

)

 

 

11

 

Consolidated

 

 

 

 

 

 

 

 

Revenue

 

 

1,848

 

 

 

1,511

 

Cost of revenue

 

 

1,376

 

 

 

1,138

 

Gross profit

 

 

472

 

 

 

373

 

 

Reconciliation of gross profit

 

Operating expenses, finance income, and finance costs are not allocated to individual segments as these are managed on an overall group basis. The reconciliation between reportable segment gross profit to the Group’s income/(loss) before tax is as follows:

 

  

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in € millions)

 

Segment gross profit

 

 

472

 

 

 

373

 

Research and development

 

 

(162

)

 

 

(155

)

Sales and marketing

 

 

(231

)

 

 

(172

)

General and administrative

 

 

(96

)

 

 

(93

)

Finance income

 

 

70

 

 

 

34

 

Finance costs

 

 

(12

)

 

 

(156

)

Income/(loss) before tax

 

 

41

 

 

 

(169

)

 

Revenue by country

 

  

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in € millions)

 

United States

 

 

681

 

 

 

559

 

United Kingdom

 

 

201

 

 

 

164

 

Luxembourg

 

 

1

 

 

 

1

 

Other countries

 

 

965

 

 

 

787

 

 

 

 

1,848

 

 

 

1,511

 

 

Premium revenue is attributed to a country based on where the membership originates. Ad-Supported revenue is attributed to a country based on where the advertising campaign is delivered. There are no countries that individually make up greater than 10% of total revenue included in “Other countries.”

 

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Table of Contents

6.

Finance income and costs

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in € millions)

 

Finance income

 

 

 

 

 

 

 

 

Fair value movements on derivative liabilities (Note 19)

 

 

40

 

 

 

 

Interest income

 

 

7

 

 

 

9

 

Other finance income

 

 

3

 

 

 

 

Foreign exchange gains

 

 

20

 

 

 

25

 

Total

 

 

70

 

 

 

34

 

Finance costs

 

 

 

 

 

 

 

 

Fair value movements on derivative liabilities (Note 19)

 

 

 

 

 

(145

)

Interest expense on lease liabilities

 

 

(11

)

 

 

(9

)

Other finance costs

 

 

(1

)

 

 

(2

)

Total

 

 

(12

)

 

 

(156

)

 

7.

Income tax

The effective tax rates for the three months ended March 31, 2020 and 2019 were 99.1% and 16.2%, respectively. Drivers of the Group’s effective tax rate include the tax impact of share-based payments, withholding taxes, discrete expenses due to fair value losses, and unrecognized tax losses in certain jurisdictions. The Group operates in a global environment with significant operations in various jurisdictions outside Luxembourg. Accordingly, the consolidated income tax rate is a composite rate reflecting the Group’s earnings and the applicable tax rates in the various jurisdictions where the Group operates.

For the three months ended March 31, 2020, the income tax expense of €40 million was due primarily to the recognition of deferred taxes as a result of the unrealized decrease in the fair value of the Group’s long term investment in Tencent Music Entertainment Group (“TME”). For the three months ended March 31, 2019, the income tax benefit of €27 million was due primarily to the recognition of deferred taxes as a result of the unrealized increase in the fair value of the same investment.

Gross tax provisions were €1 million as of both March 31, 2020 and December 31, 2019. The Group includes interest and penalties related to tax provisions within income tax expense/(benefit) on the condensed consolidated statement of operations and income tax payable in the condensed consolidated statement of financial position. Interest and penalties included in income tax expense/(benefit) were not material in any of the periods presented. Transactions recorded through other comprehensive income have been shown net of their tax impact, as applicable, based on currently enacted tax laws.

Net deferred tax assets of €4 million and €7 million have been recorded in the condensed consolidated statement of financial position as of March 31, 2020 and December 31, 2019, respectively. In evaluating the probability of realizing the deferred tax assets, the Group considered all available positive and negative evidence of future tax profit, including past operating results and the forecast of market growth and earnings. As of March 31, 2020 and December 31, 2019, deferred tax assets of €384 million and €379 million have not been recognized.

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Table of Contents

8.

Earnings/(loss) per share

Basic earnings/(loss) per share is computed using the weighted-average number of outstanding ordinary shares during the period. Diluted earnings/(loss) per share is computed using the treasury stock method to the extent that the effect is dilutive by using the weighted-average number of outstanding ordinary shares and potential outstanding ordinary shares during the period. The Group’s potential ordinary shares consist of incremental shares issuable upon the assumed exercise of stock options and warrants, and the incremental shares issuable upon the assumed vesting of unvested restricted stock units, restricted stock awards, and other contingently issuable shares, excluding all anti-dilutive ordinary shares outstanding during the period. The computation of earnings/(loss) per share for the respective periods is as follows:

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in € millions, except share and per share data)

 

Basic earnings/(loss) per share

 

 

 

 

 

 

 

 

Net income/(loss) attributable to owners of the parent

 

 

1

 

 

 

(142

)

Shares used in computation:

 

 

 

 

 

 

 

 

   Weighted-average ordinary shares outstanding

 

 

185,046,324

 

 

 

180,613,539

 

Basic earnings/(loss) per share attributable

   to owners of the parent

 

 

0.00

 

 

 

(0.79

)