Intangible assets with indefinite useful lives
Goodwill as at December 31, 2011, has a total carrying value of SEK 6,008m. In addition, the right to use the Electrolux trademark in North America, acquired in 2000, has been assigned an indefinite useful life. The total carrying amount for the right is SEK 410m, included in the item Other on the next page. The allocation, for impairment-testing purposes, on cash-generating units of the significant amounts is shown in the table below. The carrying amounts of goodwill allocated to Major Appliances Latin America, Major Appliances Europe, Middle East and Africa and Major Appliances Asia/Pacific are significant in comparison with the total carrying amount of goodwill.
All intangible assets with indefinite useful lives are tested for impairment at least once every year. Single assets can be tested more often in case there are indications of impairment. The recoverable amounts of the cash-generating units have been determined based on value in use calculations. The cash-generating units equal the business areas.
Value in use is calculated using the discounted cash-flow model and based on a three-year forecast made by Group Management. The forecast is built up from the estimate of the units within each business area. The preparation of the forecast requires a number of key assumptions such as volume, price, product mix, which will create a basis for future growth and gross margin. These figures are set in relation to historic figures and external reports on market growth. The cash flow for the third year is used as the base for the fourth year and onwards in perpetuity. The discount rates used are, amongst other things, based on the individual countries’ inflation, interest rates and country risk. The pre-tax discount rates used in 2011 were for the main part within a range of 8.7% to 15.8%. For the calculation of the in-perpetuity value, Gordon’s growth model is used. According to Gordon’s model the terminal value of a growing cash flow is calculated as the starting cash flow divided by cost of capital less the growth rate. Cost of capital less growth has been assumed at 6% for all markets. This corresponds to a weighted average cost of capital for the Group of 11% less an average nominal growth rate of 5%. The cost of capital and growth rate is estimated to be higher than the average in emerging markets and lower in developed markets; however the resulting difference is assumed to be equal in all markets over time. Management believes that any reasonably possible adverse change in the key assumptions would not reduce the recoverable amount below its carrying amount.
| Goodwill, value of trademark and discount rate | |||||||
| 2011 | 2010 | ||||||
| Goodwill | Electrolux trademark | Discount rate, % | Goodwill | Electrolux trademark | Discount rate, % | ||
| Major Appliances Europe, Middle East and Africa | 1,971 | — | 12.9 | 368 | — | 9.9 | |
| Major Appliances North America | 379 | 410 | 9.5 | 374 | 410 | 10.1 | |
| Major Appliances Asia/Pacific | 1,488 | — | 9.7 | 1,468 | — | 10.8 | |
| Major Appliances Latin America | 1,873 | — | 15.8 | 32 | — | 19.4 | |
| Other | 297 | — | 8.7–10.9 | 53 | — | 8.5–11.4 | |
| Total | 6,008 | 410 | — | 2,295 | 410 | — |
| Goodwill and other intangible assets | |||||||
| Group Other intangible assets | Parent Company | ||||||
| Goodwill | Product development | Program software | Other | Total other intangible assets | Trademarks, software etc. | ||
| Acquisition costs | |||||||
| Opening balance, January 1, 2010 | 2,274 | 3,099 | 1,533 | 1,019 | 5,651 | 1,859 | |
| Acquired during the year | — | — | 107 | 2 | 109 | — | |
| Internally developed | — | 396 | 581 | — | 977 | 448 | |
| Reclassification | — | — | –2 | 2 | — | — | |
| Sold during the year | — | — | — | — | — | — | |
| Fully amortized | — | –775 | — | — | –775 | –24 | |
| Write-off | — | –1 | — | — | –1 | — | |
| Exchange-rate differences | 21 | –276 | –63 | –11 | –350 | — | |
| Closing balance, December 31, 2010 | 2,295 | 2,443 | 2,156 | 1,012 | 5,611 | 2,283 | |
| Acquired during the year | — | — | 84 | 11 | 95 | — | |
| Acquisition of operations | 3,599 | — | 46 | 1,482 | 1,528 | — | |
| Internally developed | — | 374 | 660 | 1,034 | 402 | ||
| Reclassification | — | — | 3 | –3 | — | — | |
| Sold during the year | — | — | — | — | — | — | |
| Fully amortized | — | –264 | –30 | –32 | –326 | –3 | |
| Write-off | — | –11 | –14 | –6 | –31 | — | |
| Exchange-rate differences | 114 | –34 | –18 | 11 | –41 | — | |
| Closing balance, December 31, 2011 | 6,008 | 2,508 | 2,887 | 2,475 | 7,870 | 2,682 | |
| Accumulated amortization | |||||||
| Opening balance, January 1, 2010 | — | 1,736 | 409 | 507 | 2,652 | 496 | |
| Amortization for the year | — | 434 | 191 | 30 | 655 | 181 | |
| Sold and acquired during the year | — | — | — | — | — | — | |
| Fully amortized | — | –775 | — | — | –775 | –24 | |
| Impairment (+) / reversal of impairment (–) | — | — | — | — | — | — | |
| Exchange-rate differences | — | –158 | –29 | –10 | –197 | — | |
| Closing balance, December 31, 2010 | — | 1,237 | 571 | 527 | 2,335 | 653 | |
| Amortization for the year | — | 420 | 268 | 65 | 753 | 204 | |
| Sold and acquired during the year | — | — | — | — | — | — | |
| Fully amortized | — | –264 | –30 | –32 | –326 | –3 | |
| Impairment (+) / reversal of impairment (–) | — | — | — | — | — | — | |
| Exchange-rate differences | — | –17 | –1 | –20 | -38 | — | |
| Closing balance, December 31, 2011 | — | 1,376 | 808 | 540 | 2,724 | 854 | |
| Carrying amount, December 31, 2010 | 2,295 | 1,206 | 1,585 | 485 | 3,276 | 1,630 | |
| Carrying amount, December 31, 2011 | 6,008 | 1,132 | 2,079 | 1,935 | 5,146 | 1,828 | |
Goodwill acquired during the year refers to goodwill recognized in connection with the acquisitions of Olympic Group and CTI. For additional information, see Note 26.
Included in the item Other are trademarks of SEK 851m (473) and customer relationships etc. amounting to SEK 1,084m (12). Amortization of intangible assets are included within cost of goods sold with SEK 435m (439), administrative expenses with SEK 247m (184) and selling expenses with SEK 71m (32) in the income statement. Electrolux did not capitalize any borrowing costs during the period.