Chrysler 2009 Annual Report Download - page 174

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For Ferrari, the cash generating unit corresponds to the Sector as a whole, while in Comau goodwill has been allocated to the System, Pico and Service
businesses. In those Sectors, the cash-generating unit recoverable amount is determined on the basis of their value in use defined as the discounted value
of the expected future operating cash flows resulting from the estimates included in the 2010 budget and forecasts for business performance prepared
on a cautionary basis, considering the fact that the economical and financial environment and the market situation have undergone profound changes
as a result of the present crisis, extrapolated for later years on the basis of a medium- to long-term growth rates depending on the detailed nature of the
operations and the extent to which they are differentiated and on the forecasts made by the individual sector to which the cash-generating units belong.
These cash flows are then discounted using rates that take account of current market assessments of the time value of money and the specific risks
inherent in individual cash-generating units.
The recoverable amount of the Ferrari and Comau cash-generating units and of the respective goodwill is the value in use and is determined on the basis
of the following assumptions:
2009 2008
Terminal Discount Terminal Discount
value rate before value rate before
growth rate taxes growth rate taxes
Ferrari 2% 10.4% 2% 9.6%
Production Systems 0% 9.0% 0% 8.1%
The recoverable amount of the cash generating unit to which the Ferrari Sector goodwill relates is significantly higher than its carrying amount; in addition,
the exclusivity of the business, its historical profitability and its future earnings prospects indicate that this carrying amount will continue to be recoverable,
even in the event of economic and market conditions which remain difficult and maybe become much worse.
In the Comau Sector, this approach led to the recognition in 2008 of impairment losses of฀€12 million, for goodwill allocated to the System cash generating
unit. This loss was recognised as Other unusual income (expenses) in the income statement. A sensitivity analysis was carried out on the residual goodwill,
which is mainly allocated to the Pico cash-generating unit, but no matters arose to indicate that this may be significantly impaired.
The results obtained for the other Sectors and related sensitivity analyses also confirmed the absence of significant impairment losses.
Finally, it is appropriate to note that the estimates and budget data to which the above mentioned parameters have been applied are those determined by
management on the basis of past performance and expectations of developments in the markets in which the Group operates. In this respect the negative
actual data for trends in demand in the various sectors in the last quarter of 2008 and in 2009, taken together with forecasts of an essential stabilisation of
performance in 2010 (but in certain cases at very low levels), have led management to reconsider the expected growth rates of revenues and margins using
a more cautionary approach, without causing situations to arise in which the carrying amount of goodwill may be significantly impaired. However, estimating
the recoverable amount of cash generating units requires discretion and the use of estimates by management. The Group cannot guarantee that there will
be no goodwill impairment in future periods. In fact, various factors connected to the current challenging market environment could require a reassessment
of the value of goodwill. Circumstances and events which could potentially cause further impairment losses are constantly monitored by the Group.
Development costs
The amortisation of development costs and impairment losses are reported in the income statement as Research and development costs and Other unusual
income (expenses).
Development costs recognised as assets are attributed to cash generating units and are tested for impairment together with the related tangible fixed assets,
using the discounted cash flow method in determining their recoverable amount.