Electrolux 2015 Annual Report Download - page 115

Note 13 Goodwill and other intangible assets
Goodwill
Goodwill is reported as an indefinite life intangible asset at cost less
accumulated impairment losses.
Product development expenses
Electrolux capitalizes expenses for certain own development of new
products provided that the level of certainty of their future economic
benefits and useful life is high. The intangible asset is only recognized
if the product is sellable on existing markets and that resources exist
to complete the development. Only expenditures which are directly
attributable to the new product’s development are recognized. Cap-
italized development costs are amortized over their useful lives,
between  and  years, using the straight-line method.
Computer software
Acquired computer software licenses are capitalized on the basis of
the costs incurred to acquire and bring to use the specific software.
These costs are amortized over useful lives, between  and  years,
using the straight-line method with the exception for the develop-
ment costs of the Group’s common business system, which amorti-
zation is based on the usage and go-live dates of the entities and
continues over useful life. The applied principle gives an amortization
period of approximately  years for the system.
Trademarks
Trademarks are reported at historical cost less amortization and
impairment. The Electrolux trademark in North America, acquired
in , is regarded as an indefinite life intangible asset and is not
amortized. One of the Group’s key strategies is to develop Electrolux
into the leading global brand within the Group’s product catego-
ries. This acquisition gave Electrolux the right to use the Electrolux
brand worldwide, whereas it previously could be used only outside
of North America. The total carrying amount for the Electrolux brand
is SEK m, included in the item Other in the table on page . All
other trademarks are amortized over their useful lives, estimated to 
to  years, using the straight-line method.
Customer relationships
Customer relationships are recognized at fair value in connection
with acquisitions. The values of these relationships are amortized
over the estimated useful lives, between  and  years, using the
straight-line method.
Intangible assets with indefinite useful lives
Goodwill as at December , , had a total carrying value of
SEK ,m. The allocation, for impairment-testing purposes, on
cash-generating units of the significant amounts is shown in the
table below.
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 recov-
erable 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 busi-
ness area. The preparation of the forecast requires a number of key
assumptions such as volume, price, product mix, prices for raw mate-
rial and components, 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 indi-
vidual countries’ inflation, interest rates and country risk. The pre-tax
discount rates used in  were for the main part within a range
of . (.) to . (.) %. 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 start-
ing cash flow divided by cost of capital less the growth rate. Cost of
capital less growth has been assumed at .% () for all markets. This
corresponds to a weighted average cost of capital for the Group of
.% () less an average nominal growth rate of .% (). The cost
of capital and growth rate are estimated to be higher than the aver-
age in emerging markets and lower in developed markets. However,
the resulting difference is assumed to be equal in all markets over
time.
Sensitivity analyses have been carried out based on a reduction
of the operating margin by . percentage points (equivalent to a
reduction in budgeted operating income of approximately  per-
cent) and by an increase in the cost of capital by one percentage
point respectively. None of the sensitivity analyses lead to a reduc-
tion of the recoverable amount below the carrying amount for any of
the cash generating units, i.e. the hypothetical changes in key assum-
tions would not lead to any impairment. The calculations are based
on management’s assessment of reasonably possible adverse
changes in two key assumptions (operating margin and cost of cap-
ital), yet they are hypothetical and should not be viewed as an indi-
cation that these factors are likely to change. The sensitivity analyses
should therefore be interpreted with caution.
Goodwill, value of trademark and discount rate
 
Goodwill
Electrolux
trademark
Discount
rate, % Goodwill
Electrolux
trademark
Discount
rate, %
Major Appliances Europe, Middle East and Africa , — . , — .
Major Appliances North America   .   .
Major Appliances Latin America , — . , — .
Major Appliances Asia/Pacific , — . , — .
Other  — .-.  — .-.
Total ,  , 
ECTROLUX ANNUAL REPORT 
amounts in SEKm unless otherwise stated