Unilever 2005 Annual Report Download - page 158

158 Unilever Annual Report and Accounts 2005
Additional information for US investors (continued)
Unilever Group
The consolidated accounts of the Unilever Group have been prepared in accordance with accounting principles which differ in certain respects
from those generally accepted in the United States (US GAAP). The principal differences are set out below.
Goodwill and intangible assets
Under IFRSs transitional rules, purchased goodwill and identifiable intangible assets are recognised at the transition date to IFRSs at deemed
cost. For goodwill, the deemed cost at 1 January 2004 was the carrying value under previous GAAP at 31 December 2003. Under previous
GAAP, goodwill arising from acquisitions after 1 January 1998 was capitalised and amortised over the period of its expected useful life, up to a
maximum of 20 years. For intangible assets with indefinite lives, the deemed cost at the date of transition to IFRSs is the original cost at which
these costs were initially recognised on the balance sheet.
Under US GAAP prior to 1 January 2002, purchased goodwill and identifiable intangible assets were capitalised and amortised over their useful
lives. From 1 January 2002, under FAS 142, the amortisation of goodwill and identifiable intangible assets that have indefinite useful lives
ceased. Intangible assets that have finite useful lives continue to be amortised over their useful lives for both IFRSs and US GAAP.
The differences between IFRSs and US GAAP on accounting for goodwill and intangible assets are set out in the tables and footnotes below.
Impact of goodwill and intangible assets differences on equity:
€ million € million
2005 2004
Pre-1998 goodwill and intangible assets(a) 3 536 3 617
Cessation of goodwill amortisation(b) 1 631 1 502
Cessation of intangible assets amortisation(b) (329) (250)
Differences in calculation of goodwill on acquisition(c) 1 198 1 041
Recognised impairments on goodwill and intangible assets(d) (128) (131)
Cessation of goodwill amortisation on joint ventures and associates(b) 25 21
Total adjustment to equity 5 933 5 800
(a) Under previous GAAP, goodwill and intangible assets purchased prior to 1 January 1998 were written off in the year of acquisition as a
movement in profits retained. Under US GAAP, such goodwill and intangible assets were capitalised and, prior to 1 January 2002, were
amortised over their useful lives. These different accounting treatments gave rise to differences in the calculation of equity under IFRSs
and US GAAP. Similar differences arise between net profit or loss on disposal of a business or intangible asset under US GAAP.
(b) Under US GAAP prior to 1 January 2002, purchased goodwill and identifiable intangible assets were capitalised and amortised over their
useful lives. From 1 January 2002, under FAS 142, the amortisation of goodwill and identifiable intangible assets that have indefinite useful
lives ceased. Intangible assets that have finite useful lives continue to be amortised over their useful lives.
(c) The detailed rules for determining the fair value of assets and liabilities acquired as part of the acquisition of a business differed between
previous GAAP and US GAAP. We have applied the exemption in IFRS 1 relating to business combinations and therefore the carrying value
under previous GAAP for goodwill as at 31 December 2003 is its deemed cost at the date of transition to IFRSs (see also note 35 on pages
144 to 151). These, previous differences therefore give rise to differing figures for goodwill arising on acquisition as calculated under IFRSs
and US GAAP.
(d) As more fully disclosed below, the carrying values of goodwill and identifiable intangible assets and the detailed rules for measuring and
allocating an impairment loss differ between IFRSs and US GAAP, resulting in divergences for impairment charges recognised.
Under US GAAP the carrying values and detailed rules for measuring and allocating an impairment loss differ from those under IFRS. As a result,
for the year ended 31 December 2005, the evaluation of the Slim•Fast trademark resulted in an impairment charge under US GAAP of
€343 million, €104 million more than the charge recognised in respect of the trademark under IFRSs and €20 million less than the total
impairment charge recognised under IFRSs for the Slim•Fast business. For US GAAP purposes, the fair value of the trademark asset was
determined using a relief-from-royalty method that estimates the value of the implied royalty stream that could be generated from the
trademark, were it to be licensed.
There are a number of goodwill and intangible assets being carried for US GAAP purposes for which no corresponding value exists under IFRSs.
The annual impairment testing conducted in 2005 identified certain goodwill and intangible assets for which the carrying value was no longer
fully recoverable. Accordingly, an impairment charge was recognised solely for US GAAP purposes in respect of the following:
•As a result of the global use of the Unilever brand on all product packaging we have discontinued the use of the Fabergé trade name
resulting in an impairment charge of €120 million; and
•The 2005 review of our ice cream operations in Latin America indicated that an impairment charge of €66 million was required.
In each of the above, fair value was determined by use of a relief-from-royalty valuation method for indefinite-lived trademarks and through a
present value of discounted cash flows methodology for the relevant reporting unit in respect of goodwill.
Other goodwill impairment charges recognised in 2005 include €98 million of write-downs in respect of planned business disposals in The
Americas region that will complete during 2006.