All amounts in SEKm unless otherwise stated
Goodwill is reported as an indefinite life intangible asset at cost less accumulated impairment losses.
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. Capitalized development costs are amortized over their useful lives, between 3 and 5 years, using the straight-line method.
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 3 and 5 years, using the straight-line method with the exception for the development costs of the Group’s common business system, which amortization 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 10 years for the system.
Trademarks are reported at historical cost less amortization and impairment. The Electrolux trademark in North America, acquired in 2000, 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 categories. 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 410m, included in the item Other in the table on page 114. All other trademarks are amortized over their useful lives, estimated to 5 to 10 years, using the straight-line method.
Customer relationships are recognized at fair value in connection with acquisitions. The values of these relationships are amortized over the estimated useful lives, between 5 and 15 years, using the straight-line method.
Goodwill as at December 31, 2016, had a total carrying value of SEK 4,742m. The allocation, for impairment-testing purposes, on cash-generating units of the significant amounts is shown in the table below. The carrying value of the goodwill in Major Appliances Europe, Middle East and Africa was negatively affected by the devaluation of the Egyptian pound in 2016.
All intangible assets with indefinite useful lives are tested for impairment at least once every year. Single assets are 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. Costs related to group services and global leverage activities are carried by the cash-generating units and therefore included in the impairment testing of each cash-generating unit. Common group costs, related to group management activities typically required to run the Electrolux Group cannot be allocated on a reasonable and consistent basis to any of the cash-generating units and are therefore included in the impairment test of the total of all cash-generating units.
Value in use is calculated using the discounted cash-flow model based on three periods. The forecast for the last quarter of the current year is period one. The annual plan for the upcoming year is period two. The third period is calculated by using the growth rates determined on an individual cash-generating unit and applied to the annual plan for period two. The forecasts are approved by Group Management. The forecasts are 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, prices for raw material 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 period is used as the base for the fourth period and onwards in perpetuity. The discount rates used are, among other things, based on the individual countries’ inflation, interest rates and country risk. Since the impairment test in 2015 a couple of procedures have been changed. The weighting of the pre-tax discount rates has changed from share of net assets to share of net sales. The weighting of cost of capital less growth is now individually assigned to each cash-generating unit. The pre-tax discount rates used in 2016 were for the main part within a range of 7.3 (7.1) to 15.3 (15.9) %. 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 is within the range of 2.7 to 8.7 %.
Sensitivity analyses have been carried out based on a reduction of the operating margin by 0.5 percentage points (equivalent to a reduction in budgeted operating income of approximately 10 percent) and by an increase in the cost of capital by one percentage point respectively. None of the sensitivity analyses led to a reduction of the recoverable amount below the carrying amount for any of the cash generating units, i.e. the hypothetical changes in key assumptions 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 capital), yet they are hypothetical and should not be viewed as an indication that these factors are likely to change. The sensitivity analyses should therefore be interpreted with caution.
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| Goodwill | Electrolux trademark |
Discount |
Goodwill | Electrolux trademark |
Discount |
|
| Major Appliances Europe, Middle East and Africa | 1,089 | — | 9.8 | 1,883 | — | 15.9 |
| Major Appliances North America | 498 | 410 | 7.3 | 462 | 410 | 7.1 |
| Major Appliances Latin America | 1,186 | — | 15.3 | 1,124 | — | 14.5 |
| Major Appliances Asia/Pacific | 1,563 | — | 10.1 | 1,360 | — | 8.2 |
| Other | 406 | — | 9-9.4 | 371 | — | 9.8-11.1 |
| Total | 4,742 | 410 | 5,200 | 410 | ||
| Group |
Parent Company | |||||
|---|---|---|---|---|---|---|
| Goodwill | Product |
Computer |
Other | Total other |
Trademarks, |
|
| Acquisition costs | ||||||
| Opening balance, January 1, 2015 | 5,350 | 3,162 | 3,362 | 2,119 | 8,643 | 2,555 |
| Acquired during the year | — | — | 240 | 57 | 297 | 64 |
| Acquisition of operations | 140 | — | — | –26 | –26 | — |
| Internally developed | — | 359 | 14 | — | 373 | 195 |
| Reclassification | — | — | –1 | 1 | — | — |
| Fully amortized | — | –326 | –38 | –157 | –521 | — |
| Write-off | — | –16 | –13 | –1 | –30 | — |
| Exchange-rate differences | –290 | –171 | 1 | –121 | –291 | –7 |
| Closing balance, December 31, 2015 | 5,200 | 3,008 | 3,565 | 1,872 | 8,445 | 2,807 |
| Acquired during the year | — | — | 110 | 1 | 111 | 150 |
| Acquisition of operations | 108 | — | — | 57 | 57 | — |
| Internally developed | — | 274 | 176 | — | 450 | 243 |
| Reclassification | — | –52 | 2 | 50 | 0 | — |
| Fully amortized | — | –213 | –448 | –70 | –731 | — |
| Write-off | — | –43 | –1 | –2 | –46 | –33 |
| Exchange-rate differences | –566 | 265 | 116 | –179 | 202 | 13 |
| Closing balance, December 31, 2016 | 4,742 | 3,239 | 3,520 | 1,729 | 8,488 | 3,180 |
| Accumulated amortization | ||||||
| Opening balance, January 1, 2015 | — | 2,065 | 1,890 | 810 | 4,765 | 1,414 |
| Amortization for the year | — | 349 | 467 | 159 | 975 | 271 |
| Fully amortized | — | –326 | –38 | –157 | –521 | — |
| Write-off | — | 7 | — | — | 7 | — |
| Exchange-rate differences | — | –116 | –3 | –63 | –182 | –2 |
| Closing balance, December 31, 2015 | — | 1,979 | 2,316 | 749 | 5,044 | 1,683 |
| Amortization for the year | — | 345 | 430 | 150 | 925 | 275 |
| Reclassification | — | — | 1 | –1 | 0 | — |
| Fully amortized | — | –213 | –448 | –70 | –731 | — |
| Write-off | — | 7 | — | — | 7 | –29 |
| Exchange-rate differences | — | 168 | 67 | –104 | 131 | 5 |
| Closing balance, December 31, 2016 | — | 2,286 | 2,366 | 724 | 5,376 | 1,934 |
| Carrying amount, December 31, 2015 | 5,200 | 1,029 | 1,249 | 1,123 | 3,401 | 1,124 |
| Carrying amount, December 31, 2016 | 4,742 | 953 | 1,154 | 1,005 | 3,112 | 1,246 |
Included in the item Other are trademarks of SEK 553m (570) and customer relationships etc. amounting to SEK 452m (553). Amortization of intangible assets is included within Cost of goods sold with SEK 431m (410), Administrative expenses with SEK 343m (401) and Selling expenses with SEK 151m (164) in the income statement. Electrolux did not capitalize any borrowing costs during 2016 or 2015.