The goodwill of BASF is allocated to 37 cash-generating units which are defined either on the basis of business units or on a higher level. The goodwill arising from the acquisition of Ciba in 2009 of €571 million was allocated to cash-generating units in the Performance Chemicals, Dispersion & Pigments, Care Chemicals and Paper Chemicals divisions.
The annual impairment test took place in the fourth quarter of the year on the basis of the cash-generating units. The recoverable amount was determined using the value-in-use and the plans approved by corporate management for the next five years. The cash flows after the planning period are based on the last year and extrapolated with the help of long-term growth trends. The planning is based on the experience, current performance and best possible management estimates on the future development of the individual parameters such as raw material prices and profit margins. Market assumptions regarding, for example, economic development and market growth are included based on external macroeconomic sources as well as sources specific to the industry.
The weighted average cost of capital after tax required for the impairment tests is determined using the Capital Asset Pricing Model. It comprises the corresponding risk-free interest rate, the market risk premium and the spread for the credit risk. The calculation also takes into account the volatility of the BASF share in comparison to the capital market (beta), the capital structure of the BASF Group and the average tax rate of each cash-generating unit.
The impairment test for the financial year 2009 resulted in an overall impairment loss on goodwill of €220 million.
Changes in the market for electronic chemicals brought on by the economic crisis and changing technology led to a reduction in future growth forecasts and, as a result, to an impairment loss on goodwill of €103 million in the Inorganic division in the Chemicals segment.
In addition, an impairment loss on goodwill of €73 million was recognized in the Care Chemicals division in the Performance Products segment. Expectations regarding future cash flows have worsened due to lower demand for high-priced cosmetics. This decline was caused by changed consumer behavior and intensified by the economic crisis.
The restructuring of the activities of BASF Fuel Cell, which involves the transfer of fuel cell activities from Frankfurt, Germany, to Somerset, New Jersey, led to an impairment loss on goodwill of €22 million. These activities are allocated to the Inorganics division in the Chemicals segment.
Further impairment losses on goodwill were recognized for an overall amount of €22 million for cash-generating units in the Polyurethanes division in the Plastics segment, the Performance Chemicals division in the Performance Products segment and the Coatings division in the Functional Solutions segment. All impairment losses on goodwill are reported under other operating expenses.
The major part of goodwill amounting to €5,069 million in total (2008: €4,748 million) is allocated to the following cash-generating units. The goodwill of the Crop Protection division in the Agricultural Solutions segment amounts to €1,366 million (2008: €1,383 million). Goodwill of €1,253 million (2008: €1,246 million) and €627 million (2008: €620 million) relate to the Catalysts and Construction Chemicals divisions in the Functional Solutions segment. Goodwill of €389 million (2008: €381 million) is allocated to the Oil & Gas segment.
The impairment tests were conducted using the following assumptions: a weighted average cost of capital between 7.15% and 7.64% (2008: 6.72% to 7.59%) and a long-term growth rate between 0.0% and 2.0% (2008: 0.0% to 3.0%). In determining the value-in-use of the cash-generating units, BASF assumes that changes in material assumptions classified as possible will not lead to the book values of the units materially exceeding the recoverable amount.
This excludes the goodwill of the Catalysts division in the Functional Solutions segment that arose from the acquisition of Engelhard in 2006. The results of this division are connected to market developments in the automotive and chemical industries. The weighted average cost of capital used for the impairment test of the Catalyst cash-generating unit was 7.50% (2008: 7.48%). Catalysts currently has a value-in-use which exceeds the book value by approximately €300 million. The recoverable amount would equal the book value of the unit if the cost of capital increased by 0.43 percentage points.
For more information on the Catalysts division, see the Management’s Analysis
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|
Development of intangible assets 2009 (million €) |
|
| |||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
Distribution, supply and similar rights |
Product rights, licenses and trademarks |
Know-how, patents and production technology |
Internally generated intangible assets |
Other rights and values 1 |
Goodwill |
Total | ||
| |||||||||
|
Acquisition costs |
|
|
|
|
|
|
| ||
|
Balance as of January 1, 2009 |
3,366 |
1,518 |
1,632 |
133 |
1,011 |
4,748 |
12,408 | ||
|
Changes in scope of consolidation |
1 |
(2) |
– |
– |
– |
– |
(1) | ||
|
Additions |
605 |
185 |
233 |
12 |
240 |
571 |
1,846 | ||
|
Disposals |
(58) |
(14) |
(111) |
(16) |
(375) |
(222) |
(796) | ||
|
Transfers |
– |
(15) |
12 |
– |
(32) |
(7) |
(42) | ||
|
Exchange differences |
(92) |
(6) |
(5) |
(1) |
13 |
(21) |
(112) | ||
|
Balance as of December 31, 2009 |
3,822 |
1,666 |
1,761 |
128 |
857 |
5,069 |
13,303 | ||
|
Amortization |
|
|
|
|
|
|
| ||
|
Balance as of January 1, 2009 |
668 |
519 |
641 |
82 |
609 |
– |
2,519 | ||
|
Changes in scope of consolidation |
1 |
– |
– |
– |
– |
– |
1 | ||
|
Additions |
267 |
96 |
192 |
20 |
302 |
220 |
1,097 | ||
|
Disposals |
(49) |
(7) |
(108) |
(15) |
(366) |
(220) |
(765) | ||
|
Transfers |
– |
(1) |
– |
– |
1 |
– |
– | ||
|
Exchange differences |
(6) |
(4) |
(2) |
– |
14 |
– |
2 | ||
|
Balance as of December 31, 2009 |
881 |
603 |
723 |
87 |
560 |
– |
2,854 | ||
|
Net carrying amount as of December 31, 2009 |
2,941 |
1,063 |
1,038 |
41 |
297 |
5,069 |
10,449 | ||
The acquisition of Ciba and its preliminary purchase price allocation in 2009 resulted in additions of €1,095 million for production technologies, brands, customer relationships and other intangible assets, and €571 million for goodwill.
In 2009, impairment losses of €500 million were recognized. They are reported in the line item amortization in the development of intangible assets. A significant amount of the €220 million in impairment losses related to impairment losses on goodwill. In addition, an impairment charge of €176 million was taken for Ciba’s SAP system. The closure of the Fuel Cell activities in Frankfurt led to impairment losses on know-how, technology and patents of €47 million in total.
Impairments are reported under other operating expenses.
Concessions for oil and gas production with a net carrying amount of €453 million in 2009, and €362 million in 2008, convey the right to produce oil and gas at certain sites. To a limited extent, these rights entail obligations to deliver a portion of the produced amount to local companies. At the end of the term of a concession, the rights are returned.
Disposals of goodwill related to impairment losses in 2009. The amounts recorded under transfers resulted primarily from the adjustment of the preliminary purchase price allocation from the acquisition of Revus and Sorex in the financial year 2008. The revaluations of emission rights as of the balance sheet date are included in the line item transfers in the column ‘Other rights and values’.
There were no material write-ups in 2009.
| Download ( xls, 18 kB) |
|
Development of intangible assets 2008 (million €) |
|
| |||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
Distribution, supply and similar rights |
Product rights, licenses and trademarks |
Know-how, patents and production technology |
Internally generated intangible assets |
Other rights and values 1 |
Goodwill |
Total | ||
| |||||||||
|
Acquisition costs |
|
|
|
|
|
|
| ||
|
Balance as of January 1, 2008 |
3,472 |
1,165 |
1,651 |
135 |
789 |
4,305 |
11,517 | ||
|
Changes in scope of consolidation |
(1) |
. |
– |
. |
1 |
5 |
5 | ||
|
Additions |
29 |
327 |
19 |
17 |
53 |
380 |
825 | ||
|
Disposals |
(17) |
(9) |
(47) |
(22) |
(25) |
(16) |
(136) | ||
|
Transfers |
2 |
23 |
(3) |
1 |
177 |
34 |
234 | ||
|
Exchange differences |
(119) |
12 |
12 |
2 |
16 |
40 |
(37) | ||
|
Balance as of December 31, 2008 |
3,366 |
1,518 |
1,632 |
133 |
1,011 |
4,748 |
12,408 | ||
|
Amortization |
|
|
|
|
|
|
| ||
|
Balance as of January 1, 2008 |
459 |
417 |
545 |
80 |
457 |
– |
1,958 | ||
|
Changes in scope of consolidation |
. |
. |
. |
. |
. |
– |
. | ||
|
Additions |
214 |
82 |
139 |
22 |
145 |
16 |
618 | ||
|
Disposals |
(17) |
(7) |
(48) |
(21) |
(24) |
(16) |
(133) | ||
|
Transfers |
. |
20 |
. |
. |
21 |
– |
41 | ||
|
Exchange differences |
12 |
7 |
5 |
1 |
10 |
– |
35 | ||
|
Balance as of December 31, 2008 |
668 |
519 |
641 |
82 |
609 |
– |
2,519 | ||
|
Net carrying amount as of December 31, 2008 |
2,698 |
999 |
991 |
51 |
402 |
4,748 |
9,889 | ||
Additions of €303 million for exploration licenses for the British and Norwegian North Sea resulted from the acquisition of Revus and its preliminary purchase price allocation in 2008.
In 2008, impairments of €37 million were taken. Disposals of goodwill related, among other things, to impairment charges of €9 million as part of the restructuring of the Styrenics business. Impairments are reported under other operating expenses.
The amounts recorded under transfers resulted primarily from the reclassification of assets held for sale as intangible assets.
There were no material write-ups in 2008.
