In 2014 and in 2013 changes in the gross carrying amount of Intangible assets were as follows:
|($ million)||At December 31, 2013||Additions||Divestitures||Translation differences and other changes||At December 31, 2014|
|Trademarks and other intangible assets with indeﬁnite useful lives||293||2||-||-||295|
|Development costs externally acquired||1,183||115||-||(232)||1,066|
|Development costs internally generated||4,271||561||(49)||(310)||4,473|
|Total Development costs||5,454||676||(49)||(542)||5,539|
|Patents, concessions and licenses externally acquired||992||43||-||(65)||970|
|Other intangible assets externally acquired||736||69||(1)||22||826|
|Advances and intangible assets in progress externally acquired||29||14||-||(25)||18|
|Total gross carrying amount of Intangible assets||10,667||804||(50)||(632)||10,789|
|($ million)||At December 31, 2012||Additions||Divestitures||Translation differences and other changes||At December 31, 2013|
|Trademarks and other intangible assets with indeﬁnite useful lives||293||-||-||-||293|
|Development costs externally acquired||983||150||-||50||1,183|
|Development costs internally generated||3,602||609||(18)||78||4,271|
|Total Development costs||4,585||759||(18)||128||5,454|
|Patents, concessions and licenses externally acquired||940||20||(1)||33||992|
|Other intangible assets externally acquired||655||69||(25)||37||736|
|Advances and intangible assets in progress externally acquired||15||17||-||(3)||29|
|Total gross carrying amount of Intangible assets||9,685||865||(44)||161||10,667|
In 2014 and in 2013 changes in accumulated amortization and impairment losses were as follows:
|($ million)||At December 31, 2013||Additions||Amorti- zation||Impairment|
|Divesti- tures||Translation differences and other changes||At December 31, 2014|
|Trademarks and other intangible assets with indeﬁnite useful lives||233||2||-||-||-||-||235|
|Development costs externally acquired||535||115||(70)||(12)||-||(139)||429|
|Development costs internally generated||2,327||561||(350)||(13)||(14)||(121)||2,390|
|Total Development costs||2,862||676||(420)||(25)||(14)||(260)||2,819|
|Patents, concessions and licenses externally acquired||186||43||(48)||-||-||6||187|
|Other intangible assets externally acquired||222||69||(60)||-||(1)||48||278|
|Advances and intangible assets in progress externally acquired||29||14||-||-||-||(25)||18|
|Total net carrying amount of Intangible assets||6,046||804||(528)||(25)||(15)||(251)||6,031|
|($ million)||At December 31, 2012||Additions||Amortization||Impairment losses||Divestitures||Translation differences and other changes||At December 31, 2013|
|Trademarks and other intangible assets with indeﬁnite useful lives||233||-||-||-||-||-||233|
|Development costs externally acquired||464||150||(102)||-||-||23||535|
|Development costs internally generated||1,897||609||(214)||-||(2)||37||2,327|
|Total Development costs||2,361||759||(316)||-||(2)||60||2,862|
|Patents, concessions and licenses externally acquired||212||20||(53)||-||(1)||8||186|
|Other intangible assets externally acquired||171||69||(48)||-||(4)||34||222|
|Advances and intangible assets in progress externally acquired||15||17||-||-||-||(3)||29|
|Total net carrying amount of Intangible assets||5,507||865||(417)||-||(7)||98||6,046|
Foreign exchange losses of $327 million in 2014 (gains of $54 million in 2013) principally refl ect the devaluation of the euro against the U.S. dollar.
Goodwill, trademarks and intangible assets with indefi nite useful lives
Goodwill is allocated to the Group’s cash-generating units identifi ed as the Group’s operating segments. The following table presents the allocation of goodwill across the segments:
|($ million)||At December 31, 2014||At December 31, 2013|
|Goodwill net carrying amount||2,494||2,514|
Trademarks and Other intangible assets with indefi nite useful lives are mainly attributable to Agricultural Equipment and Construction Equipment and consist of acquired trademarks and similar rights which have no legal, contractual, competitive or economic factors that limit their useful lives. For the purposes of impairment testing, these assets were attributed to the respective cash-generating units. No impairment loss was recognized.
The vast majority of goodwill, representing approximately 92% of the total, relates to Agricultural Equipment (68%) and to Construction Equipment (24%), where the cash-generating units considered for the testing of the recoverability of the goodwill are the segments.
To determine the recoverable amount of these cash-generating units, multiple valuation methodologies are used, relying largely on an income approach but also incorporating value indicators from a market approach.
Under the income approach, the recoverable amount of a cash-generating unit is calculated based on the present value of estimated future cash flows. The income approach is dependent on several critical management assumptions, including estimates of future sales, gross margins, operating costs, income tax rates, terminal value growth rates, capital expenditures, changes in working capital requirements and the weighted average cost of capital (discount rate). Discount rate assumptions include an assessment of the risk inherent in the future cash flows of the respective cash-generating units. The following discount rates before taxes as of December 31, 2014 and 2013 were selected:
Expected cash flows used under the income approach are developed in conjunction with the Group budgeting and forecasting processes.
The Group uses nine years of expected cash flows for the Agricultural Equipment and Construction Equipment cash-generating units and four years of expected cash flows for the Financial Services cash-generating unit as management believes that these periods generally refl ect the underlying market cycles for its businesses. Under the market approach, the Group estimates the recoverable amount of the Agricultural Equipment and Construction Equipment cash-generating units using revenue and EBITDA multiples and estimates the recoverable amount of the Financial Services cash-generating unit using book value, tangible book value and interest margin multiples. The multiples are derived from comparable publicly-traded companies with similar operating and investment characteristics as the respective cash-generating units.
The guideline company method makes use of market price data of corporations whose stock is actively traded in a public, free and open market, either on an exchange or over-the counter basis. Although it is clear no two companies are entirely alike, the corporations selected as guideline companies must be engaged in the same, or a similar, line of business or be subject to similar fi nancial and business risks, including the opportunity for growth.
A terminal value is included at the end of the projection period used in the discounted cash flow analyses in order to refl ect the remaining value that each cash-generating unit is expected to generate. The terminal value represents the present value in the last year of the projection period of all subsequent cash flows into perpetuity. The terminal value growth rate is a key assumption used in determining the terminal value as it represents the annual growth of all subsequent cash flows into perpetuity. The terminal value growth rate for the Agricultural Equipment cash-generating unit was 1% in 2014 and 2013, respectively, and for Construction Equipment was 3% in 2014 and 2013, respectively. The terminal value growth rate for Financial Services was 1.5% in 2014 and 2013, respectively.
As of December 31, 2014, the estimated recoverable amount, calculated using the above method, of the Agricultural Equipment and Financial Services cash-generating units substantially exceeded the respective carrying values. The Construction Equipment cash-generating unit’s excess of recoverable amount over carrying value was approximately 7%. A 0.8% increase in the discount rate, holding all other assumptions constant, or a further decline in market demand for construction equipment could result in an impairment loss in future reporting periods.
The results obtained for the Commercial Vehicles and related sensitivity analyses confi rmed the absence of an impairment loss.
Finally, the estimates and budget data to which the above mentioned parameters have been applied are those determined by management based on past performance and expectations of developments in the markets in which the Group operates. 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. Circumstances and events, which could potentially cause further impairment losses, are constantly monitored by the Group.
The amortization of development costs and impairment losses are reported in the income statement as Research and development costs.
Development costs are tested for impairment at the cash-generating unit level.