Annual Report 2010

Adecco Group –
Notes to consolidated financial statements
in millions, except share and per share information

Note 5 • Goodwill and intangible assets

The changes in the carrying amount of goodwill for the years ended December 31, 2010 and December 31, 2009, are as follows:

in EUR

France

North
America

UK &
Ireland

Japan

Germany &
Austria

Benelux

Other

Total

 

 

 

 

 

 

 

 

 

Changes in goodwill

 

 

 

 

 

 

 

 

January 1, 2009

308

534

95

29

1,349

75

276

2,666

Additions

9

13

41

 

19

7

 

89

Impairment charge

 

 

 

 

(125)

 

 

(125)

Currency translation adjustment

 

(8)

9

(2)

 

 

29

28

Other

 

(1)

 

 

 

1

(1)

(1)

December 31, 2009

317

538

145

27

1,243

83

304

2,657

Additions

4

382

74

 

6

12

25

503

Currency translation adjustment

 

67

7

7

 

 

32

113

December 31, 2010

321

987

226

34

1,249

95

361

3,273

As of December 31, 2010 and December 31, 2009, the gross goodwill amounted to EUR 3,454 and EUR 2,836, respectively. As of December 31, 2010 and December 31, 2009, accumulated impairment charges amounted to EUR 181 and EUR 179, respectively, impacted only by fluctuations in exchange rates.

The Company performed its annual goodwill impairment test in the fourth quarter of 2010 and determined that there was no indication of impairment.

In 2009, the Company performed its annual goodwill impairment test in the fourth quarter, and determined that there was no indication of impairment. However, in the second quarter of 2009, the Company performed an interim impairment test based on management’s revised five year projections for sales and earnings as general economic conditions and the short-term outlook of the Company’s business had worsened in the second quarter of 2009 compared to the first quarter of 2009 and the end of 2008.

Step one of the goodwill impairment test which comprised discounted cash flow valuations for all of the Company’s reporting units led to the conclusion that there was no indication for impairment of goodwill except for the reporting unit Germany. Accordingly, the Company proceeded to step two of the goodwill impairment test for the reporting unit Germany. In step two the fair value of all assets and liabilities of the reporting unit is determined as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit’s assets and liabilities was then compared to the reporting unit’s value as determined in step one with the excess considered to be the implied goodwill of the reporting unit which resulted in the recognition of a non-cash impairment charge related to goodwill of EUR 125 in the second quarter of 2009. The impairment charge can be attributed to worsening economic conditions and the short-term outlook for the Company business in Germany at that time, which negatively impacted the fair value determination of the unit for goodwill impairment purposes.

In determining the fair value of the reporting units, the Company uses a detailed five year plan for revenues and earnings and for the long-term value a long-term growth rate of 2.0% to 2.5% depending on the long-term growth prospects of the individual markets. For each reporting unit projected cash flows are discounted to their net present values. Discount rates used during the Company’s goodwill impairment tests in the second quarter and the fourth quarter of 2009 and 2010 ranged from 6.6% to 12.0%.

The 2008 annual goodwill impairment test was performed in the fourth quarter of 2008. In step one, the Company concluded that the carrying value of the reporting unit UK & Ireland exceeded its fair value. In the resulting step two of the goodwill impairment test it was determined that the carrying value of UK & Ireland exceeded the implied goodwill. Consequently, the Company recognised a non-cash impairment charge related to goodwill of EUR 58 in 2008. The impairment charge can be attributed to the deteriorating economic environment and lower profitability of the reporting unit at that time which led the Company to lower the reporting unit’s projected future cash flows compared to the prior year.

The carrying amounts of other intangible assets as of December 31, 2010 and December 31, 2009 are as follows:

 

31.12.2010

31.12.2009

in EUR

Gross

Accumulated
amortisation

Gross

Accumulated

amortisation

 

 

 

 

 

Intangible assets

 

 

 

 

Marketing-related (trade names)

417

(27)

234

(21)

Customer base

336

(166)

189

(116)

Contract

20

(3)

18

(2)

Other

2

(1)

1

(1)

Total intangible assets

775

(197)

442

(140)

The carrying amount of indefinite-lived intangible assets was EUR 386 and EUR 212 as of December 31, 2010 and December 31, 2009, respectively. Indefinite-lived intangible assets consist mainly of trade names.

No definite-lived intangible assets have a residual value. The estimated aggregate amortisation expense related to definite-lived intangible assets for the next five years is EUR 48 in 2011, EUR 35 in 2012, EUR 26 in 2013, EUR 23 in 2014, EUR 15 in 2015, and EUR 45 in 2016 and afterwards. The weighted-average amortisation period for customer base intangible assets is five to nine years.

The 2010 annual impairment testing for indefinite-lived intangible assets performed in the fourth quarter concluded that there was no indication of impairment.

The 2009 annual impairment testing for indefinite-lived intangible assets performed in the fourth quarter concluded that there was no indication for impairment. However, in the second quarter of 2009, the Company concluded that the fair value of certain trade names was lower than their carrying value. Consequently, a non-cash impairment charge to indefinite-lived intangible assets of EUR 11 was recorded. The impairment charge consisted of the write-down of trade names in Germany which was a result of the decrease in short-term sales projected at that time and in Iberia where the usage of one of the trade names was discontinued.

Furthermore, in the second quarter of 2009, the Company concluded that the carrying value of some of the definite-lived customer base intangible assets exceeded their fair value. Consequently, a non-cash impairment charge of the definite-lived intangible assets of EUR 56 was recorded. The impairment charge was related to the decreased value of the Tuja customer relationships in Germany and was mainly attributed to the decrease in sales and earnings of the entity projected at that time for the short-term.

In 2008, the indefinite-lived intangible assets impairment testing performed by the Company concluded that the fair value of certain trade names was lower than their carrying value. Consequently, a non-cash impairment charge to the indefinite-lived intangible assets of EUR 58 was recorded in 2008. The impairment charge mainly relates to the write-down of the Tuja trade names in Germany and was a result of the decrease in projected sales for those trade names.