Annual Report 2011

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, 2011 and December 31, 2010 are as follows:

in EUR

France [1]

North
America [1]

UK &
Ireland

Japan [1]

Germany & Austria [1]

Benelux [1]

Italy [1]

Other [1]

Total

 

 

 

 

 

 

 

 

 

 

Changes in goodwill

 

 

 

 

 

 

 

 

 

January 1, 2010

233

515

145

27

1,243

83

411

2,657

Additions

4

382

74

 

6

12

 

25

503

Currency translation adjustment

 

67

7

7

 

 

 

32

113

December 31, 2010

237

964

226

34

1,249

95

468

3,273

Additions

 

1

 

 

1

 

 

129

131

Currency translation adjustment

 

31

7

3

 

 

 

11

52

Other

(1)

 

 

 

 

 

 

 

(1)

December 31, 2011

236

996

233

37

1,250

95

608

3,455

 

 

 

 

 

 

 

 

 

 

[1]Since January 1, 2011, LHH is reported as a separate segment and presented in Other above. The 2010 information has been restated to conform to the current year presentation.

As of December 31, 2011 and December 31, 2010, the gross goodwill amounted to EUR 3,638 and EUR 3,454, respectively. As of December 31, 2011 and December 31, 2010, accumulated impairment charges amounted to EUR 183 and EUR 181, respectively, impacted only by fluctuations in exchange rates.

The Company performed its annual goodwill impairment test in the fourth quarter of 2011 and 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 2011, 2010, and 2009 ranged from 6.5% to 14.0%.

The carrying amounts of other intangible assets as of December 31, 2011 and December 31, 2010 are as follows:

 

31.12.2011

31.12.2010

in EUR

Gross

Accumulated

amortisation

Gross

Accumulated

amortisation

 

 

 

 

 

Intangible assets

 

 

 

 

Marketing related (trade names)

424

(32)

417

(27)

Customer base

395

(213)

336

(166)

Contract

22

(4)

20

(3)

Other

2

(1)

2

(1)

Total intangible assets

843

(250)

775

(197)

The carrying amount of indefinite-lived intangible assets was EUR 390 and EUR 386 as of December 31, 2011 and
December 31, 2010, 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 2012, EUR 39 in 2013, EUR 35 in 2014, EUR 26 in 2015, EUR 19 in 2016, and EUR 36 in 2017 and afterwards. The weighted-average amortisation period for customer base intangible assets is five to nine years.

The 2011 and 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.