10. Goodwill

The following table shows a reconciliation of the carrying amounts of goodwill for the periods presented in the consolidated financial statements as of March 31, 2012:

With regard to the value in use, goodwill is reviewed for impairment applying the discounted cash flow method. The calculation is performed on the basis of cash flows before tax of a medium-term business plan as of the beginning of March. This medium-term business plan is based on historical data as well as on assumptions regarding the expected future market performance. The Group’s planning assumptions are extended to include sectoral planning assumptions. Intra-group evaluations are complemented by external market studies. The capital costs are calculated as the weighted average cost of equity and the weighted average cost of borrowed capital and using the capital asset pricing model (weighted average costs of capital). Cash flows are discounted using a pre-tax WACC of 8.4% (2010/11: 8.4%).

Both external market forecasts for the sale of flat steel products in Europe and internal sales forecasts were used for the three-year medium-term business plan of the Steel Division. The production plan reflects the sales forecasts. On the procurement side, the assumptions regarding raw materials according to global market forecasts were adjusted by factors that are specific to the Group. In the calculation of impairment, the last plan year was used as a basis to determine the cash flows in the perpetual annuity. It is presumed that the perpetual annuity will have a growth rate of 1%.

The impairment tests in the Special Steel Division are based on a detailed three-year planning period. A growth rate of 1% across the board was presumed. The three-year medium-term business plan of the Special Steel Division was prepared taking the regional circumstances in the core markets into consideration and also incorporating the economic circumstances of the industrial segments that are most important for the companies of the division. The external forecasts were adjusted using internal estimates. Changes in the prices of pre-materials can be largely passed on to the customers.

The three-year medium-term business plan was also used for the impairment tests of the cash generating units (CGU) of the Metal Engineering Division (until March 31, 2012 Railway Systems Division). The perpetual annuity is based on the last plan year. With the exception of the Welding Consumables CGU (1% growth factor), no growth factor was assumed. Market expectations for the most important sales regions and customer industries, sourced from external market studies and supplemented by internal forecasts regarding the development of competition and market share, were used as the basis for the planning of the Welding Consumables CGU. Planning in the steel, turnout technology, and rail technology CGUs is based on external market forecasts and the anticipated demand from the most important customers, adjusted by Group-internal estimates. On the procurement side, global market forecasts regarding the price trend for raw materials and pre-materials, adjusted by factors that are specific to the Group, were used for all CGUs in the Metal Engineering Division.

In the Profilform Division, sales planning assumptions are based on market estimates for the most important customer industries and industry sectors, taking special external market studies into consideration (e.g., Global Truck Report) as well as the market expectations of the most important customers. Forecasts of international research institutes were used as a basis for assessing the trend of pre-materials prices. The third plan year was used as a basis to determine the perpetual annuity. Growth rates were not used.

The impairment tests for the cash generating units (CGU) of the Automotive Division are based on a detailed three-year planning period of the groups of companies. The division’s planning specifications for the individual units are based on medium-term production forecasts for the Pan-European automobile market. External forecasts were revised downward on the basis of internal estimates. Based on the last year of the detailed planning period, a growth factor of 1% is being assumed for the perpetual annuity.

In the absence of any indications to the contrary, the information provided for a division is equally relevant for all CGUs within the respective division.

The calculation showed that there was no impairment of goodwill for the business year 2011/12. A sensitivity analysis showed that with an increase of the discount rate (8.4%) by 10%, the carrying amounts are still covered and there is no need to recognize an impairment loss.

The following cash-generating units contain intangible assets with indefinite useful lives:

Intangible assets with indefinite useful lives contain solely trademark rights. The period, during which these trademark rights are expected to generate cash flows is not subject to a foreseeable limit. Therefore, trademark rights do not depreciate and are not amortized.

In the previous year, a capital market funding advantage associated with the brand name Böhler-Uddeholm was contained in the brands with an indefinite useful life. In November 2011, the former BÖHLER-UDDEHOLM Aktiengesellschaft was renamed voestalpine Edelstahl GmbH. Therefore, the funding advantage will decline continuously over the long term. The depreciation period is ten years.