back 
A schedule detailing gross values, accumulated depreciation and net values of intangible assets as of December 31st, 2006 is as follows:
|
Cost |
|
|
|
|
|
||
|
(in €m) |
Balance at January 1, 2006 |
Exchange differences |
Additions |
Changes in consolidation scope |
Reclassi- |
Disposals |
Balance at December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
11,306 |
2 |
64 |
15 |
0 |
(677)(1) |
10,710 |
|
Capitalised development costs |
466 |
3 |
411 |
0 |
5 |
0 |
885 |
|
Other intangible assets |
1,023 |
0 |
161 |
23 |
(8) |
(59) |
1,140 |
|
Total |
12,795 |
5 |
636 |
38 |
(3) |
(736) |
12,735 |
|
|
|
|
|
|
|
|
|
|
Amortisation / Impairment | |||||||
|
(in €m) |
Balance at January 1, 2006 |
Exchange differences |
Amorti- |
Changes in consolidation scope |
Reclassi- |
Disposals |
Balance at December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
(1,139) |
0 |
0 |
(6) |
0 |
0 |
(1,145) |
|
Capitalised development costs |
(4) |
0 |
(7) |
0 |
(1) |
0 |
(12) |
|
Other intangible assets |
(600) |
0 |
(196) |
10 |
8 |
55 |
(723) |
|
Total |
(1,743) |
0 |
(203) |
4 |
7 |
55 |
(1,880) |
|
|
|
|
|
|
|
|
|
|
Net book value | |||||||
|
(in €m) |
Balance at January 1, 2006 |
Exchange differences |
Additions |
Changes in consolidation scope |
Reclassi- |
Disposals |
Balance at December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
10,167 |
2 |
64 |
9 |
0 |
(677)(1) |
9,565 |
|
Capitalised development costs |
462 |
3 |
404 |
0 |
4 |
0 |
873 |
|
Other intangible assets |
423 |
0 |
(35) |
33 |
0 |
(4) |
417 |
|
Total |
11,052 |
5 |
433 |
42 |
4 |
(681) |
10,855 |
|
(1) |
Subsequent adjustment of cost of Airbus business combination in the amount of (613) M € and finalisation of tax audit of (64) M € (see below for further details). |
Additions to goodwill in 2006 mainly concern the acquisition of 40% of the shares of the Atlas Elektronik group. The difference between the purchase price and the preliminary estimated value of the acquired net assets led to the recognition of a goodwill of 41 M €.
On June 7th, 2006 BAE Systems exercised a put option to sell its 20% stake in Airbus at a fair value of 2,750 M € to EADS (accounted at December 31st, 2005 with 3,500 M €). The transaction became effective as of October 13th, 2006. In accordance with the Airbus shareholders’ agreement, an independent investment bank has determined the purchase price. Compared to 2005’s contingent consideration of the Airbus business combination, the acquisition cost of the 20% stake in Airbus was reduced, leading to a decrease in goodwill by 613 M € after taking into consideration a dividend payment to BAE Systems of 129 M € in 2006 and transaction costs.
In the current year, a tax audit of DASA for the years 1994 until 1999 was finalised. According to the EADS shareholders agreement the related tax expense was reimbursed by DaimlerChrysler AG. Thus deferred tax assets and goodwill have been adjusted as of December 31st, 2006 in Defence & Security by 52 M € and Headquarters by 12 M €.
A schedule detailing gross values, accumulated depreciation and net values of intangible assets as of December 31st, 2005 is as follows:
|
Cost |
|||||||||
|
(in €m) |
Balance at December 31, 2004 (as reported) |
Change in accounting policies(1) |
Balance at January 1, 2005 (restated) |
Exchange differences |
Addi- |
Change in conso- |
Reclassi- |
Dis- |
Balance at December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
10,607 |
541 |
11,148 |
1 |
168 |
(9) |
0 |
(2) |
11,306 |
|
Capitalised development costs |
172 |
0 |
172 |
1 |
292 |
0 |
2 |
(1) |
466 |
|
Other intangible assets |
837 |
0 |
837 |
4 |
212 |
(3) |
35 |
(62) |
1,023 |
|
Total |
11,616 |
541 |
12,157 |
6 |
672 |
(12) |
37 |
(65) |
12,795 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation / Impairment | |||||||||
|
(in €m) |
Balance at December 31, 2004 (as reported) |
Change in accounting policies(1) |
Balance at January 1, 2005 (restated) |
Exchange differences |
Amorti- |
Change in conso- |
Reclassi- |
Dis- |
Balance at December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
(1,147) |
0 |
(1,147) |
(3) |
0 |
9 |
0 |
2 |
(1,139) |
|
Capitalised development costs |
(3) |
0 |
(3) |
0 |
(2) |
0 |
0 |
1 |
(4) |
|
Other intangible assets |
(458) |
0 |
(458) |
(2) |
(185) |
2 |
(14) |
57 |
(600) |
|
Total |
(1,608) |
0 |
(1,608) |
(5) |
(187) |
11 |
(14) |
60 |
(1,743) |
|
|
|
|
|
|
|
|
|
|
|
|
Net book value | |||||||||
|
(in €m) |
Balance at December 31, 2004 (as reported) |
Change in accounting policies(1) |
Balance at January 1, 2005 (restated) |
Exchange differences |
Addi- |
Change in conso- |
Reclassi- |
Dis- |
Balance at December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
9,460 |
541 |
10,001 |
(2) |
168 |
0 |
0 |
0 |
10,167 |
|
Capitalised development costs |
169 |
0 |
169 |
1 |
290 |
0 |
2 |
0 |
462 |
|
Other intangible assets |
379 |
0 |
379 |
2 |
27 |
(1) |
21 |
(5) |
423 |
|
Total |
10,008 |
541 |
10,549 |
1 |
485 |
(1) |
23 |
(5) |
11,052 |
|
(1) |
The change in accounting policy relates to the “Liability for puttable instruments”, please refer to “Changes in accounting policy” in Note 23 “Liability for puttable instruments”. |
Additions to goodwill in 2005 mainly concern the contingent consideration with regard to the Airbus business combination in the amount of 93 M € resulting from the application of IAS 32 “Financial Instruments: Disclosure and Presentation” (revised 2004) regarding the “Liability for puttable instruments”. Furthermore the acquisition of Nokia’s Professional Mobile Radio – PMR activities (EADS Secure Networks Oy) contributed an addition to goodwill of 44 M €.
Goodwill impairment tests
EADS performed impairment tests on Cash Generating Unit (CGU) level (on segment level or one level below) in the fourth quarter of the financial year.
As of December 31st, 2006 and 2005, goodwill was allocated to Cash Generating Units, which is summarised in the following schedule on segment level:
| Download Excel |
|
(in €m) |
Airbus |
Military Transport Aircraft |
Euro- |
Defence & Security |
Astrium |
Other Busi- |
HQ / |
Conso- |
|
|
|
|
|
|
|
|
|
|
|
Goodwill as of |
6,374 |
12 |
111 |
2,476 |
575 |
0 |
17 |
9,565 |
|
Goodwill as of |
6,987 |
12 |
111 |
2,469 |
559 |
0 |
29 |
10,167 |
The discounted cash flow method has been applied as a primary valuation approach to determine the value in use of the CGUs. Generally, cash flow projections used for EADS impairment testing are based on current operative planning.
The current operative planning takes into account general economic data derived from external macroeconomic and financial studies. The operative planning assumptions reflect for the periods under review specific inflation rates and future labour expenses in the European Countries where the major production facilities are located. Regarding the expected future labour expenses, an increase on average of 3% was implied. In addition, future interest rates are also projected per geographical market, for the European Monetary Union, Great Britain and the USA.
EADS follows an active policy of foreign exchange risk hedging. As of December 31st, 2006 the total 
hedge portfolio with maturities up to 2011 amounts to 45 billion US$ and covers a major portion of the foreign exchange exposure expected over the period of the operative planning (2007 to 2011). The average US$/€ hedge rate of the total hedge portfolio until 2011 amounts to 1.16 US$/€. For the determination of the operative planning in the Cash Generating Units other than Airbus (for Airbus, see below), management assumed future exchange rates of 1.30 US$/€ for 2007 and 1.35 US$/€ from 2008 onwards and 0.69 GBP/€ for 2007 and 0.70 GBP/€ from 2008 to convert in € the portion of future US$ and GBP denominated revenues which are not hedged. Foreign exchange exposure arises mostly from Airbus and to a lesser extent from the other EADS divisions.
The assumption for the perpetuity growth rate used to calculate the terminal values in general amounts to 2% and has remained unchanged from prior years. These current forecasts are based on past experience as well as on future expected market developments.
Airbus segment
For the purpose of impairment testing, Airbus segment is considered as a single CGU. The goodwill allocated to Airbus relates to the contribution of Airbus UK, Airbus Germany and Airbus Spain into Airbus as of 2001.
The impairment test for Airbus has been conducted based on a fair value less cost to sell methodology. The main assumptions and the recoverable amount obtained have been compared for reasonableness to market data.
The assessment was based on the following key specific assumptions, which represent EADS management current best assessment as of the date of these consolidated financial statements:
-
To reflect the Airbus long-term operating cycle, the detailed planning period for Airbus’ projected cash flows has been extended from the current 2007 operative planning to 14 years using Airbus long term product policy. The terminal value has been based on a normative view extrapolated from this internal current long term plan. Eventually, the market is assumed to be equally shared between Airbus and Boeing over the long term plan period.
-
Cash flow projections include all of the estimated costs savings of the Power 8 program.
-
The US$ denominated cash flows were discounted using a weighted average cost of capital after-tax (WACC) of 9.2%, while the Euro denominated cash flows’ after-tax WACC was 8.5%. US$ discounted flows were then converted into € using the Euro/US Dollar market spot rate (for the terminal value, the forward rate applied is 1.50 US$/€).
With regard to the assessment of the fair value less cost to sell for the Cash Generating Unit Airbus, EADS management believes that no reasonably possible change in the above key assumptions would cause the carrying value of Airbus to exceed its then-determined recoverable amount. However, the recoverable amount is highly dependent on the achievement of the Power 8 cost savings’ program and the terminal value.
Other EADS segments
The impairment test for all other Cash Generating Units was based on the value in use calculation computed by applying a pre-tax discount rate of 11.2%. Cash flow projections are based on current operative planning covering a five-year planning period.
For the Defence & Security division, an increase in revenues is assumed in the operative planning. This is fuelled by today’s order book, as for example Eurofighter deliveries backed by Tranche two contract and by expected awards of future contracts. Operating margin of the division is expected to increase over the operative planning period thanks to the expected volume growth and benefits from initiated restructuring measures.
The order book of the Astrium division as of December 31st, 2006 (including satellites, launchers, ballistic missiles and military telecom services) supports the strong revenue increase which is assumed for this division over the operative planning period. The current development and production of the Skynet V satellites and ground infrastructure is weighing on EADS Astrium Division’s cash flows until these spacecraft are launched and operated to generate a ramped up level of revenues from the UK Ministry of Defence (MoD).
The recoverable amounts based on value in use have exceeded the carrying amounts of the Cash Generating Units under review, indicating no goodwill impairment for 2006 and 2005.
Development Costs
EADS has capitalised development costs in the amount of873 M € as of December 31st, 2006 (462 M € as of December 31st, 2005) as internally generated intangible assets mainly for the Airbus A380 program.
