Pallet-Management-Services - AFM

Key assumptions used in the annual in use calculation:
The Company projected the cash flows for the five-year period
based on detailed assumptions for every cash-generating
unit and its specific markets. The model used is the same the
Company used in prior years providing a profit and loss account,
balance sheet and cash flow statement as well as assumptions
for key performance indicators.
The calculation of value in use is sensitive to the assumptions
for
Market share – as well as using industry data for growth rates
management assesses how the position of the three cash
generating units, relative to its competitors, might change over
the budget period.
Gross margins – key elements for all three cash generating
units are logistic costs (e.g. transportation, washing, labor) and
material price development for Pallet-Management-Services.
Based on average values achieved in prior periods, these costs
are projected by including anticipated effi ciency improvements
and cost developments related to portfolio changes.
Future investment needs in the RPC pool based on trip growth
at average turn rates and maintenance to replace broken crates
and shrinkage.
Management has assessed these factors and their possible
future impacts very carefully to build up the projection.
The Company used for risk free interest rates 20 year EUR-
Germany-Sovereigns and EUR-Composite-AAA. In order to
cover the additional risks IFCO SYSTEMS used appropriate
public market equity risk premiums and estimated risk premiums
in relationship with the actual rating of the companies shares.
The beta factor used also reflected the actual bond rating of
IFCO SYSTEMS.
The Company’s fourth quarter 2006 and 2005 annual testing
indicated that there was no impairment of goodwill.
Property, plant and equipment
Plant and equipment is stated at cost less accumulated
depreciation and any impairment in value. The carrying values
of plant and equipment are reviewed for impairment either
annually, or when events or changes in circumstances indicate
the carrying value may not be recoverable (whichever is earlier).
If any such indication exists and where the carrying values
exceed the estimated recoverable amount, the assets or cashgenerating
units are written down to their recoverable amount.
The recoverable amount of property, plant and equipment is the
| FINANCIAL REPORTING | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
greater of net selling price and value in use. In assessing value
in use, the estimated future cash flows are discounted to their
present value using a pretax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined
for the cash-generating unit to which the asset belongs.
Included in property, plant and equipment is the Company’s
Reusable Plastic Container (RPC) pools (carrying amount
US $288.1 million in 2006 and US $214.4 million in 2005).
The Company takes historical information into consideration in
determining an appropriate useful life for depreciating the RPC
rental pools such as technical useful life, shrinkage, commercial
useful life and market acceptance of crates. The limited factor
for the determination is the commercial useful life and market
acceptance of crates. Therefore, the Company depreciates its
own RPCs of the pool for fruit and vegetables to their residual
value using the straight-line method over 8 years, however other
RPC pools and the acquired CHEP RPC assets over periods
ranging from 2 to 8 years.
Effective October 1, 2006, the Company has adjusted its RPC
pool residual value estimates, based on the development of the
value of granulated RPCs. Accordingly, the estimated residual
values of the RPCs have been increased, resulting in lower
depreciation in Q4 2006 as compared to prior year quarter in
the amount of US $2.0 million. Based on the Company’s current
property, plant and equipment balances, the Company estimates
that this revised residual value will result in reduced depreciation
expense in the amount of approximately US $7.8 million per year
in future years.
As RPCs break or otherwise become unusable, the Company
facilitates the conversion of the RPCs into plastic granulate
inventory. As part of the Company’s finalized RPC replacement
and upgrade program, the Company transferred old RPCs to the
supplier and only paid for production costs and other incidental
acquisition costs for new RPCs.
Expenditures for maintenance and repairs are charged to
expense as incurred. Additions and replacements or betterments
that increase capacity or extend useful lives are added to the
cost of the asset. Upon sale or retirement, the cost and related
accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is included in other
(expense) income, net, in the accompanying consolidated
income statements.
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