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Annual Report 2008 - AMG Advanced Metallurgical Group NV

Annual Report 2008 - AMG Advanced Metallurgical Group NV

The aggregate carrying

The aggregate carrying amounts of goodwill allocated to each unit are as follows: 2008 2007 Sudamin cash-generating unit (France) 11,011 11,552 LSM cash-generating unit (UK) 1,510 1,510 ALD cash-generating unit (including FNAG) 10,155 9,042 Timminco cash-generating unit 14,432 17,876 GK cash-generating unit – – Goodwill at cash-generating units 37,108 39,980 Key assumptions The calculations of value in use are most sensitive to the following assumptions: • Global metals pricing • Discount rate • Growth rate used to extrapolate cash flows beyond budget period Global metals pricing – Estimates are obtained from published indices. The estimates are evaluated and used to the extent that they meet management’s expectations of future pricing. Discount rates – Discount rates reflect management’s estimate of risks specific to each unit. The discount rate was estimated based on the average percentage of a weighted average cost of capital for the Company. Growth rate assumptions – Rates are based on management’s interpretation of published industry research. As most businesses follow economic trends, an inflationary factor was utilized. The ALD and Timminco growth rate assumptions were slightly higher than inflation due to their focus on alternative energy. Alternative energy is expected to be a high growth industry and therefore rates were slightly higher than the specialty metals industry. It is possible that the key assumptions related to metals pricing that were used in the Plan will differ from actual results. However, management does not believe that any possible change in pricing will cause the carrying amount to exceed the recoverable amount. The values assigned to the key assumptions represent management’s assessment of future trends in the metallurgical industry and are based on both external sources and internal sources (historical data). For the impairment tests for Sudamin, LSM, ALD Group, Timminco and GK’s cash-generating units the recoverable amounts are the higher of the fair value less costs to sell and the value in use. The value in use was determined using the discounted cash flow method. In 2008 and 2007, the carrying amounts of the Advanced Materials, ALD, Timminco and GK units were determined to be lower than their recoverable amounts and impairment losses were not recognized. (1) Sudamin unit’s value in use was determined by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions: • Cash flows were projected based on actual operating results and the 3-year business plan, which covers the next three calendar years following the impairment test date • The growth rate of 2% was used to extrapolate cash flow projections beyond the period covered by the most recent budgets. Management believes that this growth rate does not exceed the long-term average growth rate for the metallurgical industry in France. • Revenue projections are based on an internal 3-year business plan. • Discount rates of 11.3 percent and 9.42 percent were applied in determining the recoverable amount of the unit for the years ended December 31, 2008 and 2007, respectively. The discount rates were derived from a group of comparable companies (peer group) and have been compared to external advisor reports for reasonableness. • Sudamin’s value-in-use exceeds its carrying value at December 31, 2008 by $6,026. (2) LSM unit’s value in use was determined by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions: • Cash flows were projected based on actual operating results and the 3-year business plan, which covers the next three calendar years following the impairment test date • The growth rate of 2% was used to extrapolate cash flow projections beyond the period covered by the most recent budgets. Management believes that this growth rate does not exceed the long-term average growth rate for the metallurgical industry in the UK. 108 Notes to the Consolidated Financial Statements

• Revenue projections are based on an internal 3-year business plan. • Discount rates of 10.69 percent and 9.65 percent were applied in determining the recoverable amount of the unit for the years ended December 31, 2008 and 2007, respectively. The discount rates were derived from a group of comparable companies (peer group) and have been compared to external advisor reports for reasonableness. • LSM’s value-in-use exceeds its carrying value at December 31, 2008 by $716. • Revenue projections are based on an internal 3-year business plan. • Discount rates of 11.44 percent and 9.48 percent were applied in determining the recoverable amount of the unit for the years ended December 31, 2008 and 2007, respectively. The discount rates were derived from a group of comparable companies (peer group) and have been compared to external advisor reports for reasonableness. • Timminco’s value-in-use exceeds its carrying value at December 31, 2008 by $501,050. (3) ALD Group unit’s value in use was determined by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions: • Cash flows were projected based on actual operating results and the 3-year business plan, which covers the next three calendar years following the impairment test date • The growth rate of 3% was used to extrapolate cash flow projections beyond the period covered by the most recent budgets. Management believes that this growth rate does not exceed the long-term average growth rate for the metallurgical industry. • Revenue projections are based on an internal 3-year business plan. • Discount rates of 11.3 percent and 7.48 percent were applied in determining the recoverable amount of the unit for the years ended December 31, 2008 and 2007, respectively. The discount rates were derived from a group of comparable companies (peer group) and have been compared to external advisor reports for reasonableness. ALD’s value-in-use exceeds its carrying value at December 31, 2008 by $839,180. (4) Timminco Group unit’s value in use was determined by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions: • Cash flows were projected based on actual operating results and the 3-year business plan, which covers the next three calendar years following the impairment test date • The growth rate of 3% was used to extrapolate cash flow projections beyond the period covered by the most recent budgets. Management believes that this growth rate does not exceed the long-term average growth rate for the metallurgical industry in North America. (5) GK Group unit’s value in use was determined by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions: • Cash flows were projected based on actual operating results and the 3-year business plan, which covers the next three calendar years following the impairment test date • The growth rate of 2% was used to extrapolate cash flow projections beyond the period covered by the most recent budgets. Management believes that this growth rate does not exceed the long-term average growth rate for the metallurgical industry. • Revenue projections are based on an internal 3-year business plan. • Discount rate of 10.48 percent was applied in determining the recoverable amount of the unit for the year ended December 31, 2008. The discount rate was derived from a group of comparable companies (peer group) and have been compared to external advisor reports for reasonableness. Based on the value in use calculations, the carrying amounts of GK were determined to be lower than the recoverable amounts and an impairment of $46,046 was recorded in the year ended December 31, 2008. This impairment was primarily allocated to the assets that were recognized in the purchase price allocation. Impairments in intangible assets in the amount of $22,481 were recorded. The impairments also impacted fixed assets by $23,565. Notes to the Consolidated Financial Statements 109

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