annual report - FIAT SpA

In the Comau sector, the sensitivity analysis was carried out on the residual goodwill, which is mainly allocated to the
Pico cash-generating unit, but no matters arose to indicate that this may be significantly impaired.
The results obtained for the other sectors and related sensitivity analyses also confirmed the absence of significant
impairment losses.
Goodwill classified as Discontinued Operations
The vast majority of goodwill classified as Discontinued Operations, representing approximately 97% of the total
classified as Discontinued Operations and amounting to €1,794 million, relates to the Agricultural and Construction
Equipment sector, where the cash-generating units considered for the testing of the recoverability of the goodwill are
generally the product lines of the sectors themselves.
The recoverable amount of the cash-generating units to which goodwill and other intangible assets with an indefinite
useful life have been allocated is determined on the basis of their value in use, defined as the discounted value of the
expected future operating cash flows at a rate of return that incorporates the risks associated with the particular cashgenerating
units as of the valuation date. The discounted cash flows approach is dependent on several critical
management assumptions, including estimates of future sales growth, gross margins, operating costs, terminal value
growth rates, capital expenditures, changes in working capital requirements and the weighted average cost of capital
(discount rate). More in particular, from 2006 to 2009, the Agricultural and Construction Equipment sector, managed
its business at the brand level: Case IH and New Holland for Agricultural Equipment, Case and New Holland
Construction for Construction Equipment; and Financial Services. In 2010, CNH began to manage its business at the
Agricultural Equipment, Construction Equipment, and Financial Services level. The cash generating units to which
goodwill has been allocated consist of the following product lines:
(€ million)
Amount allocated
to goodwill
at 31 December 2010
Agricultural equipment 1,280
Construction equipment 419
Financial Services 95
Total 1,794
To determine the recoverable amount of these cash-generating units, the sector relied on discounted cash flows and,
as a further method, on market multiples. In particular, the sector used the discounted cash flows approach as the
primary approach for measuring the value in use of the Equipment Operations businesses, while used the total asset
market multiples approach as the primary approach for measuring the fair value of the Financial Services reporting
unit.
Expected cash flows used under this method are developed in conjunction with the budgeting and forecasting process
of the sector and represent the most likely amounts and timing of future cash flows based on the long range plan of
CNH. The long range plan, which is updated annually and is reviewed by the senior management of CNH, includes,
among other things, the expected benefits of planned manufacturing and product development actions as well as
expectations regarding product pricing, market share and commodity costs, consistent with the assumptions reflected
in the Fiat Group’s 2010-2014 Strategic Plan. The sector uses eight years of expected cash flows as management
believes that this period generally reflects the underlying market cycles for its businesses.
The discount rates used in the discounted cash flows approach are an estimate of the rate of return that a market
participant would expect of each cash-generating unit. To select an appropriate rate for discounting the future
earnings stream, a review was made of short-term interest rates and the yields of long-term corporate and
government bonds, as well as the typical capital structure of companies in the industry. The discount rates used for
each cash-generating unit were suitably increased to take account of the risk inherent in the cash flow projections, as
well as the risk level that would be perceived by a market participant. Considering the above mentioned factors, the
following discount rates before taxes as of 31 December 2010 were selected by CNH:
2010 2009
Agricultural equipment 17.0% 20.8% - 21.1%
Construction equipment 17.4% 19.2%
A terminal value is included at the end of the projection period used in the discounted cash flow analyses in order to
reflect the remaining value that each cash-generating unit is expected to generate. The terminal value represents the
present value in the last year of the projection period of all subsequent cash flows into perpetuity. The terminal value
growth rate is a key assumption used in determining the terminal value as it represents the annual growth of all
Fiat Group Consolidated Financial Statements at 31 December 2010 150