14. Intangible assets

In 2013 and in 2012 changes in the gross carrying amount of Intangible assets were as follows:

 At
December 31, 2012
AdditionsDivestituresTranslation
differences
and other
changes
At
December 31, 2013
Goodwill2,424-- 2,294
Trademarks and other intangible assets with indefinite useful lives221--(130)212
Development costs externally acquired744113-(9)857
Development costs internally generated2,730459(14)(77)3,098
Total Development costs3,474572(14)(77)3,955
Patents, concessions and licenses externally acquired71215-(7)720
Other intangible assets externally acquired49752(19)3533
Advances and intangible assets in progress externally acquired1212-(3)21
Total gross carrying amount of Intangible assets7,340651(33)(223)7,735

(€ million)At
December 31, 2011
AdditionsDivestituresTranslation
differences
and other
changes
At
December 31, 2012
Goodwill2,464--(40)2,424
Trademarks and other intangible assets with indefinite useful lives226--(5)221
Development costs externally acquired65099-(5)744
Development costs internally generated2,367434(15)(56)2,730
Total Development costs3,017533(15)(61)3,474
Patents, concessions and licenses externally acquired68933-(10)712
Other intangible assets externally acquired47636(6)(9)497
Advances and intangible assets in progress externally acquired89-(5)12
Total gross carrying amount of Intangible assets6,880611(21)(130)7,340

In 2013 and in 2012 changes in accumulated amortization and impairment losses were as follows:

(€ million)At
December 31, 2012
AmortizationImpairment
losses
DivestituresTranslation
differences
and other
changes
At
December 31, 2013
Goodwill517---(46)471
Trademarks and other intangible assets with indefinite useful lives45---(2)43
Development costs externally acquired39377---470
Development costs internally generated1,292161-(12)(32)1,409
Total Development costs1,685238-(12)(32)1,879
Patents, concessions and licenses externally acquired55240--(7)585
Other intangible assets externally acquired36735-(16)(13)373
Advances and intangible assets in progress externally acquired------
Total accumulated amortization and impairment of Intangible assets3,166313-(28)(100)3,351

(€ million)At
December 31, 2011
AmortizationImpairment
losses
DivestituresTranslation
differences
and other
changes
At
December 31, 2012
Goodwill527---(10)517
Trademarks and other intangible assets with indefinite useful lives46---(1)45
Development costs externally acquired33266--(5)393
Development costs internally generated1,207132-(7)(40)1,292
Total Development costs1,539198-(7)(45)1,685
Patents, concessions and licenses externally acquired51945--(12)552
Other intangible assets externally acquired34036-(2)(7)367
Advances and intangible assets in progress externally acquired------
Total accumulated amortization and impairment of Intangible assets2,971279-(9)(75)3,166

In 2013 and in 2012 changes in the net carrying amount of Intangible assets were as follows:

(€ million)At
December 31, 2012
AdditionsAmortizationImpairment
losses
DivestituresTranslation
differences
and other
changes
At
December 31, 2013
Goodwill1,907-----841,823
Trademarks and other intangible assets with indefinite useful lives176-----7169
Development costs externally acquired351113-77---387
Development costs internally generated1,438459161)-2)-451,689
Total Development costs1,789572238)-2)-452,076
Patents, concessions and licenses externally acquired1601540)---135
Other intangible assets externally acquired1305235)-3)16160
Advances and intangible assets in progress externally acquired1212----321
Total net carrying amount of Intangible assets4,174651313)-5)-1234,384

(€ million)At
December 31, 2011
AdditionsAmortizationImpairment
losses
DivestituresTranslation
differences
and other
changes
At
December 31, 2012
Goodwill1,937----(30)1,907
Trademarks and other intangible assets with indefinite useful lives180----(4)176
Development costs externally acquired31899(66)---351
Development costs internally generated1,160434(132)-(8)(16)1,438
Total Development costs1,478533(198)-(8)(16)1,789
Patents, concessions and licenses externally acquired17033(45)--2160
Other intangible assets externally acquired13636(36)-(4)(2)130
Advances and intangible assets in progress externally acquired89---(5)12
Total net carrying amount of Intangible assets3,909611(279)-(12)(55)4,174

Foreign exchange losses of €153 million in 2013 (losses of €60 million in 2012) principally reflect the depreciation of the US Dollar and of the Brazilian Real against the Euro.

Goodwill, trademarks and intangible assets with indefinite useful lives

Goodwill is allocated to the Group’s cash-generating units (“CGUs”) identified as the Group’s operating segments. The following table presents the allocation of goodwill across the segments: 

(€ million)At December 31, 2013At December 31, 2012
Agricultural and Construction Equipment1,7561,840
Trucks and Commercial Vehicles6363
Powertrain44
Goodwill net carrying amount1,8231,907

Trademarks and Other intangible assets with indefinite useful lives are mainly attributable to the Agricultural and Construction Equipment segment and consist of acquired trademarks and similar rights which have no legal, contractual, competitive or economic factors that limit their useful lives. For the purposes of impairment testing, these assets were attributed to the respective cash-generating units without the need for any recognition of impairment.

The vast majority of goodwill, representing approximately 96% of the total, relates to the Agricultural and Construction Equipment segment, where the cash-generating units considered for the testing of the recoverability of the goodwill are generally the product lines. The cash generating units to which goodwill has been allocated consist of the following business units: 

 Amount allocated to goodwill
(€ million)At December 31, 2013At December 31, 2012
Agricultural Equipment1,2261,296
Construction Equipment439446
Financial Services9198
Total1,7561,840

To determine the recoverable amount of these cash-generating units multiple valuation methodologies are used, relying largely on an income approach but also incorporating value indicators from a market approach.

Under the income approach, the recoverable amount of a cash-generating unit is calculated based on the present value of estimated future cash flows. The income approach is dependent on several critical management assumptions, including estimates of future sales, gross margins, operating costs, income tax rates, terminal value growth rates, capital expenditures, changes in working capital requirements and the weighted average cost of capital (discount rate). Discount rate assumptions include an assessment of the risk inherent in the future cash flows of the respective cash-generating units. The following discount rates before taxes as of December 31, 2013 and 2012 were selected: 

 20132012
Agricultural Equipment17.4%18.0%
Construction Equipment15.4%13.7%
Financial Services20.2%19.7%

Expected cash flows used under the income approach are developed in conjunction with the Company budgeting and forecasting processes. The Company uses eight years of expected cash flows for the Agricultural Equipment and Construction Equipment cash-generating units and five years of expected cash flows for the Financial Services cashgenerating unit as management believes that these periods generally reflect the underlying market cycles for its businesses. Under the market approach, the Company estimates the recoverable amount of the Agricultural and Construction Equipment cash-generating units using revenue and EBITDA multiples and estimates the recoverable amount of the Financial Services cash-generating unit using book value and interest margin multiples. The multiples are derived from comparable publicly-traded companies with similar operating and investment characteristics as the respective cash-generating units. The guideline company method makes use of market price data of corporations whose stock is actively traded in a public, free and open market, either on an exchange or over-the counter basis.

Although it is clear no two companies are entirely alike, the corporations selected as guideline companies must be engaged in the same, or a similar, line of business or be subject to similar financial and business risks, including the opportunity for growth.

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 subsequent cash flows into perpetuity. The terminal value growth rate for the Agricultural Equipment cash-generating unit was 1% in 2013 and 2012, respectively, and for Construction Equipment was 3% in 2013 and 2012, respectively.

The terminal value growth rate for Financial Services was 1.5% in 2013 and 2012, respectively.

As of December 31, 2013, the estimated recoverable amount, calculated using the above method, of the Agricultural Equipment and Financial Services cash-generating units, substantially exceeded the respective carrying values. The Construction Equipment cash-generating unit’s excess of recoverable amount over carrying value was approximately 7%. A 0.5% increase in the discount rate, holding all other assumptions constant, or a further decline in market demand for construction equipment, particularly in emerging markets and Europe, could result in an impairment loss in future reporting periods.

The results obtained for Trucks and Commercial Vehicles segment and related sensitivity analyses also confirmed the absence of impairment losses to be recognized.

Finally, the estimates and budget data to which the above mentioned parameters have been applied are those determined by management based on past performance and expectations of developments in the markets in which the Group operates. Estimating the recoverable amount of cash generating units requires discretion and the use of estimates by management. The Group cannot guarantee that there will be no goodwill impairment in future periods.

Circumstances and events, which could potentially cause further impairment losses, are constantly monitored by the Group.

Development costs

The amortization of development costs and impairment losses are reported in the income statement as Research and development costs.

Development costs recognized as assets are attributed to cash generating units and are tested for impairment together with the related tangible fixed assets, using the discounted cash flow method for determining their recoverable amount.