10. Goodwill

The following table shows a reconciliation of the carrying amounts of goodwill for the periods presented in the consolidated financial statements as of March 31, 2010:

With regard to the value in use, goodwill is reviewed for impairment applying the discounted cash flow method. The calculation is performed on the basis of cash flows before tax of a medium-term business plan as of the beginning of March. This medium-term business plan is based on historical data as well as on assumptions regarding the expected future market performance. The Group’s planning assumptions are extended to include sectoral planning assumptions. Intra-group evaluations are complemented by external market studies. Cash flows are discounted using a pre-tax discount rate (WACC) of 8.2%.

Both internal and external market forecasts for the sales of flat steel products in Europe were used for the three-year medium-term business plan of the Steel Division. The figures allocated to the most significant assumptions in the plan generally correspond to external sources of information. Cash flows of the last plan year are the basis of the terminal value’s determination. The terminal value is calculated with a growth rate of 1%.

The impairment tests for the Special Steel Division are performed on the basis of a detailed three-year planning period. The actual degree of utilization has been adapted to the market expectations in the plan years. In the Special Steel Division, the growth rate in terminal value amounts to 1%, which is lower than the rate of inflation.

The three-year medium-term business plan for the significant cash-generating units in the Railway Systems Division was based on external market forecasts for the sales of switches and rails. On the procurement side, global market forecasts were used for assumptions concerning the use of raw materials. The income level of the third plan year was used to determine the terminal value. A growth rate of 1% was used for the terminal value calculation.

In the Profilform Division, the planning assumptions on the sales side are based on market assessments for the most significant customer industries and industry segments and take specific market studies (e.g., the Global Truck Report) into consideration. Forecasts of international research institutes were used as a basis for the trend of pre-materials prices. The third plan year is the basis for the determination of the terminal value. Country-specific risk premiums of up to 3% were included in the calculation for production in emerging markets. No growth rates were used.

In the Automotive Division, the determination of the degree of utilization was based on automotive production forecasts. External forecasts were revised downward as a result of internal estimates. Impairment tests in the Automotive Division are based on a detailed three-year planning period. The terminal value is calculated with a growth rate of 1%.

The calculation did not result in an impairment of goodwill for the business year 2009/10. A sensitivity analysis shows that an increase of the discount rate (8.2%) by 10% would result in an impairment amounting to EUR 30.5 million only in the Precision Strip cash-generating unit. Using the discount rate of 8.2%, the recoverable amount exceeds the carrying amount by EUR 20.1 million. Using a discount rate of 8.5%, the recoverable amount corresponds to the carrying amount.

The following cash-generating units contain intangible assets with indefinite useful lives:

Intangible assets with indefinite useful lives exclusively include brands, which do not depreciate and are therefore not amortized.