Universal Registration Document 2019

42 LISI 2019 UNIVERSAL REGISTRATION DOCUMENT Consolidated financial statements 2 Recoverable value is defined as: whichever is the higher out of the realizable value (less the costs of disposal) and the value in use. The latter is calculated by discounting expected future cash flows using forecast cash flowswhich are consistent with budget data and four-year business plans approved by the Board of Directors. Beyond the fifth year, the terminal value is calculated on the basis of a capitalization to infinity of the cash flows. The key assumptions relate in particular to the evolution of sales based on the order book and the master contracts signed by the Group, if applicable, the operating profit rate, the renewal capex rate, and the determination of factors that may affect the working capital. The assumptions are in particular established on the basis of observations made during previous activity cycles in the various lines of business, as well as in external market surveys and the observation of the sensitivity of the contractual data for the environment of each division. It is specified that these assumptions are the best estimate possible of the market situation at the time they were prepared, and that they take into consideration the market trends for the years 2019 to 2023. The discount rate applied reflects the market’s current assessment of the time value of money and the risks specific to the asset or the group of assets. The determination of the infinite growth rate and the discounting rates used on the different combinations of CGUs was carried out by an independent expert. The realizable value is defined as the sum which could be obtained by selling the asset or group of assets in conditions of normal competition where all parties are fully informed and consenting, less the costs of disposal. These figures are calculated frommarket values (comparison with similar listed companies, value of recent deals and stock prices) or failing that, from discounted future cash flows. If the recoverable value is lower than the net book value for the asset or group of assets tested, the discrepancy is recognized as a loss of value. In the case of a group of assets, it should preferably be classified as a reduction in goodwill. Losses of value recognized under Goodwill are irreversible. As from financial year 2016, to carry out impairment tests on goodwill, the Group has selected a strategic combination of Business Units (BU) that correspond to the segmentation and reporting structure of the LISI Group, namely, the three divisions LISI AEROSPACE, LISI AUTOMOTIVE and LISI MEDICAL. To carry out impairment tests on the other intangible and tangible fixed assets, analysis at Business Group (BG) level must be the rule. 3.4.1.1 - Intangible assets a) Goodwill Method used In line with IFRS 3, business combinations are recognized in the accounts using the acquisition method. This method requires that at the first consolidation of any entity over which the Group has direct or indirect control, the assets and liabilities acquired (and any potential liabilities assumed) should be recognized at their acquisition-date fair value. At this point, goodwill is valued at cost, which equates to the difference between the cost of the business combination and LISI’s stake in the fair value of the assets and identifiable liabilities. For acquisitions prior to January 1, 2004, goodwill remains at its presumed cost, i.e. the net amount recognized in the accounts under the previous accounting framework, minus depreciation. For acquisitions after this date, goodwill is valued at cost, minus the cumulative loss in value. It is allocated to cash- generating units or groups of cash-generating units and is not amortized; instead, it is subject to an impairment test at least once a year using the method described in paragraph 3.4.1. Statement of goodwill at close: (in thousands of euros) Goodwill GROSS VALUES AT DECEMBER 31, 2018 347,787 Impairment over financial year 2018 0 NET VALUES AT DECEMBER 31, 2018 347,787 Increase 6,864 Decrease (2,733) Changes in foreign exchange rates 2,635 GROSS VALUES AT DECEMBER 31, 2019 354,552 Impairment as of December 31, 2019 0 NET VALUES AT DECEMBER 31, 2019 354,552