7. Goodwill and other intangible assets

The net book value of goodwill and other intangible assets as at December 31, 2011, 2010 and 2009 was as follows:


  Goodwill Number capacity Trademarks Computer software Customer list Licences Other Total
Cost
                 
At January 1, 2009 5,819 560 371 34,262 1,554 1,310 785 44,661
Additions - 16 1 2,818 1 240 89 3,165
Acquisition through business combination 270 2 15 3     6 296
Disposals - (1) - (1,216) - (48) (10) (1,275)
Reclassification 16 1 (16) (1) 2 - (2) -
At December 31, 2009 6,105 578 371 35,866 1,557 1,502 868 46,847
                 
At January 1, 2010 6,105 578 371 35,866 1,557 1,502 868 46,847
Additions - 11 - 3,128 - 80 508 3,727
Acquisition through                
business combination 2,112 4 5 13 692 - 206 3,032
Disposals (35) (4) (57) (1,058) - (7) (95) (1,256)
Reclassification (1) (1) 133 (169) (27) (43) 108 -
At December 31, 2010 8,181 588 452 37,780 2,222 1,532 1,595 52,350
                 
At January 1, 2011 8,181 588 452 37,780 2,222 1,532 1,595 52,350
Additions - 7 - 4,794 16 99 548 5,464
Acquisition through
business combination
18,236 310 263 124 13,157 217 4,046 36,353
Disposals (84) (1) - (3,989) - (295) (230) (4,599)
Reclassification 49 - (106) 393 209 (195) (373) (23)
At December 31, 2011 26,382 904 609 39,102 15,604 1,358 5,586 89,545
                 
Accumulated amortization and impairment losses                
                 
At January 1, 2009 (1,584) (132) (100) (8,404) (274) (550) (189) (11,233)
Amortization expense - (18) (57) (3,741) (102) (175) (82) (4,175)
Disposals - 1 - 1,199 - 17 5 1,222
Impairment losses (14) - - (9) - - (15) (38)
Reclassification (15) - (117) 105 25 1 1 -
At December 31, 2009 (1,613) (149) (274) (10,850) (351) (707) (280) (14,224)
                 
At January 1, 2010 (1,613) (149) (274) (10,850) (351) (707) (280) (14,224)
Amortization expense - (19) (25) (3,696) (106) (164) (243) (4,253)
Disposals 35 4 55 614 - 8 24 740
Impairment losses - (1) - (4,402) - - (1) (4,404)
Reclassification - - - 88 - - (88) -
At December 31, 2010 (1,578) (165) (244) (18,246) (457) (863) (588) (22,141)
                 
At January 1, 2011 (1,578) (165) (244) (18,246) (457) (863) (588) (22,141)
Amortization expense - (28) (83) (4,613) (1,033) (189) (762) (6,708)
Disposals 84 - - 3,617 - 190 223 4,114
Impairment losses (197) - - (11) - - (5) (213)
Reversal of impairment losses - - - 3,566 - - - 3,566
Reclassification - 1 (8) (65) 31 64 1 24
At December 31, 2011 (1,691) (192) (335) (15,752) (1,459) (798) (1,131) (21,358)
                 
Net book value                
At December 31, 2009 4,492 429 97 25,016 1,206 795 588 32,623
At December 31, 2010 6,603 423 208 19, 534 1,765 669 1007 30,209
At December 31, 2011 24,691 712 274 23,350 14,145 560 4,455 68,187

Interest amounting to 172, 12 and 90 was capitalized in intangible assets for the years ended December 31, 2011, 2010 and 2009, respectively.

Intangible assets with indefinite useful lives and Goodwill

The owned number capacity with a carrying amount of 697 (2010: 402, 2009: 402) are intangible assets with indefinite useful lives and are not amortized. These assets have no legal restrictions on the term of their use and the Group can derive economic benefits from their use indefinitely. These assets are tested for impairment annually or more frequently if there is an indication that the intangible assets may be impaired.

The Group, on an annual basis, performs testing for impairment of goodwill and intangible assets with indefinite lives.

At each reporting date the Group performs impairment testing of goodwill allocated to CGUs that were acquired upon business combinations. Principal approaches and assumptions which were used to determine value in use of cash-generating units, to which goodwill has been allocated, are disclosed in Note 6.

Goodwill and intangible assets with indefinite useful lives were allocated to the following CGU:


CGU December 31, 2011 December 31, 2010 December 31, 2009
  Goodwill
before
impairment
loss
recognition
Intangible
assets with
indefinite
useful lives
before
impairment
loss
recognition
Goodwill
before
impairment
loss
recognition
Intangible
assets with
indefinite
useful lives
before
impairment
loss
recognition
Goodwill
before
impairment
loss
recognition
Intangible
assets with
indefinite
useful lives
before
impairment
loss
recognition
Natsionalnye telecommunikatsii 16,955 290 - - - -
Teleset Networks Public Company Limited 1,680 - 1,680 -   -
Volgograd GSM 1,281 20 - - - -
Nizchegorodskaya sotovaya sviaz 1,076 - 1,076 - 1,076 -
MRF Dalniy Vostok 973 - 973 - 973 -
MRF Severo-Zapad 911 - 911 - 911 -
Globus Telecom 636 359 636 359 636 359
RTComm.RU 596 - 596 - 596 -
Severen telecom 432 - 432 -   -
MRF Volga 210 - 210 - 210 -
Rosmedia 52 - 52 - 52 -
Other 86 28 37 43 52 43
Total 24,888 697 6,603 402 4,506 402

As a result of impairment testing loss amounted to 145 was recognised in respect of CGU Teleset Networks Public Company Limited. Impairment loss is included in the line Depreciation, amortisation and impairment losses in the statement of comprehensive income and decreased carrying amount of goodwill.

Discount rate and operating income before amortization and depreciation (OIBDA) margin are the key assumptions to which calculations of value in use of CGUs with goodwill and indefinite useful life intangible assets allocated to are the most sensitive. Management approach to gross margin projection is based on historical actual results and growth rate forecasts which correlates to industry growth rate.

A 3% decrease in OIBDA margin in the forecasted period results in impairment loss of RTComm.RU by 496 and Globus Telecom by 142. For the value in use of these CGUs to be equal to the carrying amount of the assets OIBDA margin should decrease by 1.89% and 1.43% accordingly.

A 1% increase in discount rate applied to calculation of value in use for Globus Telecom results in impairment loss of 21. For the value in use of Globus Telecom to be equal to the carrying amount of its assets discount rate should increase by 0.85%.

As a result of impairment testing goodwill in respect of Rosmedia was impaired by 52. Impairment loss was recognized in the line Depreciation, amortisation and impairment losses in the statement of comprehensive income.

2010 impairment testing

As a result of the impairment testing performed as at December 31, 2010 no impairment loss was recognized.

Impairment Testing of Other Intangible Assets

At each reporting date the Group performs impairment testing of intangible assets not yet available for use and intangible assets with indefinite useful lives. Principal approaches and assumptions which were used to determine value in use of cash-generating units, to which these intangible assets belong, are disclosed in Note 6.

2011 impairment testing

As at December 31, 2010 impairment loss on billing system Amdocs was recognized due to the absence of intentions to implement and use it. However, in 2011 management approved the decision to implement customer relations management system (further - CRM) on Amdocs platform. According to the agreement with vendor of software billing system licenses were converted into CRM licenses. As a result, previously recognized loss in respect of licenses amounting to 3,243 was reversed in the statement of comprehensive income for 2011 and recognised in the line Depreciation, amortisation and impairment losses.

2010 impairment testing

As a result of the impairment testing performed as at December 31, 2010, the Group recognized impairment losses on intangible assets (including on Amdocs): Rostelecom (1,080), Volgatelecom (1,044), Southern Telecommunications Company (828), North-West Telecom (628), CenterTelecom (356), Sibirtelecom (348) and Far East Telecom (120).

2009 impairment testing.

As a result of the impairment testing performed as at December 31, 2009, Sibirtelecom recognized impairment losses on intangible assets in the amount of 24.

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