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10 INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2019
Intangible assets and goodwill [abstract]  
INTANGIBLE ASSETS

10     INTANGIBLE ASSETS

 

                          Consolidated
  Goodwill   Customer relationships   Software   Trademarks
and
patents		   Rights and licenses (*)   Others   Total
Balance at December 31, 2018 3,590,931   288,773   54,972   150,009   3,166,999   1,491     7,253,175
Cost 3,831,338   573,614   161,067   150,009   3,185,701   1,491     7,903,220
Accumulated depreciation (131,077)   (284,841)   (106,095)       (18,702)         (540,715)
 Adjustment for accumulated recoverable value (109,330)                         (109,330)
Balance at December 31, 2018 3,590,931   288,773   54,972   150,009   3,166,999   1,491     7,253,175
Effect of foreign exchange differences     4,711   3   3,092       33     7,839
Acquisitions and expeditures         1,387           40     1,427
Transfer to property, plant and equipment         7,808       4,088         11,896
Amortization (note 22)     (47,345)   (10,657)         (127)         (58,129)
Goodwill - Acquisition 50% CBSI (Note 8d) 15,225                         15,225
Consolidation CBSI on November 30, 2019.         346   2           348
Balance at December 31, 2019 3,606,156   246,139   53,859   153,103   3,170,960   1,564     7,231,781
 Cost 3,846,563   585,407   171,152   153,103   3,189,789   1,564     7,947,578
 Accumulated depreciation (131,077)   (339,268)   (117,293)       (18,829)         (606,467)
 Adjustment for accumulated recoverable value (109,330)                         (109,330)
Balance at December 31, 2019 3,606,156   246,139   53,859   153,103   3,170,960   1,564     7,231,781

 

(*) Composed mainly by mineral rights. Amortization is recorded based on production volumes.

 

The average useful lives by nature are as follows, in years: 

 

      Consolidated
  12/31/2019   12/31/2018
Software 9   7
Customer relationships 13   13

 

10.a) Impairment testing

 

The goodwill arising from expectations for future profitability of the companies acquired and the intangible assets with indefinite useful lives (trademarks) have been allocated to the operational divisions (cash-generating units) of CSN, which represent the lowest level of assets or group of assets. According to IAS36, when a CGU has an intangible asset with indefinite useful life allocated, the Company performs an impairment test. The CGU with intangible assets in this situation are as follows:  

 

     

Consolidated 

      Goodwill Trademarks Total
Cash generating unity Segment   12/31/2019   12/31/2018   12/31/2019   12/31/2018   12/31/2019   12/31/2018
Packaging (1)  Steel        158,748            158,748                      158,748            158,748
Long Stel (2)  Steel        235,595            235,595        153,103                   150,009             388,698            385,604
Minning (3)  Mining     3,196,588         3,196,588                       3,196,588         3,196,588
Other Steel (4) Steel   15,225               15,225    
             3,606,156         3,590,931   153,103   150,009   3,759,259         3,740,940

 

(1)      The goodwill of the Packaging cash-generating unit is shown net of impairment loss in the amount of R$109,330, recognized in 2011.

 

(2)     The goodwill and trademark that are recorded in line item intangible assets at long steel segment, those transactions are derived from the business combination of Stahlwerk Thuringen GmbH ("SWT") and Gallardo Sections CSN. The assets mentioned are considered to have indefinite useful lives as they are expected to contribute indefinitely to the Company's cash flows.

 

(3)     Refers to the goodwill based on expectations for future profitability, resulting from the acquisition of Namisa by CSN Mineração concluded in December 2015, tested annually for the purpose of analyzing recoverability.

 

(4)     On November 29, 2019, CSN acquired the entire stake held by CKTR Brasil Serviços Ltda., corresponding to 50% of CBSI's shares, and now holds 100% of CBSI's share capital.

 

The impairment testing of the goodwill and the trademark include the balance of property, plant and equipment of the cash-generating units and also the intangible assets. The test is based on the comparison between the actual balances and the value in use of those units, determining based on the projections of discounted cash flows and use of such assumptions and judgements as: growth rate, costs and expenses, discount rate, working capital, future Capex investment and macroeconomic assumptions observable in the market.

 

The main assumptions used in calculations of value in use at December 31, 2019 are as follows:

 

   Metal packaging   Mining  Other Steel  Flat steel (*)  Logistic (**)
Measurement of recoverable value  Discounted Cash Flow   Discounted Cash Flow   Discounted Cash Flow   Discounted Cash Flow   Discounted Cash Flow 
 Cash flow projection Until 2029 + perpetuity  Until 2054 Until 2029 + perpetuity Until 2029 + perpetuity Until 2027
Gross Margin Gross margin updated based on historical data, impacts of business restructuring and market trends Reflects projection of costs due to the progress of the mining plan as well as startup and ramp up of projects. Price and exchange rate projected according industry reports. Gross margin updated based on historical data and market trends Gross margin updated based on historical data and market trends. Estimated based on market studies for cargo captures and operational costs according market trends.
Cost atualization Cost based on historical data of each product and impacts of business restructuring Updated costs based on historical data, progress of mining plan as well as startup and ramp up of projects Updated costs based on historical data and market trends Updated costs based on historical data and market trends Costs based on historical data and market trends
 Perpetual growth rate Without growth Without perpetuity Without growth Growth of 1.4% p.a in real terms updated by long term inflation of 1.7% p.a. of the Euro zone Without perpetuity
Discount rate For metal packaging, the cash flow considered a discount rate around 8% p.a. in real terms. For mining, flat steel and other steel (CBSI), cash flows considered a discount rate between 10% and 12% p.a. in nominal terms. For the logistic segment, cash flow was discounted using a discount rate between 5.09% and 5.41% p.a. in real terms. The discount rate was based on the weighted average cost of capital ("WACC") that reflects the specific risk of each segment.

 

(*) Refer to assets of subsidiary Lusosider, located in Portugal. The discount rate was applied on the discounted cash flow prepared in Euros, the functional currency of this subsidiary.

 

(**) Refer to assets of subsidiary FTL – Ferrovia Transnordestina Logística S.A.

 

For the subsidiary SWT – long steel, the measurement of recoverable value was based on fair value and classified as Level 3, based on unobservable inputs that reflect the assumptions that market participants would use for pricing, including risk assumptions and discount rate.

 

Based on the analyses conducted by Management, it was not necessary to record losses by impairment to those assets for the year ended on December 31, 2019.