NOTES Parent company Group 2007 2006 2007 2006 Deferred tax assets Loss carry-forwards --117 89 Intercompany earnings in inventories --44 39 Provisions for warranty commitments --8 12 Provisions for pensions 5 5 14 22 Provisions for restructuring measures 1 1 13 13 Acquired deductible goodwill --60 62 Other deductible temporary differences --30 30 Total deferred tax assets 6 6 286 267 Deferred tax liabilities Temporary difference intangible fixed assets --18 18 Temporary difference buildings, machinery and equipment --8 17 Untaxed reserves --37 40 Other taxable temporary differences --21 18 Total deferred tax liabilities --84 93 Deferred taxes, net 6 6 202 174 The above-mentioned deferred tax assets and tax liabilities are recognized in the consolidated balance sheet after taking setoff possibilities into account. In the consolidated balance sheet, deferred tax assets and deferred tax liabilities were offset in the sum of SEK 2 million (5). NOTE 10 INTANGIBLE FIXED ASSETS Other Total intangible intangible fixed fixed Group Goodwill assets assets Acquisition costs brought forward 1,047 258 1,305 Investments -55 55 Acquisitions and disposals of companies, note 23 -10 --10 Sales/disposals --5 -5 Reclassifications -4 4 Translation difference 21 9 30 Accumulated acquisition costs carried forward 1,058 321 1,379 Amortization brought forward --174 -174 Acquisitions and disposals of companies --- Sales/disposals -4 4 Reclassifications --- Amortization for the year according to plan --27 -27 Translation difference --6 -6 Accumulated amortization according to plan carried forward --203 -203 Impairment brought forward --- Impairment for the year -210 --210 Accumulated impairment carried forward -210 --210 Closing book value 848 118 966 Other intangible fixed assets mainly consist of an acquired brand, capitalized development expenditure and investment in computer programs and capitalized expenditure for product development. Impairment of SEK 210 million of goodwill is recognized in the line “Other operating costs” in the income statement. See below for further information on impairment of goodwill. Allocation of goodwill Goodwill is allocated to the Group’s divisions, which accord with the separation into primary segments, as shown below. Group 2007 2006 Door & Logistics Solutions 535 534 Wastewater Technology Solutions 129 130 Pulp & Paper Solutions 11 11 Residential Garage Doors 173 372 Total 848 1,047 Testing for impairment of goodwill and other intangible fixed assets with indeterminable economic life An annual test of whether an impairment loss needs to be recognized for goodwill is carried out by calculating the value in use of the cash-generating units to which goodwill has been allocated. The value in use is established by forecasting expected cash flows before tax and then calculating the present value of these cash flows in what is known as a “discounted cash flow model”. The starting point is the internal plan for the next year. On this basis, assumptions are made regarding growth, development of gross margin and costs for further coming years based on the management’s assessment of the trend. After the explicit forecast period of five years, growth is assumed to be equivalent to the long-term inflation of 2 percent. The discount rate utilized is differentiated depending on the risk assessed in each division and is within the interval 11.0-12.5 percent, which corresponds to the average return that shareholders and lenders are assumed to require (Weighted Average Cost of Capital, WACC). During 2007, earnings were charged with an impairment loss of SEK 210 million of goodwill attributable to the Residential Garage Doors division. The impairment loss was recognized by writing down goodwill to the estimated value in use and is a result of the annual testing for impairment as described above. The declining growth in the division’s main markets during the fourth quarter is what primarily led to a revision of the forecasts that previously formed the basis of the assessment of the value in use. But a rise in the discount rate compared with the calculation the previous year also had an adverse effect on the value in use. The discount rate that was used in the calculation of the value in use was 12.5 percent compared with 12.0 percent in the calculation for the previous year. The rise in the discount rate is attributable to a higher rate of interest for the underlying risk-free interest on 10-year government bonds. For 2006, testing for impairment did not lead to any impairment losses of goodwill. In connection with the acquisition of Grupo Combursa SL in March 2006, the Combursa brand was identified as a discrete intangible fixed asset separate from goodwill. This asset was judged to have an unlimited economic life and thus no amortization is carried out on an ongoing basis. This is because it is not possible to establish any foreseeable limit for the period of time during which the brand has an economic benefit. Instead, as for goodwill, impairment testing is carried out annually on the cash-generating unit to which the intangible asset can be attributed. Since Grupo Combursa has already been integrated into the other Spanish activities within the Door & Logistics Solutions division, the brand has been allocated to the cash-generating unit constituted by the entire Spanish operation within Door & Logistics Solutions. Since the value in use exceeds the carrying amount of the assets, including the brand, in the cash-generating unit, there is no need for an impairment loss at December 31 2007. There was no need for an impairment loss the previous year. PARENT COMPANY The sale of intangible fixed assets for the year amount to SEK 2 million, giving a closing book value amounting to SEK 0 million (2). CARDO ANNUAL REPORT 2007 57