Notes to the accounts

12 Intangible assets

	Goodwill £m	Development costs £m	Acquired intangibles (see table on next page) £m	Other £m	Total £m
Cost
At 6 August 2006	1,241.6	293.7	139.1	112.5	1,786.9
Exchange adjustments	(39.2)	(1.9)	(8.5)	(1.7)	(51.3)
Business combinations	16.8		12.1		28.9
Adjustments to prior year business combinations	0.9		(0.9)
Additions *	2.2	44.1		18.0	64.3
Transfers to disposal group held for sale at year end		(1.2)		(1.1)	(2.3)
Transfer to disposal group sold by the year end	(301.0)	(283.5)	(10.4)	(50.2)	(645.1)
Disposals			(0.1)	(1.2)	(1.3)
At 31 July 2007	921.3	51.2	131.3	76.3	1,180.1
Exchange adjustments	65.4	2.5	5.7	3.3	76.9
Business combinations	87.0		74.5	0.7	162.2
Adjustments to prior year business combinations	(1.7)		1.3	(1.3)	(1.7)
Additions		19.8		16.1	35.9
Disposals	(0.2)			(0.8)	(1.0)
At 31 July 2008	1,071.8	73.5	212.8	94.3	1,452.4
Amortisation
At 6 August 2006	133.7	39.5	20.2	62.9	256.3
Exchange adjustments	(2.9)	(0.4)	(1.3)	(1.6)	(6.2)
Charge for the period *		6.6	15.0	8.1	29.7
Impairment	2.2				2.2
Transfers to disposal groups held for sale at year end				(0.4)	(0.4)
Transfer to disposal group sold by the year end	(56.0)	(33.2)	(4.8)	(28.7)	(122.7)
Disposals				(0.1)	(0.1)
At 31 July 2007	77.0	12.5	29.1	40.2	158.8
Exchange adjustments	5.3	0.7	1.8	2.5	10.3
Adjustments to prior year business combinations			0.5	(0.5)
Charge for the year		5.6	19.2	6.2	31.0
Disposals	(0.2)			(0.7)	(0.9)
At 31 July 2008	82.1	18.8	50.6	47.7	199.2
Net book value at 31 July 2008	989.7	54.7	162.2	46.6	1,253.2
Net book value at 31 July 2007	844.3	38.7	102.2	36.1	1,021.3
Net book value at 6 August 2006	1,107.9	254.2	118.9	49.6	1,530.6

* For the period ending 31 July 2007 the additions and amortisation include the respective costs and charge for discontinued operations and disposal groups for the period prior to becoming a disposal group.

In addition to goodwill, the acquired intangible assets comprise:

	Patents, licences and trademarks £m	Technology £m	Customer relationships £m	Total acquired intangibles £m
Cost
At 6 August 2006	38.9	58.6	41.6	139.1
Exchange adjustments	(2.8)	(3.7)	(2.0)	(8.5)
Business combinations	3.6		8.5	12.1
Adjustments to prior year business combinations	0.6	0.2	(1.7)	(0.9)
Transfer to disposal group sold by the year end			(10.4)	(10.4)
Disposals	(0.1)			(0.1)
At 31 July 2007	40.2	55.1	36.0	131.3
Exchange adjustments	1.1	1.9	2.7	5.7
Business combinations (note 29)	12.0	18.8	43.7	74.5
Adjustments to prior year business combinations		1.3		1.3
At 31 July 2008	53.3	77.1	82.4	212.8
Amortisation
At 6 August 2006	3.4	6.9	9.9	20.2
Exchange adjustments	(0.1)	(0.6)	(0.6)	(1.3)
Charge for the period	2.3	5.6	7.1	15.0
Transfer to disposal group sold by the year end			(4.8)	(4.8)
At 31 July 2007	5.6	11.9	11.6	29.1
Exchange adjustments	0.2	0.7	0.9	1.8
Adjustments to prior year business combinations		0.5		0.5
Charge for the year	2.7	6.1	10.4	19.2
At 31 July 2008	8.5	19.2	22.9	50.6
Net book value at 31 July 2008	44.8	57.9	59.5	162.2
Net book value at 31 July 2007	34.6	43.2	24.4	102.2
Net book value at 6 August 2006	35.5	51.7	31.7	118.9

Significant cash generating units

Goodwill is not amortised but is tested for impairment at least annually. Value in use calculations are utilised to determine the recoverable amount of goodwill held within each cash generating unit (CGU). Value in use is calculated as the net present value of the projected risk-adjusted post-tax cash-flows of the CGU in which the goodwill is contained, applying a discount rate based on the Group’s post-tax weighted average cost of capital of 8% adjusted where appropriate for risks specific to the CGU. This approximates to applying a pre-tax discount rate to pre-tax cash-flows. These forecast cash-flows are based on approved budgets and represent a best estimate of future performance.

The goodwill held in the Smiths Medical Critical Care and Smiths Detection Civil CGUs, with net book values of £291.5m (2007: £283.7m) and £288.8m (2007: £252.0m) respectively, is considered significant in comparison to the total carrying value of goodwill. Following a reorganisation of the management of the Detection business the allocation of goodwill to CGUs was updated. The Detection Civil CGU incorporates the business activities reported as Smiths Detection Imaging Systems in 2007. The comparative net book value has been restated to reflect the new allocation.

The following key assumptions were used in the discounted cash-flow projections for the Critical Care and Detection Civil CGUs:

growth rates of 2.25% (2007: 2.00%) have been used for the Critical Care and Detection Civil CGUs to extrapolate beyond the most recent forecasts, representing a view of the long-term average growth rates for the industries in which the businesses operate. The growth rates used to estimate future performance beyond the periods covered by our annual planning and strategic planning processes do not exceed the long-term average growth rates for similar projects and do not reflect long-term planning assumptions used by the Group for investment planning; and
in addition to discount rates and long-term growth rates, the key assumptions used to determine the recoverable amounts of the Critical Care and Detection Civil CGUs include future sales prices and volumes (with reference to specific customer relationships and product lines), operating margins, the cost structure of each CGU and the ability to realise planned productivity improvements.

The assumptions used in the discounted cash-flow forecasts incorporate past performance and historical growth rates and margins achievable in our key markets as a guide.

Sensitivity analysis performed around the base case assumptions has indicated that no reasonable changes in key assumptions would cause the carrying amount of the Critical Care and Detection Civil CGUs to exceed their respective recoverable amount.

The balance of the goodwill represents smaller individual amounts which have been allocated to specific operating companies and smaller CGUs. These amounts are tested for impairment at this level.

Smiths Group divisions:
Smiths Detection, Smiths Medical, John Crane, Smiths Interconnect, Flex-Tek