The Group’s accounting and valuation principles comply with Sweden’s Annual Accounts Act and the standards of the Swedish Financial Accounting Standards Council, in accordance with the listing contract of the Stockholm Stock Exchange.
The new recommendations of the Swedish Financial Accounting Standards Council, which came into force on 1 January 2002, have been adopted in this Report. This has not resulted in adjustment of figures for previously reported periods. In all other respects accounting principles are unchanged from previous years.
Consolidated accounts
The consolidated financial statements
include the Parent Company and companies
in which the Parent Company
held more than 50 percent of the votes
at year-end, as well as companies in
which the Parent Company exercises
control by some other means. The
consolidated income statement includes
companies acquired during the year,
with values as from the date of acquisition.
The consolidated financial
statements are prepared in accordance
with the purchase method, which
means that the acquisition value of
shares in subsidiaries is eliminated
against their shareholders’ equity at
the time of acquisition. In this context,
shareholders’ equity in subsidiaries
is determined on the basis of the fair
value of assets, liabilities and provisions
at the date of acquisition. If
required in accordance with the purchase
method, an allocation is made to
a restructuring provision. In the case
of untaxed reserves in acquired subsidiaries,
the estimated tax liability is
reported as a provision in accordance
with the tax rate in each country. If
the acquisition value of shares in a
subsidiary exceeds the acquired shareholders’
equity as computed above,
the difference is reported as goodwill,
which is amortized according to plan.
If the acquisition value of shares in
subsidiaries is less than the acquired
shareholders’ equity, a provision for
negative goodwill is made, which is dissolved in accordance with a defined
plan.
Minority interests
Minority interests in the year’s income
statement and shareholders’ equity
are based on subsidiaries’ accounts
prepared in accordance with the
Group’s accounting principles.
Associated companies
Associated companies are defined as
companies which are not subsidiaries
but companies in which the Parent
Company has shareholdings which,
directly or indirectly, represent at least
20 percent of all participations. Participations
in associated companies are
reported in accordance with the equity
method. The consolidated income
statement includes shares in the income
before tax of associated companies. In
cases in which the acquisition value of
shares in associated companies was
higher than the shareholders’ equity in
the acquired company at the acquisition
date, the difference is amortized
on the same basis as consolidated
goodwill, following an analysis of the
character of the surplus value, and is
charged against share in earnings of
associated companies. Participation in
the income tax of subsidiaries is
included in the Group’s tax expense.
In the consolidated balance sheet, shareholdings
in associated companies
are reported at the acquisition value,
adjusted for dividends and participation
in income after the date of acquisition.
In determining the equity share,
untaxed reserves are attributed to
shareholders’ equity after deduction
for estimated tax.
Translation of foreign subsidiaries
The Group applies the so-called current
method for translating the accounts of
all foreign subsidiaries that are considered
to operate with a high degree of
independence. The current method
has been applied so that all balance
sheet items except net income are
translated at the closing-day rate. Net
income is translated at the average rate and the difference arising thereby is
taken directly to unrestricted reserves.
Subsidiaries’ income statements are
translated at the average rate for the
financial year. Subsidiaries operating in
high-inflation countries, e.g. Romania,
are translated using the so-called
monetary method.
The Group hedges to a limited extent its investments in foreign net assets. Hedging is implemented through loans and forward exchange contracts. These are valued at the exchange rate prevailing at year-end. Exchange rate differences on hedging operations, as well as differences that arise when foreign net assets are translated, are carried directly to shareholders’ equity in the balance sheet. Interest differentials on forward contracts are annualized and reported in the income statement.
Exchange rates
The rates for currencies used in the
Group were as follows (average for
the year and rate at year-end):
| Average rate | Year-end rate | ||
 | |||
| Argentina | ARS | 2.76 | 2.60 |
| Australia | AUD | 5.26 | 4.95 |
| Bermuda | BMD | 9.82 | 8.84 |
| Brazil | BRL | 3.46 | 2.47 |
| Canada | CAD | 6.18 | 5.55 |
| Switzerland | CHF | 6.23 | 6.30 |
| Chile | CLP | 0.014 | 0.012 |
| China | CNY | 1.17 | 1.06 |
| Czech Republic | CZK | 0.30 | 0.29 |
| Denmark | DKK | 1.23 | 1.23 |
| Estonia | EEK | 0.58 | 0.59 |
| Euroland | EUR | 9.14 | 9.16 |
| Great Britain | GBP | 14.57 | 14.04 |
| Hong Kong | HKD | 1.24 | 1.12 |
| Hungary | HUF | 0.038 | 0.039 |
| Indonesia | IDR | 0.0010 | 0.0010 |
| Israel | ILS | 2.06 | 1.85 |
| India | INR | 0.20 | 0.18 |
| Japan | JPY | 0.079 | 0.074 |
| Kenya | KES | 0.12 | 0.11 |
| Lithuania | LTL | 2.64 | 2.65 |
| Mauritius | MUR | 0.32 | 0.30 |
| Mexico | MXN | 1.01 | 0.84 |
| Malaysia | MYR | 2.56 | 2.30 |
| Nigeria | NGN | 0.080 | 0.069 |
| Norway | NOK | 1.22 | 1.26 |
| New Zealand | NZD | 4.48 | 4.61 |
| Poland | PLN | 2.39 | 2.28 |
| Romania | ROL | 0.00029 | 0.00026 |
| Russia | RUR | 0.31 | 0.27 |
| Singapore | SGD | 5.42 | 5.04 |
| Slovenia | SIT | 0.041 | 0.044 |
| Slovakia | SKK | 0.21 | 0.22 |
| Thailand | THB | 0.23 | 0.20 |
| USA | USD | 9.71 | 8.76 |
| Uruguay | UYU | 0.51 | 0.32 |
| South Africa | ZAR | 0.93 | 1.01 |
| Zimbabwe | ZWD | 0.18 | 0.16 |
Revenue recognition
Revenue recognition of sales of goods is
reported at the time of delivery to the
customer. All sales are reported less
vat, discounts, returns and freight.
Intra-Group sales
Pricing of deliveries between Group
companies is in accordance with business
principles and at market prices.
Internal profits arising from intra-
Group sales have been eliminated.
Leasing
Only operational leasing occurs in the
Group.
Research and development
Research costs are expensed as they
are incurred. The costs of development
work are included in the balance sheet
only if future economic benefits can be
reliably demonstrated and estimated.
Depreciation according to plan
Depreciation according to plan is based
on the historical cost of assets, with
due consideration of the estimated
economic life of the asset. A depreciation
period of five years has been
applied for intangible rights. Group
goodwill is amortized over 10-20 years,
depending on the type of company
concerned. Goodwill in well-established
companies with independent and
well-known trademarks is amortized
over 10 years. Goodwill in companies
that, in addition, constitute a strategic
acquisition in terms of products or
markets is amortized over 20 years.
The depreciation period for office
buildings is 50 years, and for industrial
buildings 25 years. A depreciation
period of 7-10 years is applied to
machinery and other technical facilities. Equipment and tools are depreciated
over 3-6 years.
Taxation
All taxes that are expected to apply to
the income reported are accounted for
in the income statement. These taxes
have been calculated in accordance
with the tax regulations in each country
and are reported as current-year tax.
Costs and revenue that affect both the
financial statements and income taxation
but in different financial years are
reported as deferred tax.
Deferred income taxes are accounted for under the balance sheet liability method. Accordingly deferred tax is accounted for on all temporary differences between the carrying amount of an asset or liability and its tax base. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled.
Cash flow statement
The cash flow statement has been
prepared according to the indirect
method. The reported cash flow
includes only transactions involving
cash payments.
As well as cash and bank balances, cash and cash equivalents are taken to include short-term investments that are exposed to only small risks of change in value and have a maturity date less than three months from the date of acquisition.
Intangible and tangible assets
Intangible and tangible assets are
reported at acquisition value after
deduction for accumulated depreciation
according to plan and possible
writing-down. A valuation model
based on discounted future cash flow
is used for regular reassessment of the
possible need to write down goodwill.
Inventories
Inventories are valued at the lower of
cost and net realizable value in accordance
with the fifo method. Provisions have been made for obsolescence.
Deductions are made for internal
profits arising from deliveries between
Group companies. Work in progress
and finished goods include both direct
costs incurred and an allocation of
indirect manufacturing costs.
Receivables
Receivables have been valued in the
amounts expected to be received.
Receivables, liabilities and provisions in foreign currency
Receivables, liabilities and provisions
in foreign currency in individual companies’
accounts have been translated
at the year-end rate. The forward rate
has been used when exchange rates
have been hedged by means of forward
contracts.
Provisions
Provisions have been made for all
obligations attributable to the fiscal
year or prior fiscal years which, on
the closing date, were likely to be
incurred, but which were uncertain
as to amount or date of payment.
In making provisions for pensions,
companies follow their country’s
local rules.