(a) Compliance with standards and law
The consolidated financial statements have been compiled in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretation statements issued by the International Financial Reporting Interpretations Committee (IFRIC) as approved by the EU Commission for application within EU. Recommendation RFR 1.1 Supplementary Accounting Rules for Groups of the Swedish Financial Reporting Board has also been applied.
The Parent Company applies the same accounting policies as the Group, except in the cases stated below under the section “Parent Company accounting policies.” Discrepancies that do exist between the Parent Company’s and the Group’s policies are prompted by limitations in applying IFRS to the Parent Company as a result of the Swedish Annual Accounts Act (ÅRL) and the Swedish act on securing pension obligations, and in certain cases for tax reasons.
(b) Assumptions for preparing the Parent Company’s
and the Group’s financial statements
The Parent Company’s functional currency is SEK, which also constitutes the reporting currency for the Parent Company and the Group. This means that the financial statements are presented in Swedish kronor. All amounts, unless otherwise specifically stated, are rounded to the nearest million. Assets and liabilities are reported at historical acquisition values, except in the case of certain financial assets and liabilities which are valued at fair value. Financial assets and liabilities reported at fair value consist of derivative instruments, financial assets classified as financial assets valued at fair value via the income statement, or as available-for-sale financial assets.
Non-current assets and available-for-sale groups of disposals are reported at the lower of previously reported value and fair value, after deduction of selling expenses.
Set-off of receivables and liabilities and of revenue and costs occurs only where required or is expressly permitted in the accounting recommendation.
The financial statements encompass the report of the Board of Directors with the proposed allocation of earnings, together with the financial statements. The consolidated financial statements and the annual accounts of the Parent Company have been approved for publication by the Board of Directors 24 June 2009. The Group’s and the Parent Company’s income statements and balance sheets are subject to approval by the Annual General Meeting to be held 31 August 2009.
Preparing the financial statements in accordance with IFRS requires that management makes judgments and estimates and make assumptions that affect the application of accounting policies and the reported amounts of assets, revenue and costs. Estimates and assumptions are based on historical experience and a number of other factors that under prevailing circumstances are deemed reasonable. The result of these judgments and assumptions is then used to judge the reported value of assets and liabilities that would not be clearly evident from other sources. The actual outcome may differ from these estimates and judgments.
Estimates and assumptions are reviewed on a regular basis. Changes in estimate are reported in the period when the change is made, where the change affects this period only, or in the period when the change is made and in future periods where the change affects the current period as well as future periods.
Judgments made by management with application of IFRS with significant impact on the financial reports and estimates made that may lead to significant adjustments in the financial reports of subsequent years are described in Note 2 and elsewhere.
By events after the balance sheet date are meant favourable as well as unfavourable events that occur between the balance sheet date and the date in the next following financial year when the financial reports are signed by the members of the Board of Directors. Information is provided in the annual report about significant events after the balance sheet dates that are not accounted for when the balance sheet and the income statement are adopted. Only events that confirm circumstances prevailing before the balance sheet date are taken into account at the time of adoption of the financial statements.
The stated accounting policies for the Group have been consistently applied for all periods presented in the Group’s financial reports, unless otherwise specifically stated. The Group’s accounting policies have been consistently applied in reporting and consolidating the Parent Company and subsidiaries.
Amended accounting policies
No new or amended standards and interpretations have been applied in preparing these financial statements:
Early application of IFRS interpretations issued or revised during the 2008/2009 financial year
No newly issued IFRS or interpretations are subject to early application.
New or revised IFRS and interpretations not yet applied
A number of new or amended standards and interpretation statements will not come into force until during the coming financial year and have not been applied early in preparing these financial statements. There are no plans for early adoption of new features or amendments that come into force with effect in financial years commencing after 2009. To the extent expected effects on the financial statements of the application of the below mentioned new or amended standards and interpretation statement are not described below, the Company has not yet made an assessment of these effects.
Revised IFRS 3 Business Combinations and amended IAS 27 Consolidated and Separate Financial Statements lead to changes in the consolidated financial statements and the way acquisitions are accounted for. The revised standards shall be applied to financial years commencing 1 July 2009 or later.
IFRS 8 Operating segments defines what an operating segment is and the information to be supplied about segments in the financial statements. The standard, which has been adopted by EU, is to be applied to financial years commencing 1 January 2009 or later.
Change in IAS 1 Presentation of Financial Statements means that the presentation of the financial statements will be changed in some respects and that new, non-mandatory designations for the reports are proposed. The change does not affect the adoption of the amounts reported. The amended IAS 1 shall be applied for financial years commencing 1 January 2009 or later.
Amendments to IAS 23 Borrowing Costs states that borrowing costs directly attributable to acquisition of, design or production of assets that take considerable time to complete for use or sale. The amendment shall be applied to financial years commencing 1 January 2009 or later.
Changes in IAS 27 Consolidated and Separate Financial Statements, Cost of an investment in a subsidiary jointly controlled entity or associate is applied to financial years commencing 1 January 2009 or later. The changes affect, inter alia, the reporting of dividends received from subsidiaries, associated companies and joint venture companies, and how to report the formation of a new parent company.
(c) Segment reporting
A business segment is part a of the Group that is identifiable in terms accounting that either provides products or services (operating segments) or goods and services in a certain economic environment (geographic area) that is subject to risks and opportunities that differ from other segments. In accordance with IAS 14, segment information is provided for the Group only. The Group’s primary segments are operating segments.
(d) Classification, etc.
Non-current assets and long-term liabilities in the Parent Company and the Group essentially consist only of amounts that are expected to be recovered or paid more than twelve months from the balance sheet date. Current assets and short-term liabilities in the Parent Company and the Group essentially consist only of amounts that are expected to be recovered or paid within twelve months of the balance sheet date.
(e) Principles of consolidation
i. Subsidiaries
Subsidiaries are all entities over which Lagercrantz Group AB has a controlling influence. Controlling influence means a direct or indirect right to govern an entity’s financial and operative strategies for the purpose of obtaining economic advantages. When judging whether controlling influence exists, the existence and effect of potential voting rights that are exercisable, or can be converted without delay, should be taken into consideration.
Subsidiaries are reported in accordance with the acquisition method of accounting. This method means that the acquisition of a subsidiary is viewed as a transaction where the Group indirectly acquires the assets of the subsidiary and assumes its debt and contingent liabilities. The acquisition cost to the Group is determined by an acquisition analysis in conjunction with the acquisition. In this acquisition analysis the fair values of acquired identifiable assets, and assumed liabilities and contingent liabilities, are determined. The excess of the cost of acquisition of the shares in the subsidiary over the fair value of acquired assets, assumed liabilities and contingent liabilities is recorded as goodwill. A negative value is recorded directly in the income statement.
The financial reports of subsidiaries are consolidated from the time of acquisition until the date when the controlling influence ceases to exist.
ii. Transactions eliminated in consolidation
Intra-Group receivables and liabilities, revenue or costs and unrealised gains or losses arising in intra-Group transactions between Group companies are eliminated in their entirety when preparing the consolidated financial statements.
(f) Foreign currency
i. Transactions in foreign currency
Transactions in foreign currency are restated to the functional currency using the rate of exchange prevailing on the day of the transaction. Monetary assets and liabilities in foreign currency are converted to the functional currency at the rate of exchange prevailing on the balance sheet date. Foreign exchange rate differences that arise in conversion are accounted for in the income statement. Non-monetary assets and liabilities reported at historical acquisition values are converted at the rate of exchange prevailing at the time of the transaction. Non-monetary assets and liabilities reported at fair value are converted to the functional currency at the rate of exchange prevailing at the time of fair value valuation. The exchange rate change is then reported in the same manner as other changes in value.
ii. Financial statements of foreign entities
Assets and liabilities in foreign entities, including goodwill and other surplus values and impairment arising in consolidation, are converted to Swedish kronor at the rate of exchange prevailing on the balance sheet date. Revenue and costs in a foreign entity are converted to Swedish kronor at the average rate of exchange. Translation differences arising as a result of currency conversion in foreign entities and the resultant effects of hedging of net investments are reported directly to the translation reserve in equity. When foreign entities are sold, the accumulated translation differences attributable to the entity are realised directly in the income statement, after deduction of any hedging.
With respect to its foreign entities, Lagercrantz Group elected to set to zero the accumulated translation differences attributable to the time before 1 April 2004, i.e. the time for adopting IFRS.
(g) Revenue recognition
i. Sale of goods
Revenue from the sale of goods is reported in the income statement when significant risks and rewards associated with ownership of the goods have been transferred to the buyer, i.e. typically in connection with delivery. If the product requires installation at the buyer, and the installation constitutes a significant part of the delivery, revenue is recognised when the installation is completed. Revenue is not recognised in cases where it is probable that the economic rewards will not inure to the benefit of the Group.
Revenue from the sale of real property
Revenue from the sale of real property is normally recorded on the closing date, unless risks and rewards have been transferred to the buyer on an earlier occasion.
ii. Service assignments
Revenue from service assignments is normally reported when the service is performed. Revenue from service assignments of the service and maintenance agreements type is reported in accordance with the principles for so-called gradual revenue recognition. The degree of completion is normally determined based on the relationship between sunken expenditure on the balance sheet date and the estimated total expenditure. In certain companies recorded time is used as a basis for degree of completion. A probable loss is accounted for immediately in the consolidated income statement.
iii. Rental income
Rental income from real properties is reported on a straight-line basis in the income statement based on the terms of the lease. The aggregate cost of benefits provided is reported as a reduction of rental income on a straight-line basis over the term of the lease.
iv. Government grants
Government grants are reported in the balance sheet as prepaid income when there is reasonable assurance that the grant will be received and that the Group will be able to fulfil the conditions associated with the grant. Grants are systematically assigned to the right periods in the same way and over the same periods as the costs the grants are intended to compensate for. Government grants related to assets are reported as a reduction of the reported value of the asset.
(h) Operating expenses and finance income and
expenses
i. Payments related to operating leases
Payments related to operating leases are reported on a straight-line basis in the income statement. Benefits received in connection with signing a contract are reported as a part of the total leasing cost in the income statement.
ii. Payments related to financial leases
The minimum leasing fees are allocated to interest expense and repayment of the outstanding liability. The interest expense is distributed over the leasing period in such a way that each accounting period is charged with an amount equivalent to a fixed rate of interest for the liability reported during the respective period. Variable fees are expensed in the periods when they arise.
iii. Finance income and expense
Finance income and expenses consist of interest income on bank balances, receivables and interest-bearing securities, interest expense on loans, dividend income, exchange rate differences, change in value of financial assets valued at fair value via the income statement, impairment losses on financial assets and gains and losses on hedging instruments accounted for in the income statement.
Interest income on receivables and interest expense on liabilities are calculated using the effective rate method. The effective rate is the interest rate that is the present value of all estimated future payments during the expected period of fixed interest that equals the reported value of the receivable or the liability. The interest component of financial lease payments is reported in the income statement using the effective rate method. Interest income includes accruals and deferrals of transaction costs and any rebates, discounts, premiums and other differences between the original value of the receivable and the amount received at maturity.
Interest expense includes accrued and deferred amounts of issuing costs and similar direct transaction costs in connection with raising loans.
The Group and the Parent Company do not capitalise interest in the acquisition cost of assets.
Dividend income is reported when the right to receive payment has been determined.
(i) Financial instruments
Financial instruments are valued and reported in the Group in accordance with the rules in IAS 39. Financial instruments reported among assets in the balance sheet include cash and cash equivalents, accounts receivables, advance payments to suppliers and derivatives.
Liabilities include trade payables, loan liabilities, advance payments from customers and derivatives.
Reporting in and removal from the balance sheet
A financial asset or a financial liability is recorded in the balance sheet when the company becomes party to the contractual terms of the instrument in question. Trade receivables are recorded in the balance sheet when an invoice has been sent out. A liability is recorded when the counterparty has performed and a contractual obligation exists to pay, even if an invoice has not been received. Trade payables are recorded when an invoice has been received. A financial asset is removed from the balance sheet when the rights in the contract are realised, fall due or the company loses control over it. The same holds true for a part of a financial asset. A financial liability is removed from the balance sheet when the obligation in the contract is fulfilled, or when the liability is extinguished in some other way. Acquisition and disposal of financial assets are reported on the transaction date.
Valuation
Financial instruments that are not derivatives are initially valued at acquisition cost, equivalent to the fair value of the instrument. A financial instrument’s classification determines how it is valued after the first recording occasion. IAS 39 classifies financial instruments in categories based on the original purpose of the financial instrument. The categories below are relevant for the Group: Financial assets valued at fair value via the income statement, Loans and trade receivables, Financial liabilities valued at fair value via the income statement, Other financial liabilities and Derivative instruments used for hedge accounting.
Financial assets valued at fair value via the income statement
This category consists of two sub-groups: financial assets held for trading and other financial assets that the Company initially has chosen to place in this category (in accordance with the so-called Fair Value Option). Financial instruments in this category are valued on an ongoing basis at fair value with the change in value in the income statement. The first sub-group includes derivative instruments with a positive fair value with the exception of derivative instruments which are an identified and effective hedging instrument.
Loans and trade receivables
Loans receivable and trade receivables are non-derivative assets with fixed payments or with payments that can be determined, and which not are listed on an active market. Receivables arise when companies provide funds, goods or services directly to a customer without intention of trading in the receivable that arises. They are included in current assets, with the exception of items that mature later than 12 months after the balance sheet date, which are classified as non-current assets. Loan receivables and trade receivables include items Trade receivables and Other receivables in the balance sheet. Assets in this category are valued at accrued acquisition value. Trade receivables are carried at the amount expected to be collected, i.e. after a deduction for doubtful credits. Impairment losses are reported as part of operating expenses.
Financial liabilities valued at fair value via the income statement
This category consists of financial liabilities held for trading and derivative instruments not used for hedge accounting. Liabilities in this category are valued on an ongoing basis at fair value with the change in value in the income statement.
The Group held no material instruments belonging to this category during the financial year.
Other financial liabilities
Financial liabilities not held for trading are valued at accrued acquisition value. The Group’s loan liabilities, financial lease liabilities, trade payables and advance payments from customers belong to this category.
Derivative instruments used for hedge accounting
All derivative instruments are accounted for at fair value in the balance sheet. Changes in value are accounted for in the income statement in the case of actual hedge accounting. Hedge accounting is described in greater detail below, under Derivative instruments and hedge accounting.
Cash and cash equivalents
Cash and cash equivalents consist of cash and immediately available balances with banks and equivalent institutions, and short-term liquid investments with a term to maturity of less than three months, exposed to minimal risk for fluctuation in value.
Financial investments
Financial investments are classified either as non-current assets or short-term investments depending on the purpose of the holding. Where the term or the expected holding period is more than one year, they are classified as non-current assets.
(j) Derivative instruments and hedge accounting
Derivative instruments are primarily acquired by the Group to reduce interest, foreign exchange rate exposure and transaction exposure. Built-in derivatives should be accounted for separately, unless they are not closely related to the host contract. Derivative instruments are originally accounted at fair value meaning that transaction costs are affecting the earnings in the period. After the initial accounting, the instrument is valued at fair value and changes accounted for in line with what is stated below.
To fulfil the demands for hedge accounting as stated in IAS 39, there must be a close connection to the hedged item. Further, the hedge must effectively protect the hedged item, documentation must be established and it must be possible to measure the effect of the hedge. Gains and losses in hedges are accounted for at the same time as gains and losses for the hedged items.
Fixed interest hedging – cash flow hedging
Interest rate swaps are used to hedge against the uncertainty of future interest rate flows relating to loans at variable rates. Interest rate swaps are valued at fair value in the balance sheet. In the income statement the interest coupon part is recorded on a current basis as interest income or interest expense. Other changes in value of the interest rate swap are directly to the hedging reserve in equity until the hedged item affects the income statement and as long as the criteria for hedge accounting and effectiveness are fulfilled.
Receivables and liabilities in foreign currency
Forward contracts can be used for hedging an asset or a liability against foreign exchange rate risk. For such hedging no hedge accounting is required since the hedged item as well as the hedging instrument is reported at fair value via the income statement with respect to foreign exchange rate differences. Changes in value of operations-related receivables and liabilities are recognised in the operating result, while changes in value of financial receivables and liabilities are reported in net finance items.
Net investments
Investments in foreign subsidiaries (net assets including goodwill) have been partially hedged by raising loans in the corresponding currency. Such loans are translated at the period-end rate of exchange at the time of closing of the books. Exchange rate differences recognised in the Parent Company are eliminated in the consolidated financial statements against conversion of net assets in subsidiaries carried directly to equity.
(k) Tangible non-current assets
i. Owned assets
Tangible non-current assets are reported as assets in the balance sheet if it is probable that future economic advantages will inure to the Company’s benefit and the acquisition value of the asset can be calculated in a reliable manner.
Tangible non-current assets are reported in the Group at acquisition value, less accumulated depreciation and any impairment losses. The acquisition value includes the purchase price and costs directly attributable to the asset to bring it to location and make it usable for the purpose intended with its procurement. Examples of costs directly attributable included in the acquisition value are costs for shipping and handling, installation, legal ratification, consulting services and legal services.
Tangible non-current assets that consist of parts with different periods of utilisation are treated as separate components of tangible non-current assets.
The reported value of a tangible non-current asset is removed from the balance sheet upon disposal or sale, or when no future economic benefits are expected to be derived from use or disposal/sale of the asset. Gains or losses that arise upon sale or disposal of an asset are defined as the difference between the selling price and the reported value of the asset, less direct selling expenses. Gains and losses are recognised as other operating income/expense.
ii. Leased assets
IAS 17 is applied to leased assets. Leases are classified either as financial or operating leases. Leases where substantially all of the economic risks and rewards associated with ownership have been transferred to the lessee are classified as financial leases. Where that is not the case, the lease is an operating lease.
Assets rented under financial leases are reported as assets in the balance sheet. The leased assets are depreciated according to plan, whereas lease payments are reported as interest and repayment of debt.
In the case of operating leases the lease payment is expensed over the term of the lease based on usage, which may vary from what has actually been paid as leasing fees during the year.
Under operating leases the leasing fee is expensed over the term of the lease based on usage, which may differ from what actually has been paid in leasing fees during the year.
iii. Additional expenditure
Additional expenditure is added to the acquisition value only to the extent it is probable that the future economic benefits associated with the asset will inure to the benefit of the company and the acquisition value can be calculated in a reliable manner. All other additional expenditure is recognised as an expense in the period when it arises.
iv. Depreciation principles
Assets are depreciated on a straight-line basis over their estimated period of use. Land is not depreciated. The Group applies component depreciation, which means that depreciation is based on the estimated period of use of individual components.
| Estimated periods of use: |
|
|---|---|
| Buildings, property used in operations | 15–50 years |
| Plant and machinery | 3–10 years |
| Equipment, tools, fixtures and fittings | 3–5 years |
Property used in operations consists of a number of components with varying periods of use. The main classification is buildings and land. The land component is not depreciated since its period of use is considered to be unlimited. Buildings, however, consist of a number of components the period of use of which varies.
The periods of use have been deemed to vary between 15 and 50 years for these components. Impairment tests regarding assets is performed yearly.
(l) Intangible assets
i. Goodwill
Goodwill represents the difference between the acquisition value for an acquisition and the fair value of the acquired assets, assumed debt and contingent liabilities.
In adopting IFRS, the Group has applied IFRS retroactively from 1 August 2002 to goodwill in acquisitions before 1 April 2004. The classification and accounting procedures of acquisitions before 1 August 2002 have not been re-assessed in accordance with IFRS 3 when preparing the consolidated opening balance in accordance with IFRS as 1 April 2004.
Goodwill is valued at acquisition cost, less any accumulated impairment losses. Goodwill is distributed to cash-generating units and is no longer amortised, but instead tests are performed on an annual basis to determine if assets have suffered any impairment. (Refer to Accounting policies (n)).
For acquisitions where the acquisition cost is less than the net value of acquired assets and assumed debt and contingent liabilities, the difference is carried directly to the income statement.
ii. Research and development
Expenditure for research and development aimed at obtaining new scientific or technological knowledge is reported as costs as incurred.
Expenditure for development, where the research result or other knowledge is applied to achieve new or improved products or processes, is reported as an asset in the balance sheet, if the product or the process is technically or commercially usable and the company has sufficient resources to complete the development and then utilise or sell the intangible asset. The reported value includes expenditure for material, direct expenditure for salaries and indirect expenditure attributable to the asset in a reasonable and consistent manner. Other expenditure for development is reported as costs directly in the income statement as incurred. Development costs reported in the balance sheet are carried at acquisition value, less accumulated amortisation and any impairment losses.
iii. Other intangible assets
Other intangible assets acquired by the Group are reported at acquisition value, less accumulated amortisation and impairment losses. Also included here are capitalised IT expenditure for development and purchase of software. Sunk costs for internally generated goodwill and internally generated trademarks are reported in the income statement when the cost is incurred.
iv. Additional expenditure
Additional expenditure for capitalised intangible assets is recorded as an asset in the balance sheet only to the extent it increases the future economic benefits for the specific asset to which it is attributable. All other expenditure is expensed as incurred.
v. Amortisation
Amortisation is recorded in the income statement on a straight-line basis over the estimated period of use of intangible assets, unless such periods of use are indefinable. Goodwill, trademarks and intangible assets with an indefinable period of use are tested on an annual basis for any impairment suffered, or as soon as there are indications that the asset in question has suffered a loss of value. Intangible assets subject to amortisation are amortised from the date when they are available for use. The estimated periods of use are:
| Estimated periods of use: |
|
|---|---|
| Patents, innovations and customer relationships | 5–20 years |
| Capitalised development expenditure and software | 3–7 years |
(m) Inventories
Inventories are valued at the lower of acquisition value and net realisable value. Net realisable value is the estimated selling price in current operations, after deduction of estimated costs for completion and for accomplishing a sale.
The acquisition value of inventories is calculated by applying the first-in first out method (FIFO) or weighted average acquisition cost and includes expenditure arising at the acquisition of the inventory assets and transportation thereof to their current location and state. For manufactured goods and work in progress, the acquisition value includes a reasonable portion of indirect costs based on normal capacity.
(n) Impairment losses
The reported value of the Group’s assets is tested on each balance sheet date with a view to determining if any impairment has been suffered. IAS 36 is used for impairment tests of assets other than financial assets where IAS 39 is used, for available-for-sale assets where IFRS 5 is used, inventories, assets under management used for financing compensation to employees and deferred tax claims.
The value of exempted assets as above the valuation is tested in accordance with each respective standard.
Where there is an indication of a need for an impairment charge, the recoverable value of the asset is calculated. The recoverable value of goodwill, intangible assets with indefinite usage and intangible assets not yet ready for use is calculated annually.
Where it is not possible to allocate essentially independent cash flows to an individual asset, assets are grouped to the lowest level where essentially independent cash flows can be determined (a so-called cash-generating unit) for purposes of testing whether impairment has been suffered. An impairment loss is recorded when an asset’s or a cash-generating unit’s value exceeds the recovery value. An impairment loss is charged to the income statement.
Impairment losses of assets attributable to a cash-generating unit are in the first instance allocated to goodwill. Proportional impairment charges are then made against other assets in the unit.
The recoverable value is the higher of fair value, less selling costs and the value in use. When calculating the value in use future cash flows are discounted using a discount factor equivalent to risk-free interest and the risk associated with the specific asset.
i. Impairment of financial assets
The recoverable value of assets belonging to the categories held-to-maturity investments, loans and trade receivables are reported at accrued acquisition value is calculated as the present value of future cash flow discounted using the effective rate of interest prevailing when the asset was first accounted for. Assets with short remaining term are not discounted. An impairment loss is recorded as a cost in the income statement.
ii. Reversal of impairment losses
Impairment charges against held-to-maturity investments, or loans and accounts receivable reported at accrued acquisition value, are reversed if a later increase of the recovery value can objectively be attributed to an event that occurred after the impairment was charged.
Impairment charges against goodwill are not reversed. Impairment charges against other assets are reversed if there is a change in the assumptions used for calculating the recoverable value.
An impairment charge is reversed only to the extent the reported value of the asset after the reversal does not exceed the value the asset would have had if no charge impairment had been charged, taking into account the amortisation that would then have been made. Impairment losses against goodwill are not reversed.
(o) Equity
The Group’s equity is divided into share capital, other capital contributed, reserves, retained earnings and minority interest.
i. Repurchase of own shares
The holding of own shares in treasury and other equity instruments are reported as a reduction of shareholders’ equity. The acquisition of such instruments is reported as a deduction item against shareholders’ equity. Proceeds from the sale of equity instruments are reported as an increase in shareholders’ equity. Any transaction costs are carried directly to equity.
ii. Dividends
Dividends are reported as a liability after the General Meeting has approved the dividend.
iii. Earnings per share
Earnings per share is based on net income attributable to the parent company equity holders and the weighted average numbers of shares outstanding during the year. When calculating earnings per share after dilution, the average number of shares outstanding is adjusted to take into account any effects of the dilutive effect of common shares, which during the period under review is attributable to options issued to the employees. The dilutive effect of options affects the number of shares outstanding and arises only when the redemption price is lower than the market price of the share.
(p) Employee benefits
i. Defined contribution plans
Obligations relating to fees for defined contribution plans are reported as an expense in the income statement when it occurs.
ii. Defined benefit plans
The Group’s net obligations relating to defined benefit plans are calculated separately for each plan through an estimate of the future compensation that the employee has earned as a result of his/her employment in both the current and prior periods.
The calculations are performed by a qualified actuary using the so-called projected unit credit method. Commitments are then valued at the present value of expected future payments with due consideration to future pay increases. The discount rate used is the interest on the balance sheet date on an investment grade corporate bond with a term equivalent to the Group’s pension commitments. When there is no active market for such corporate bonds, the market rate for government bonds with an equivalent term is used. In the cases of funded plans, the fair value of managed assets reduces the calculated value.
When the calculation leads to an asset for the Group, the reported value of the asset is limited to the net of unreported actuarial losses and unreported costs for service during prior periods and the present value of repayments from the plan, or reduced future payments into the plan.
When the benefits under a plan are improved, the proportion of the increase in benefits pertaining to the employee’s service during prior periods is reported as a cost in the income statement, distributed on a straight-line basis over the average period until the benefits are fully vested. Where the benefits are fully vested, the cost is reported in the income statement directly.
All actuarial gains and losses as of 1 April 2004, the date for adoption of IFRS, have been reported. The so-called corridor rule is applied for actuarial gains and losses arising when the Group’s obligations for different plans are calculated after 1 April 2004. Under the corridor rule, the portion of the accumulated actuarial gains and losses that exceed 10 percent of the greater of the obligations’ present value and the fair value of managed assets is reported in the result over the expected average remaining employee service period of the employees covered by the plan. No other actuarial gains and losses are taken into account.
Obligations for retirement pension to salaried employees in Sweden in accordance with the ITP plan are handled mainly within the so-called FPG/PRI system. Obligations for family pensions are secured by insurance in Alecta, however. These obligations are also of the defined benefit type, although the Company has not had access to the information necessary to report these obligations as a defined benefit plan. These pensions secured by insurance in Alecta are therefore reported as defined contribution plans. At the end of 2008, Alecta’s surplus in the form of collective solvency margin was 112 percent (2007: 152 percent). The collective solvency margin is defined as the market value of Alecta’s assets in percent of the insurance commitments calculated in accordance with Alecta’s actuarial calculation assumptions, which do not correspond to IAS 19. Alecta’s surplus can be distributed to the policy holders and/or the insured.
When there is a difference between how the pension cost is determined in a legal entity and a group, a provision or a receivable is reported relating to special payroll tax based on this difference. Such provision or receivable is not subject to present value calculation. The net of interest on pension liabilities and the expected return on the associated managed assets is reported in the net finance item. Other components are reported in operating earnings.
iii. Benefits in case of termination
A cost for compensation in connection with termination of personnel is reported only where the company is demonstrably obligated, without a realistic opportunity for retraction, by a formal detailed plan to terminate an employment before the normal point in time. When compensation is given as an offer to encourage voluntary termination, a cost is reported where it is probable that the offer will be accepted and the number employees who will accept the offer cab be reliably estimated.
iv. Option programme
The Group’s call option programme enables members of senior management to acquire shares in the Company. The employees have paid a market valuated premium for this opportunity. The programme contains a subsidy which states that the employee receives the equivalent as the premium paid in the form of salary. Payment of the subsidy is proposed to be paid two years after the issue resolution provided that the option holder is still in the employment of the Group at this point of time and still owns purchase options. This subsidy, including social cost, is distributed as administrative expense over the two-year vesting period.
(q) Provisions
A provision is reported in the balance sheet where the Company has a formal or informal legal obligation as a consequence of a transpired event and where it is probable that an outflow of economic resources will be required to settle the obligation, and an accurate assessment of the amount can be made. Where the effect of the timing of the payment is significant, provisions are calculated based on discounting the expected future cash flow at an interest rate that reflects current market assessments of the time value of money and, where applicable, the risks associated with the obligation.
i. Warranties
A provision for warranties is reported when the underlying products or services are sold. The provision is based on historical data on warranties and compilation of possible outcomes in relation to the probabilities associated therewith.
ii. Restructuring
A provision for restructuring is reported when the Group has adopted a comprehensive and formal restructuring plan, and the restructuring has either begun, or been publicly announced. No provisions are set aside for future operating costs.
iii. Loss contracts
A provision for loss contracts is reported when the anticipated benefits that the Group expects to receive from a contract are lower than the inevitable costs to fulfil the obligation or contract.
(r) Taxes
Income taxes consist of current taxes and deferred taxes. Income taxes are reported in the income statement, except when the underlying transaction is reported directly against equity, in which case the associated tax effect is also reported against equity.
Current taxes are taxes to be paid or refunded relating to the current year, with application of the tax rates resolved, or in practice resolved, as of the balance sheet date. Also included are adjustments of current taxes attributable to prior periods.
Deferred taxes are calculated in accordance with the balance sheet method based on temporary differences between reported values and values for tax purposes of assets and liabilities. The following temporary differences are not taken into account: Temporary difference arising upon first recording of goodwill, first recording of assets and liabilities that are not acquisition of a business, and at the time of the transaction do not affect either the reported result or the result for tax purposes. Also not accounted for are temporary differences attributable to shares in subsidiaries and associated companies not expected to be reversed within the foreseeable future. The valuation of deferred taxes is based on how the reported values of assets or liabilities are expected to be realised or settled. Deferred taxes are calculated using the tax rates and tax rules resolved, or in practice resolved, as of the balance sheet date.
Deferred tax assets relating to deductible temporary differences are reported only to the extent that it is probable that it will be possible to utilise them. The value of deferred tax assets is reduced when it no longer is deemed probable that it will be possible to utilise them.
(s) Contingent liabilities
A contingent liability is reported when there is a possible undertaking emanating from events that have occurred and the existence of which are confirmed only by the occurrence of one or more future uncertain events, or when there is an undertaking not reported as a liability or provision because it is unlikely that an outflow of resources will be required.
(t) Cash flow statement
Payments have been divided into categories: operating activities, investment activities and financing activities. The indirect method is used for flows from operating activities.
The year’s changes of operating assets and operating liabilities have been adjusted for effects of exchange rate differences. Acquisitions and disposals are reported in investment operations. The assets and liabilities held by the entities acquired and sold at the time of change are not included in the statement of changes in working capital, nor are changes of balance sheet items reported in investment and financing activities.
Cash and cash equivalents include cash and bank flows and also short-term investments, the conversion to bank balances of which can occur at a beforehand essentially known amount. Cash and cash equivalents include short-term investments with a term of less than three months.
Statements issued by the Emergency Task Force of the Swedish Accounting Standards Council for listed companies also apply.
(u) Parent Company accounting policies
The Parent Company has prepared its annual accounts in accordance with the Swedish Annual Accounts Act (1995:1554) and recommendation RFR 2:1 Accounting for legal entities of the Swedish Financial Reporting Board. RFR 2:1 means that the Parent Company in the annual accounts for the legal entity should apply all IFRS and statements of EU to the greatest extent possible within the framework of the Swedish Annual Accounts Act and with due regard to the relationship between accounting and taxation. The recommendation sets out which exceptions and additions that are to be made from IFRS.
In all, this results in differences between the Group’s and the Parent Company’s accounting in the areas indicated below.
Classification and forms of presentation
The Parent Company’s income statement and balance sheet are presented in accordance with the schedules of the Swedish Annual Account Act. The difference to IAS 1 Presentation of Financial Statements applied to the presentation of the Group’s financial statements is primarily the reporting of financial income and expense, non-current assets and equity.
Subsidiaries
Shares in subsidiaries are reported in the Parent Company in accordance with the purchase method of accounting. Dividends received are reported as revenue only to the extent they originate from profit earned after the acquisition. Dividends that exceed such earned profit are regarded as a repayment of the investment and reduce the reported value of the share.
Revenue
Financial instruments and hedge accounting
In view of the relationship between accounting and taxation, the rules for financial instruments and hedge accounting in IAS 39 are not applied in the Parent Company as a legal entity.
Anticipated dividends
Anticipated dividends from subsidiaries are reported in those cases when the Parent Company alone has the right to decide on the size of the dividend and the Parent Company has decided on the size of the dividend before publication of its financial reports.
Tangible non-current assets
Owned assets
Tangible non-current assets in the Parent Company are carried at acquisition value after deduction of accumulated depreciation and any impairment losses in the same way as the Group, but with any write-ups added.
Leased assets
In the Parent Company all lease contracts are reported in accordance with the rules for operating leases.
Taxes
In the Parent Company, untaxed reserves are reported including deferred tax liability. In the consolidated financial statements, on the other hand, untaxed reserves are divided into deferred tax liability and equity.
(v) Group contributions and shareholder contributions
for legal entities
The Company reports group contributions and shareholder contributions in accordance with the statement of the Swedish Financial Reporting Board. Shareholder contributions are carried directly to the recipient’s equity and are capitalised in the form of shares with the donor, to the extent an impairment charge is not called for. Group contributions are reported according to economic purpose. This means that group contributions rendered for the purpose of minimising the Group’s total taxes are carried directly to retained earnings after deduction of their current tax effect.
Group contributions in lieu of dividends are reported as dividends. This means that a group contribution received, and its current tax effect, are reported via the income statement. Group contributions rendered and their current tax effect are carried directly to retained earnings.
Group contributions in lieu of shareholder contributions are reported by the recipient directly against retained earnings, taking the current tax effect into account. The donor reports the group contribution and its current tax effect as an investment in shares in group companies, to the extent an impairment charge is not necessary.
(w) Mergers
Mergers are reported in accordance with BFNAR 1999:1.
(x) Financial guarantees
Lagercrantz Group has chosen not to apply the recommendations in IAS 39 regarding financial guarantees for subsidiaries in accordance with RFR 2:1.
