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Author: The SKF Group |
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Date Posted: 18:52:19 01/07/03 Tue Investor relations home The SKF Group The IR Team E-mail service Agenda Reports Presentations Financial statistics Accounting principles Reconciliation to U.S. GAAP Provisions for pensions SKF and EMU The share Annual General Meeting Acquisitions and divestments Noteworthy Analysts Links Selected information in Swedish Search IR pages Accounting principles Please note that this is an abbreviated version of Notes to the consolidated financial statements of SKF Annual Report 2001. Amounts in millions of Swedish kronor (MSEK) unless otherwise stated. Amounts in parentheses refer to comparable figures for 2000 and 1999, respectively. General All companies within the SKF Group apply the accounting rules as stated in the "SKF Accounting and Financial Reporting Manuals". These rules are based on generally accepted accounting principles in Sweden (Swedish GAAP). The SKF Group is required to reconcile its financial statements to generally accepted accounting principles in the United States (U.S.GAAP) since the Group is listed on NASDAQ in the U.S. Significant differences between Swedish GAAP and U.S. GAAP are described in Note 27. Consolidation - subsidiaries The consolidated financial statements include the Parent Company, AB SKF, and all companies in which AB SKF, directly or indirectly, owns shares representing more than 50% of the voting rights. AB SKF and its subsidiaries are referred to as "the SKF Group" or "the Group". The consolidated financial statements are prepared using the purchase method. Consolidated shareholders' equity includes the Parent Company's equity and the part of the equity in subsidiaries which has arisen after the acquisition. The difference between the cost of acquiring the shares in a subsidiary and the shareholders' equity of that subsidiary at the time of acquisition, adjusted in accordance with the Group's accounting principles using the fair value for assets and liabilities, is accounted for: - as goodwill in the consolidated balance sheets, if the cost of acquiring the subsidiary is higher than the shareholders' equity, or - as a decrease in the value of acquired capital assets, if the cost of acquiring the subsidiary is lower than the shareholders' equity. Intercompany accounts, transactions and unrealized profits have been eliminated in the consolidated financial statements. Investments in Associated Companies Companies, in which the Group owns 20 to 50% of the voting rights and where the SKF Group has a significant influence, are referred to as "Associated Companies" (see Note 28). Investments in Associated Companies are reported in accordance with the equity method. The value of the investments is equal to the Group's share of shareholders' equity in these companies, determined in accordance with the accounting rules of the Group. The Group's share in the results of these companies is based on their profit/loss after taxes. Translation of foreign financial statements The current rate method is used for translating the income statements and balance sheets into Swedish kronor as the majority of the subsidiaries are considered independent. All balance sheet items in foreign subsidiaries have been translated in Swedish kronor based on the year-end exchange rates. Income statement items are translated at average exchange rates. The translation adjustments that arise as a result of the current rate method are transferred directly to shareholders' equity. For the translation of financial statements of subsidiaries operating in highly inflationary economies, the Group applies the monetary/non-monetary method (MNM-method). Monetary balance sheet items are translated at year-end exchange rates and non-monetary balance sheet items, as well as related income and expense items, are translated at rates in effect at the time of acquisition (historical rates). Other income and expense items are translated at average exchange rates. Translation differences that arise are included in the related lines in the income statement. Translation of items denominated in foreign currency Transactions in foreign currencies during the year have been translated at the exchange rate prevailing at the respective transactions date. Accounts receivable and payable and other receivables/ payables denominated i foreign currency have been translated at the exchange rates prevailing at the balance sheet date. Such exchange gains and losses are included in other operating revenues and other operating expense. Other foreign currency items have been included in financial income and expense-net. Financial derivative instruments For hedging of fluctuations in foreign currency exchange rates related to certain revenues and expenses for flow of goods and services between countries (firm commitments as well as anticipated transactions) forward exchange contracts and currency options are used. Exchange differences related to these financial derivative contracts are not reflected in the income statement until the related transactions occur. Cross currency swaps and interest rate swaps are used to manage the interest rate exposure on certain foreign currency borrowings. These financial derivative instruments are valued at closing day rate and exchange differences as well as accrued interest reflected per closing day. The Group also uses financial derivative instruments for trading purposes, limited according to Group's risk management policy. These financial derivative instruments are marked-to-market and exchange differences recognized in the period they arise. Exchange differences arising from financial derivative instruments are included in Financial income and expense, net. Exchange rates The following exchange rates have been used when translating the financial statements of foreign subsidiaries operating in the countries shown below into SEK: Country Unit Currency Average rate Year-end rate 2001 2000 1999 2001 2000 1999 EMU-countries* 1 EUR 9.27 8.45 8.85 9.37 8.85 8.55 India 100 INR 22.04 20.38 19.28 21.99 20.37 19.57 Japan 100 JPY 8.57 8.49 7.25 8.08 8.27 8.33 United Kingdom 1 GBP 14.97 13.88 13.42 15.37 14.20 13.75 USA 1 USD 10.40 9.16 8.31 10.61 9.51 8.51 Canada 1 CAD 6.71 6.15 5.58 6.64 6.33 5.86 * Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Spain, Portugal and Austria Debt and marketable equity securities There are no marketable equity securities held. Debt securities classified as held to maturity are recorded at amortized cost. Debt securities which are bought and held principally for selling them in the near term are classified as short-tem financial assets and are recorded at fair value with gains and losses recorded in the Income statement. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). Net realizable value is defined as the lower of current replacement cost or market value less selling cost. Cost includes material, labour and manufacturing overheads. Depreciation of tangible and intangible assets Depreciation is provided on a straight-line basis and is calculated based on the cost of the asset. In some countries, legal revaluations are made in addition to cost, and depreciation is then based on the revalued amounts. The rates of depreciation are based on the estimated economic lives of the assets, generally 33 years for buildings, 10-17 years for machines and 4-5 years for tools, office equipment and vehicles. Depreciations are included in cost of goods sold or selling expenses depending on where the assets have been used. Goodwill is amortized on a straight-line basis, normally over 10 years, but in some cases over 20 years. Goodwill is amortized over more than 5 years (10 or 20 years) in those cases where the acquired company has an established knowledge within its business, developed customer relations and a strategic relation to the Group's business. Patents and similar rights are stated at cost and are amortized on a straight-line basis over their legal lives. Leases The Group applies the Swedish accounting recommendation RR 6 "Accounting for leasing agreements". A lease agreement that transfers substantially all the benefits and risks of ownership to the Group is defined as a capital lease. Capital leases are recognized as fixed asset (and the associated obligation) initially recorded at an amount equal to the present value of minimum lease payments during the lease term, less certain executory costs. Capital leases are amortized in a manner consistent with the Group's normal depreciation policy for owned tangible assets. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to periods during the lease term as to produce a constant periodic rate of interest on the remaining balance of liability for each period. Other leases are accounted for as operating leases. Such rental expenses are recognized in the income statement, on a straight line basis, over the lease term. Revenue recognition Revenues are recognized when realized or realizable and earned. Revenue from the sale of goods and services is generally recognized when (1) an arrangement with a customer exists, (2) delivery has occurred or services have been rendered, (3) the price is determinable and (4) collection of the amount due is reasonably assured. Revenues from service and/or maintenance contracts where the service is delivered to the customer at a fixed price is accounted for on a straightline basis over the duration of the contract. Other operating revenue and other operating expense Other operating revenue and Other operating expense include items such as gains and losses on sales of non-production related capital assets, gains and losses on sales or closures of companies and operations, rental revenues and exchange gains and losses arising on operating assets and liabilities. The concept of non-comparative items is not used by the Group. Comparative information is found in comments to the consolidated income statement. Research and development Research and development expenditures are charged against earnings as incurred and accounted for as cost of goods sold in the consolidated income statement. Income taxes All the companies within the Group compute current income taxes in accordance with the tax rules and regulations of the countries where the income is taxable. Deferred taxes are accounted for according to the Swedish accounting recommendation RR 9 "Income Taxes". The group utilizes a liability approach for measuring deferred taxes, which requires deferred tax assets and liabilities to be recorded based on enacted tax rates for the expected future tax consequences of existing differences between financial reporting and tax reporting bases of assets and liabilities, and loss and tax credit carry forwards. Such losses and tax credit carry forwards can be used to offset future income. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realised. Tax assets and provisions of taxes are classified as long-term and short-term based on the nature of the underlying asset and liability. Other taxes, in Note 5, refer to taxes other than income taxes which should not, according to GAAP, be included elsewhere in the income statements. Provisions have been made in the consolidated financial statements for estimated taxes on earnings of subsidiaries expected to be remitted in the following year, but not for tax liabilities which may arise on distribution of the remaining unrestricted earnings of foreign subsidiaries. Provisions Provisions are made when the Group has an obligation arising out of a past event and, at the balance sheet date, the obligation is known and reasonably estimatable, even though the exact amount or timing of the settlement is uncertain. Pensions and other postretirement benefits, deferred taxes, restructuring reserves and similar items such as warranty reserves and benefits to employees, other than pensions, are classified as provisions in the balance sheet. Provisions for pensions Pension obligations are calculated as the discounted value of the future pension benefits at year-end, to which employees are entitled based on their earnings during the time of their employment. Provisions for pensions are calculated and provided for based on local legislation and rules in each country except in cases when a true and fair view would not be reflected. Provisions for postretirement benefits other than pensions Provisions for Post-retirement benefits other than Pensions are made during the years of service when an employee earns the benefits, even if the benefits will not be paid out until after retirement. Provisions are based on the estimated cost of providing the benefit to the individuals concerned. Changes in accounting principles Beginning in 2000, operating expenses for the Group are classified as cost of goods sold and/or selling and administrative expenses based on the type of operation rather than the type of expense. Other current recommendations issued by the Swedish Financial Accounting Standard Council in 2001 have been adopted by the Group without any effect on the consolidated financial statement. Previous years have been restated in accordance with the new principles. Beginning in 2001, the parent company implemented in its financial statements the recommendation RR 9 "Income Taxes". For 2001 and onwards the parent company reports received and paid Group contributions directly against sharholders equity. For 2002 the following recommendations, issued by the Swedish Financial Accounting Standard Council, becomes effective; Consolidation (RR 1), Immaterial Assets (RR 15), Pensions and Contingent liabilities (RR 16), Impairment of fixed assets (RR 17), Discontinuing operations (RR 19), Costs for Loans (RR 21) and Related Party Disclosures (RR 23). The Group has not yet assessed the impact of implementing these recommendations in 2002 but does not expect any material effect. Definitions of key figures The majority of the subsidiaries within the SKF Group report the results of their operations and financial position eleven times a year (ten for 1995 to 1996). The key figures presented in the Annual Report have been calculated using average values based on these interim reports. Consequently, the calculation of these key figures using the year-end values presented, may give slightly different results. Portion of risk-bearing capital Shareholders' equity plus minority interest and provisions for deferred taxes, as a percentage of total assets at year end. Equity/assets ratio Shareholders' equity plus minority interest, as a percentage of total assets at year end. Return on total assets Operating profit/loss plus interest income, as a percentage of average total assets. Return on capital employed Operating profit/loss plus interest income, as a percentage of average total assets less the average of non-interest bearing liabilities. Return on shareholders' equity Profit/loss after taxes, as a percentage of average shareholders' equity. Operating margin Operating profit/loss, as a percentage of net sales. Profit margin Operating profit/loss plus interest income, as a percentage of net sales. Turnover of total assets Net sales in relation to average total assets. Earnings/loss per share in Swedish kronor Profit/loss after taxes and minority interest divided by the number of shares. Yield Dividend as a percentage of share price at year end. P/E ratio Share price at year end divided by earnings per share. Average number of employees Total number of working hours of all employees, divided by the normal total working time during the year. Last updated: 2002-03-25 -------------------------------------------------------------------------------- Dictionary My own path SKF Group © 2003. [ Next Thread | Previous Thread | Next Message | Previous Message ] |