Atlas Copco - Annual Report 1999

Notes to the
Financial Statements
SEK m. unless otherwise noted
Accounting principles
The financial statements of Atlas Copco have been prepared in
all respects in accordance with generally accepted accounting
principles in Sweden.
Consolidation
The Consolidated Income Statement and Balance Sheet of the
Atlas Copco Group include all companies in which the Parent
Company, directly or indirectly, holds more than 50 percent of
the voting rights as well as those companies in which the Group
in some other manner has decisive influence.
The consolidated financial statements have been prepared in
accordance with the purchase method whereby assets and liabilities
of acquired companies are reported at fair value at the time
of acquisition. Any excess of the purchase price over the fair
value is accounted for as goodwill (see below).
Earnings of companies acquired during the year are reported
in the Consolidated Income Statement from the date of
acquisition. Earnings of companies divested during the year
have been deducted from consolidated earnings on the basis of
the Group’s reported net assets in these companies at the time
of the divestment.
Untaxed reserves and appropriations, which are reported
in the financial statements of the individual companies, have
been allocated to deferred taxes and restricted equity upon
consolidation based on the local income tax which will apply
for each company. Likewise, the current year changes in these
reserves through appropriations are reported as a deferred tax
item.
Goodwill
The acquisition of well-established companies active in an international
environment normally means that the acquisition price
substantially exceeds tangible net worth. The market price is
determined primarily by future expectations, which are based on
the company’s market position and know-how.
A company acquisition in which the acquisition price exceeds
the company’s net assets valued at market price results in intangible
assets which are capitalized and amortized over a certain
period.
Goodwill is normally amortized over 10 years, while goodwill
arising from strategic acquisitions is amortized over a period of
20–40 years. For disclosure of goodwill regarding the acquisitions
of Milwaukee Electric Tool Corporation, Prime Service and
Rental Service Corporation, see page 29.
The economic life of assets is evaluated annually to determine
whether the selected amortization plan is sufficient.
NOTES TO THE FINANCIAL STATEMENTS
Associated companies
Companies in which the Atlas Copco Group controls between
20 and 50 percent of the voting rights, and in which it has a
substantial ownership involvement, are reported as associated
companies.
Holdings in associated companies are reported in the Consolidated
Income Statement and Balance Sheet in accordance
with the equity method.
Atlas Copco’s share of income after net financial items in
associated companies is reported in the Income Statement, under
the heading Other operating income. Atlas Copco’s portion of
taxes in associated companies is reported in the consolidated tax
expense.
The related acquisition costs are reported under Financial
assets in the Balance Sheet, after adjustments for shares of
income, less dividend received. Undistributed income in these
companies is reported among restricted reserves in consolidated
shareholders’ equity.
Internal profits have been eliminated as appropriate.
Translation of accounts of foreign subsidiaries
Atlas Copco applies the current-rate method in translating the
accounts of foreign subsidiaries, in accordance with the standards
of the Swedish Financial Accounting Standards Council
(SFASC). In applying this method, the subsidiaries are primarily
reported as independent units with operations conducted in
foreign currencies and in which the Parent Company has a net
investment. The exceptions to this approach are those subsidiaries,
which are located in high-inflation countries, and
those referred to as integrated companies. The accounts of
such subsidiaries are translated according to the monetary
method. This method provides a more accurate reporting of
the earnings and financial position of these companies.
In accordance with the current-rate method, all assets and
liabilities in the balance sheets of subsidiaries are translated at
year-end rates, and all items in the income statements at the
average exchange rate for the year. Translation differences that
arise are reported directly as a component of shareholders’
equity and are not included in current earnings.
For those subsidiaries consolidated in accordance with the
monetary method, all non-monetary items, real estate (land
and buildings), machinery and equipment, inventories, shareholders’
equity, and deferred tax, are translated at the acquisition
date rates. Other items, monetary items, are translated at
year-end rates. The income statement items have been translated
at the average rate for the year, except for the cost of
goods sold, depreciation, and deferred taxes, which have been
translated at the investment rate. Exchange differences arising
ATLAS COPCO 1999 15