THE ANNUAL REPORT 2002 - Oerlikon Barmag

Accounting principles
Commodity price risks The price risks related to commodities used
in Saurer products are low.
Composition and valuation of balance sheet items
Cash includes cash in hand, balances in postal and bank accounts,
as well as short-term money market funds.
Marketable securities are shown at year-end market value.
Changes in value are included in the income statement.
Accounts receivable, trade and other receivables are included at
face value, less specific provisions where appropriate.
Inventories Raw materials are valued at the lower of cost and
market, using the FIFO or weighted average cost method. Finished
goods and work in process are valued at production cost,
reduced to net realizable value should this be lower than cost.
Provisions are made for items of reduced salability and excess
stocks. Customer payments on account are deducted from inventories.
Financial assets are included at cost less provisions for permanent
impairment of value.
Financial Instruments Derivative financial instruments are recorded
at cost and are subsequently adjusted to fair value. With the
exception of financial instruments which hedge a forecasted transaction
(cash flow hedges), all adjustments in fair values are included
in income.
The purpose of hedge accounting is to match the impact of the
hedged item and the hedging instrument in the income statement.
To qualify for hedge accounting, the hedging relationship must
meet several strict conditions concerning documentation, hedge
effectiveness and reliability of measurement. If these conditions are
not met, the transaction does not qualify as a hedge for accounting
purposes. In this event fair value adjustments to the value of the
derivative and the hedged item are made through the income statement.
Saurer uses hedge accounting exclusively for cash flow hedges.
These are used to secure future cash flows which have a high
probability of occurring. The hedge instrument is recorded on the
balance sheet at fair value (replacement cost) and any subsequent
adjustments are booked in the hedging reserve in shareholders’
equity. If the hedge relates to a transaction which will subsequently
be recorded on the balance sheet, the adjustments cumulated
under shareholders’ equity at that time will be included in
the initial book value of the asset or liability. In all other cases the
cumulative changes in fair value of the hedging instrument that
have been recorded in equity are included as a charge or credit to
income when the forecasted transaction is recognized.
Property, plant and equipment is carried at purchase or production
cost less appropriate depreciation. In the case of an impairment
loss the appropriate charge is made to income.
Depreciation is charged on a straight-line basis over the following
periods:
28
Furniture, fittings and equipment
Years
5–12
IT, office equipment 3–7
Vehicles, tools 4–6
Machinery 6–10
Buildings: – exterior constructions 30–60
– interior constructions 12–25
Repair and maintenance costs are expensed directly to the income
statement. Costs which give rise to an increase in value are capitalized
and depreciated over the remaining useful life of the
assets.
Financing costs incurred in respect of the construction of property,
plant and equipment are taken directly to the income statement.
Leased equipment Property, plant and equipment financed
through long-term financial leasing contracts, and for which the
company bears the major risks (financial leasing), is capitalized and
depreciated like other fixed assets. The present value of the corresponding
lease obligations is included as a liability under long-term
liabilities.
Rental costs for short-term operational leases are charged directly to
the income statement. Operating leases are not included in the balance
sheet; the corresponding obligations are fully reported in the
notes.
Goodwill is the excess of the acquisition price of investments over
the related equity value at the date of acquisition and is amortized
to the income statement over a maximum period of 20 years.
Amortization periods in excess of 5 years are only used in the case
of strategic acquisitions where a sustainable expansion of market
share can be expected. In the case of the purchase of a foreign company,
goodwill is converted and fixed in Swiss Francs at the time of
acquisition. The amortization of goodwill is included in administration
and other expenses.
The carrying value of goodwill is reviewed at least annually for all
investments and, if a risk of impairment is seen, a detailed valuation
is performed using Discounted Cash Flow analysis over a five-year
period. If required, adjustments are then made to reduce the carrying
values of goodwill for the investments affected.
Where an acquisition gives rise to negative goodwill this is released
to income over a period calculated to match any related costs. The
release to income is recorded together with goodwill amortization
in administration and other expense.
Patents, licenses and trademarks are capitalized at cost and are
written off on a straight-line basis over their useful life, not exceeding
10 years.
Provisions are set up for current legal and actual liabilities which
are attributable to events in the past. The amount of the provisions
is based on the expected use of funds for covering the liabilities.
Retirement benefits Saurer companies operate various plans for
providing employees with retirement benefits, which conform to