Atlas Copco 2008 â tough ending to a record year Annual Report ...

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Financial statements, atlas copco group27. ContinuedFinance leasereceivables2008 2007Gross Impairment Gross ImpairmentNot past due 2 406 7 1 583 4Past due but notimpaired0–30 days 8 1331–60 days 3 261–90 days 1 2More than 90 days 1 2Past due andindividually impaired31–60 days 2 261–90 days 1 1More than 90 days 3 3Total 2 425 13 1 602 4Other financialreceivables2008 2007Gross Impairment Gross ImpairmentNot past due 1 083 13 791 13Past due but notimpaired0–30 days 35 –Total 1 118 13 791 13Provision for bad debts, trade 2008 2007Provisions at Jan. 1 346 278Business acquisitions 1 41Divestments –3 –1Provisions recognized for potential losses 342 118Amounts used for established losses –71 –52Release of unnecessary provisions –111 –40Translation differences 44 2Group financial credit risk policyCredit risk on financial transactions is the risk that the Group incurslosses as a result of non-payment by counterparts related to the Group’sinvestments, bank deposits or derivative transactions.a) Investment transactionsEfficient cash management systems should be maintained in order to minimizethe amount of excess cash by reducing the Group’s interest bearingdebt. Any remaining excess cash should be invested in order to receive areturn on it. Such investments may only be made if the credit rating ofthe counterpart or underlying investment is at least A-/A3 as rated byStandard & Poor’s or Moody’s. Investments in complex financial productsare not allowed even if they meet the rating criteria unless approved by theFRMC.b) Derivative transactionsAs part of the Group’s management of financial risks, the Group entersinto derivative transactions with financial counterparts. Such transactionsmay only be undertaken with approved counterparts for which credit limitshave been established and with which ISDA (International Swaps andDerivatives Association) master agreements are in force. At year end 2008,the measured credit risk on financial transactions, taking into account thenominal value of the transaction, a time add-on, and the market value(if positive for Atlas Copco), amounted to 5 144 (3 468).Derivative transactions may only be entered into by Group Treasuryor, in rare cases by another entity, but only after the approval of GroupTreasury. Atlas Copco uses derivatives only as hedging instruments andthe policy allows only standardized instruments.The table below shows the actual exposure of financial instruments asper December 31:Financial credit risk 2008 2007Trade receivables 15 404 13 116Cash and cash equivalents 5 455 3 473Held to maturity investments 374 340Available-for-sale investments 713 957Financial receivables 3 530 2 388Unrealized derivative gains 4 058 990Other 2 094 1 53431 628 22 798Provisions at Dec. 31 548 346Impairment of finance lease receivables 2008 2007Provisions at Jan. 1 4 –Provisions recognized for potential losses 13 4Amounts used for established losses –2 –Release of unnecessary provisions –2 –Provisions at Dec. 31 13 4Impairment of other financial receivables 2008 2007Provisions at Jan. 1 13 –Provisions recognized for potential losses 12 13Release of unnecessary provisions –13 –Effect of foreign currency movements 2 –Translation differences –1 –Provisions at Dec. 31 13 1374 Atlas Copco 2008
27. ContinuedOther financial market/price riskIn addition to the above mentioned risks, the Group’s main financial market/pricerisks included the following as of December 31:• The Group held 10 816 575 shares in RSC Holdings Inc. representingapproximately 10.5% (11.5) of total shares. The shares are listed on theNew York Stock Exchange. The market value of the shares, as of yearend 2008, was approximately 713 (957), which exceeds the historic costvalue by approximately 248 (569). These shares are classified as available-for-sale.A one-percentage change in the share price gives a changeof MUSD 0.9 (1.5) for Atlas Copco.• Pension fund investments. The Group had funded defined pensionbenefit plan assets totaling 4 863 (4 936) at year end 2008. The pensioninvestment policy gives guidelines regarding the investment of thesefunds and is as follows:– The assets should be invested with low risk (e.g. low-risk bonds orequity related instruments, preferably with a capital guarantee).– The investment portfolio should be diversified; that is, multiple productsand issuers should be utilized. A maximum of 10% of the assetscan be invested with one issuer. There are generally no limitations ongovernment bonds.The Group has a price risk on agreements with banks related to the shareoptions and rights in the 2002 and 2003 share based incentive programs.GuaranteesAt December 31, the Group had approximately 280 (209) of guaranteesissued for the benefit of third parties, which is generally done to facilitatecustomer financing of sales of Group products. In connection with somecommercial transactions, e.g. public bidding processes, the Group also providesperformance and/or financial guarantees for its own account.Capital managementAtlas Copco defines capital as borrowings and equity, which at December31 totaled 52 250 (37 309). There are no external capital requirementsimposed on the Atlas Copco Group.The Board’s policy is to maintain an adequate capital structure so asto maintain investor, creditor and market confidence and to support futuredevelopment of the business. The Board’s opinion is that the dividend overa business cycle should correspond to 40 – 50 % of earnings per share. Theboard has also in the recent years proposed, and the Annual GeneralMeeting of the shareholders (AGM) has approved, a distribution of“excess” (in relation to e.g. rating and strategic objectives) equity to theshareholders through share redemptions, and share repurchases.The Group’s long-term interest-bearing debt has had the same A-/A3ratings from Standard & Poor’s and Moody’s respectively since 1999. Theshort-term debt is rated A2/P2. The stability of long-term ratings has beenan objective in connection with the significant cash distributions and sharebuy-backs made in 2006 and 2007. The outstanding loans of the Group atDecember 31, 2008 are shown in note 21.Fair value of assets and liabilitiesFair values are based on market prices – or in the case that such prices arenot available – derived from an assumed yield curve. Amounts shown areunrealized and will not necessarily be realized.Valuation methodsDerivativesFair value of futures, forward rate agreements (FRAs) and interest rateswaptions are calculated based on quoted market rates.Foreign exchange contractsFair values are calculated with the forward exchange rate.Standard currency optionsFair values are based on the Garman & Kohlhagen option valuationmodel.Interest-bearing liabilitiesFair values are calculated by using discounted cash flows.Finance leasesFair values are based on present value of future cash flows discounted tothe market rate for similar contracts.The total net amount of the change in fair value estimated using a valuationtechnique and recognized in the income statement during 2008 was– (–18) as per December 31.Currency rates used in the financial statementsYear-end rateAverage rateValue Code 2008 2007 2008 2007Australia 1 AUD 5.36 5.65 5.56 5.65Canada 1 CAD 6.30 6.59 6.21 6.30EU 1 EUR 10.95 9.47 9.67 9.25Hong Kong 100 HKD 99.84 82.76 84.81 86.50United Kingdom 1 GBP 11.21 12.90 12.11 13.49USA 1 USD 7.74 6.46 6.60 6.75Atlas Copco 2008 75
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Atlas Copco2008 - tough ending to a
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• Strong order growth in most are
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Revenues by business areaRevenues b
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educing Atlas Copco’s main enviro
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Many new products were introduced d
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TargetsFinancial targetsAtlas Copco
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StructureThe Group is organized in
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New divisionEffective January 1, 20
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80 000Revenues and marginsMSEK %286
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administration reportconcentrated t
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administration reportEnvironmental
Page 26 and 27: ADMINISTRATION REPORTCompressor Tec
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Corporate Governance ReportGroup Ma
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Corporate Governance ReportRemunera
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Corporate Governance ReportBusiness
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The Atlas Copco ShareAt December 31
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the atlas copco shareOwnership stru
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Five Years in SummaryMSEK 2004 1) 2
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Financial InformationWelcome to the
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We are committed to yoursuperior pr
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