Hexagon - Annual Report 2005

Comments and Notes NOTES 1. Revaluation of pension commitments pursuant to RR 29 This item is not included in the adoption of IFRS but has been applied since 1 January 2004. The adoption of IFRS does not entail any further effect because the applicable parts of RR 29 are identical to IAS 19. Thus the item has only been stated for the sake of completeness. 2. Minority interests IAS 1 stipulates minority interests as a separate component of shareholders’ equity in the balance sheet. Accordingly, the Income Statement is no longer adjusted for changes in minority interests. 3. Negative goodwill Normally, negative goodwill is taken to income when applying IFRS. However, the underlying reasons for the negative goodwill arising should be reviewed critically before such revenue is accounted. Because the negative goodwill arose from acquisitions consummated before 1 January 2004, the negative goodwill should be accounted directly to shareholders’ equity as of 1 January 2004. Another consequence is that the depreciation according to plan on tangible fixed assets is increased by MSEK 5. 4. Goodwill amortisation Under IFRS goodwill is no longer amortised, but rather, the value should be subject to an impairment test annually. Hexagon has performed such tests as of 1 January 2004 and 31 December 2004, which did not indicate any need for write-downs. The adoption of IFRS results in a reversal of MSEK 99 of goodwill amortisation. 5. Restructuring costs from acquisitions Provisions for restructuring costs from acquisitions cannot be considered part of the costs of the acquisition, i.e. should not be considered as a reduction of the acquired shareholders’ equity. Such restructuring should be considered as events that arose after the time of the acquisition. By observing the stipulations of IAS 37, the restructuring expenditure should be expensed. Accordingly, the adoption of IFRS implies restructuring expenses of MSEK –37 after tax burdening net earnings for 2004. Previously, the basic principle was that such restructuring expenditure was recorded against goodwill. 6. Allocation of purchase prices related to acquisitions conducted in 2004 The accounting standards governing corporate acquisitions have implications including stipulating a more detailed analysis of acquired assets. Values should be assigned a range of intangible assets such as brands, customer relations and patents. In addition, such assets’ assessed financial life-spans must be determined, with assets depreciated according to plan pursuant to these lifespans. In this context, the adoption of IFRS entails that MSEK 16 was transferred from goodwill to other intangible fixed assets as of 31 December, with net earnings in 2004 charged by depreciation of MSEK 1. 7. Market value of financial instruments as of 1 January 2005 Hexagon hedges its commercial currency flows. Hexagon also hedges the value of its foreign currency net assets. The manner and degree to which this is effected is specified by the Board annually in a group policy. Certain other agreements, encompassed by this regulatory structure, are also in place. Hedging commercial currency flows Hexagon applies hedge accounting of those derivatives, mainly currency forward contracts, entered with the aim of safeguarding the value of forecast currency flows. The company will maintain hedge accounting. The adoption of IFRS stipulates the market valuation of those financial instruments not corresponded by an underlying balance sheet item. The effect of this market valuation after tax will be accounted directly to shareholders’ equity. For Hexagon’s part, this effect was marginal. Hedging the value of foreign currency net assets Changes in the value financial instruments (including foreign currency loans) raised with the intention of safeguarding the value of foreign currency net assets should be accounted directly to shareholders’ equity. In this context, the adoption of IFRS did not entail a change compared to previosu accounting. 57HEXAGONANNUALREPORT2005