Changes in Parent company’s equity capital
Parent company Alfa Laval AB (publ) Share capital Statutory reserve Unrestricted equity Total
As of December 31, 2005 1,117 1,270 1,828 4,215
         
2006 Result items booked directly to equity        
Group contribution - - 1,023 1,023
Tax on received Group contribution - - -286 -286
Net of items booked directly against equity - - 737 737
Net income        
Net result 2006 - - 1,811 1,811
Sum of income and costs - - 2,548 2,548
Transactions with shareholders        
Dividends - - -570 -570
As of December 31, 2006 1 117 1 270 3,806 6,193
         
2007 Result items booked directly to equity        
Group contribution - - 1,476 1,476
Tax on received Group contribution - - -413 -413
Net of items booked directly against equity - - 1,063 1,063
Net income        
Net result 2007 - - 954 954
Sum of income and costs - - 2,017 2,017
Transactions with shareholders        
Repurchase of shares - - -1,497 -1,497
Dividends - - -698 -698
As of December 31, 2007 1,117 1,270 3,628 6,015
         
2008
Result items booked directly to equity		        
Group contribution - - 844 844
Tax on received Group contribution - - -237 -237
Net of items booked directly against equity - - 607 607
Net income        
Net result 2008 - - 2,087 2,087
Sum of income and costs - - 2,694 2,694
Transactions with shareholders        
Repurchase of shares - - -766 -766
Cancellation of repurchased shares -43 - 43 -
Bonus issue of shares 43 - -43 -
Dividends - - -963 -963
As of December 31, 2008 1,117 1,270 4,593 6,980
The share capital of SEK 1,116,719,930 (1,116,719,930) is divided among 429,393,416 (446,687,972) shares. The Annual General Meeting 2008 gave the Board a mandate to repurchase up to 5 percent of the issued shares with the purpose to cancel the repurchased shares and reduce the share capital. At December 31, 2008 Alfa Laval had repurchased 7,353,950 shares, out of which 1,452,400 were repurchased already under the previ- ous mandate but after the notice to the Annual General Meeting 2008 was sent. The Board will propose to the Annual General Meeting 2009 to cancel the repurchased shares. Cancellation of 7,353,950 shares means that the share capital will decrease with SEK 19,125,357. At the same time the Board will propose that the share capital is increased by a bonus issue with the same amount decided by the Annual General Meeting. In this way the size of the share capital is restored and the company avoids to have to obtain permission from Bolagsverket or if disputed the court to cancel the repurchased shares. If the Annual General Meeting decides to cancel the repurchased shares and thereby reduce the share capital and make the bonus issue the share capital will remain at SEK 1,116,719,930 but divided on 422,039,466 shares.
Notes to the financial statements
ACCOUNTING PRINCIPLES
Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments including derivatives that are valued at fair value. The statements are presented in SEK millions, unless otherwise stated.
Statement of compliance
As from January 1, 2005 Alfa Laval applies International Financial Reporting Standards (IFRS) as adopted by the European Union. Furthermore recommendation RFR 1.1 “Supplementary accounting principles for consolidated groups” from the Council for Financial Reporting in Sweden is applied.
The accounting and valuation principles of the parent company comply with the Swedish Annual Accounts Act and the recommendation RFR 2.1 “Accounting for legal entities” issued by the Council for Financial Reporting in Sweden.
Changed/implemented accounting principles
During 2008 Alfa Laval has implemented IFRIC 14 “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”. It covers the issue of how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset and minimum funding requirements under IAS 19 Employee Benefits. IFRIC stands for International Financial Reporting Interpretations Committee, which issues interpretations on how other standards should be interpreted.
During 2007 Alfa Laval has implemented paragraph 2a in chapter 6 of the Swedish Annual Accounts Act, IAS 1 paragraphs 124 A-C and IFRS 7.
Paragraph 2a in chapter 6 of the Swedish Annual Accounts Act requires listed companies to disclose certain information relating to the company’s shares in the Board of Directors’ Report.
IAS 1 Presentation of Financial Statements has been expanded with paragraphs 124 A-C. These relate to new disclosure requirements on the company’s objectives, policies and processes for managing capital.
IFRS 7 Financial Instruments: Disclosures replaces large parts of IAS 32 Financial Instruments: Disclosure and Presentation. IAS 32 will in the future only contain rules concerning the presentation of financial instruments. IFRS 7 contains expanded disclosure requirements related to the significance of financial instruments for the company’s financial position and performance and the nature and extent of risks arising from financial instruments.
During 2006 the changes in the Swedish Annual Accounts Act 1995:1554 were implemented. These meant that the Board of Directors’ Report was expanded with comments on amounts mentioned elsewhere in the annual report and where a comment is needed in order to understand the meaning of the figures, a description of material factors of risk and uncertainty and disclosures of non-financial nature such as environment and personnel, ethical guidelines and social matters.
The application of the new accounting standards has otherwise in effect not resulted in any change of accounting principles and therefore not resulted in any effect on income or equity capital.
Critical accounting principles
With the implementation of IFRS 3 Business Combinations as of January 1, 2005 goodwill, including previously existing goodwill, and intangible assets with indefinite useful life are not amortised, but instead tested for impairment both annually and when there is an indication. The effect of IFRS 3 can be considerable for the Group if the profitability within the Group or parts of the Group goes down in the future, since this could trigger a substantial impairment write down of the goodwill. Such a write down will affect the net income and thereby the financial position of the Group. The reported goodwill is SEK 5,383 (4,459) million at the end of the year. No intangible assets with indefinite useful life other than goodwill exist.
The Group has defined benefit plans, which are reported according to IAS 19 Employee Benefits. This means that the plan assets are valued at market value and that the present value of the benefit obligations in the defined benefit plans is decided through yearly actuarial calculations made by independent actuaries. If the value of the plan assets start to decrease at the same time as the actuarial assumptions increase the benefit obligations the com- bined effect could result in a substantial deficit. The monetary magnitude comes from the fact that the deficit is the difference between two large numbers. The risk for this happening is however decreased by Alfa Laval applying the 10 percent corridor approach described under “Employee benefits” below and the fact that many of these defined benefit schemes are closed for new participants and replaced by defined contribution schemes.
The Group’s reporting of provisions according to IAS 37 means that SEK 2,252 (1,810) million is reported as other provisions. This constitutes 7.8 (7.8) percent of the Group’s assets and is important for the assessment of the Group’s financial position, not the least since provisions normally are based on judgements of probability and estimates of costs and risks. If the accounting principles for provision would be changed sometime in the future, this could have a substantial impact on the Group’s financial position.
IAS 39 Financial Instruments: Recognition and Measurement has a considerable effect on the Groups equity and may have a substantial effect on the income statement if the used derivatives turns out not to be effective.
Key sources of estimation uncertainty
The key source of estimation uncertainty is related to the impairment test of goodwill, since the testing is based on certain assumptions concerning future cash-flows, see the section on critical accounting principles above for further details.
Judgements
In applying the accounting policies Management has made various judgements, apart from those involving estimations, that can significantly affect the amounts recognised in the financial statements. These judgements mainly relate to:
  • classification of financial instruments;
  • probability in connection with business risks;
  • determination of percentage ofcompletion in work in progress;
  • recoverability of accounts receivable;
  • obsolescence in inventory; and
  • whether a lease entered into with an external lessor is a financial lease or an operational lease.