Prior to the adoption of IFRS standards, the Vaisala Group's financial statements were prepared according to Finnish Accounting Standards (FAS). The reconciliation calculations and clarifications outlined below describe the differences between IFRS and FAS reporting for 2004 and for the opening balance sheet of 1 January 2004. The comparison figures according to Finnish accounting practice presented here are consistent with data presented in financial statements published earlier.
The financial statements have been prepared applying published IAS/IFRS standards which will be valid at the end of 2005. Changes to the standards that take place during 2005 might still cause changes in the 2004 figures. In the adoption process IFRS 1, First-Time Adoption of IFRS Financial Reporting Standards has been followed.
The main effects of adopting IFRS
The adoption of IFRS reporting has changed the reported financial statement calculations, the notes to the financial statements as well as accounting principles in comparison with previous financial statements. Vaisala Oyj's figures are most effected by the IFRS standards relating to business combinations, employee benefits and leases as well as the cancellation of value increases made in connection with the adoption of IFRS and a tax asset recognized from the accumulated losses of the French subsidiary.
The IFRS effect on earnings per share reported for the whole of 2004 is + EUR 0.23. The effect of the discontinuation of goodwill amortization is + EUR 0.10 and the effect, with tax adjustments, of the change in the treatment of defined-benefit disability pensions included in the balance sheet is + EUR 0.14. Other adjustments had only minor effects.
The overall effect on the Group's shareholders' equity at the end of 2004 was a decrease of EUR 3.4 million. The cancellation of value increases reduced shareholders' equity by EUR 5.7 million. The discontinuation of goodwill amortization increased shareholders' equity by EUR 1.6 million. Deferred taxes from the accumulated losses of the French subsidiary increased shareholders' equity by EUR 0.8 million.
Defined-benefit pension schemes increase non-interest-bearing obligations by EUR 0.6 million at the end of 2004 and the treatment of leases as finance leases increases the Group's tangible assets by EUR 0.5 million and correspondingly increases interest-bearing non-current and current liabilities by a similar sum.
IFRS accounting principles
The accounting principles which the adoption of IFRS effects most or which are otherwise significant for the company are outlined below. Other accounting principles on which the adoption of IFRS has no significant effect are covered in the Vaisala Group's 2004 financial statements, prepared according to Finnish accounting practice.
Consolidation principles
Subsidiaries acquired before 1 January 2004 are consolidated at original acquisition cost, according to the exception mentioned in IFRS 1. Subsidiaries acquired on or after 1 January 2004 are consolidated according to the IFRS 3 standard - Business Combinations.
Minority interests are declared separately in the Group's shareholders' equity.
Financial instruments
The IAS 32 and IAS 39 standards relating to financial instruments have been applied as of 1 January 2005. The Group does not apply hedge accounting according to the IAS 39 standard. In terms of these standards, data for 2004 has been calculated according to FAS. Valuation differences according to IAS and FAS would not have had any substantial effect on the Group's result or shareholders' equity at 31 December 2004.
All derivatives contracts are initially recognized at cost and subsequently remeasured at their fair value. Forward foreign exchange contracts are valued at their fair value using the market prices of forward contracts at the closing date. Realized and unrealized gains and losses arising from changes in fair value are recognized in the income statement in the period in which they arise.
In connection with the adoption of IFRS, the presentation location in the income statement of translation differences relating to derivatives has been changed from 'financial income' to 'other operating income and expenses'.
Tangible assets
The office and factory premises at Vantaa were revalued by a total of EUR 5.7 million in the years 1981-1988. These revaluations have now been cancelled in connection with the adoption of IFRS and in the valuation of tangible assets the values have been restored in all respects to original acquisition costs.
Goodwill
Goodwill resulting from company acquisitions made before 1 January 2004 has been recognized according to the accounting principles current at the time of acquisition. Subsidiaries acquired on or after 1 January 2004 are consolidated according to the IFRS 3 standard - Business Combinations. The carrying amount of goodwill at 1 January 2004 is no longer subject to amortization; goodwill is subjected to annual impairment testing or always if some event or change of conditions indicates that the recognized sum would perhaps no longer be recoverable.
Research and development expenditure
The adoption of IFRS reporting does not give rise to changes in the treatment of research and development expenditure. Research and development expenditures have been recognized as expenses in the financial period in which they were incurred, except for machinery and equipment acquired for research and development use, which are amortized according to plan over 5 years. Costs relating to the development of new products and processes are not capitalized because the future earnings obtained from them are only assured when the products come to market. According to IAS 38 an intangible asset is entered in the balance sheet only when it is probable that the company will derive financial benefit from the asset. Moreover, it is typical of Vaisala's research and development work that it is not possible to distinguish the research stage of an internal project that aims to create an asset from its development stage.
Lease agreements
According to the principles of the IAS 17 standard, leases in which a substantial part of the risks and rewards of ownership have been transferred to the Group have been classified as finance leases. In such cases that the leased property has been entered in the balance sheet as an asset and the lease obligations entered in the balance sheet item 'interest-bearing liabilities'.
Inventories/Long-term projects
When applying Finnish reporting practice, revenues from long-term projects have been recognized as income when the entire project has been completed (risks and rewards have transferred to the buyer). The proportion of long-term projects in progress has been recognized in the balance sheet item 'work in progress'. In IFRS reporting, revenues are recognized as income using the percentage of completion method, when the outcome of the project can be estimated reliably. The stage of completion is determined for each project by reference to the relationship between the costs incurred for work performed to date and the estimated total costs of the project.
When the outcome of a long-term project cannot be estimated reliably, project costs are recognized as expenses in the same period when they arise and project revenues only to the extent of project costs incurred where it is probable that those costs will be recoverable.
Employee benefits
Group has a number of pension schemes, which have been classified as either defined-contribution or defined-benefit schemes. Under defined-contribution plans, contributions made are recognized as an expense in the income statement of the financial period in which the contributions are payable. TEL pension cover managed in an insurance company are mainly defined-contribution schemes, except that disability benefits of TEL pensions have been treated as a defined-benefit scheme during 2004. As a consequence of a change in the basis of contributions for TEL insurance disability pensions which comes into force at the beginning of 2006, the disability benefits of TEL insurance will change to a defined-contribution basis. The change has an impact on the 2004 fourth quarter result. The supplementary pension benefits managed in the Vaisala Pension Fund have been treated as defined-benefit pension schemes. All actuarial gains and losses have been recognized in the opening balance sheet on the transition date in a manner allowed by the IFRS 1 standard.
Income tax
In Group accounting, deferred taxes have been stated at net in FAS reporting. According to the IAS 12 Income taxes standard, tax assets and liabilities based on taxable income for the financial period are deducted from each other when and only when the company has a legally enforceable right to set off the recognized items against each other and the company intends to implement the payment on a net basis or to liquidate the asset item and pay the liability simultaneously. Because the Group's companies are located in different states, the Group has no such right. Deferred tax assets and liabilities have been presented in IFRS reporting as separate items in the balance sheet's assets and liabilities.
Share-based payments
According to the implementing provisions of the IFRS 2 standard, options granted before 7 November 2002 do not need to be treated through profit and loss. The company has no such option schemes which would be treated according to the IFRS 2 standard through profit and loss.
Segment-specific data
Vaisala has chosen as its primary IFRS segments business division segments - Vaisala Measurement Systems, Vaisala Solutions and Vaisala Instruments, and as secondary segments geographical segments - Europe, North America, Asia and Australia as well as Africa and South and Central America. The income and results of the primary segments will be published in connection with the Interim Reports.
Cash flow calculation
There are not considered to be any substantial differences between the cash flow calculation permitted by IFRS principles and Finnish reporting practice.
The full report including tables can be downloaded from the following link.
