Securitas AB Annual Report 2005

net assets, and qualify for the hedge accounting criteria, exchange rate differences
on such loans are recognized together with the exchange rate differences arising
from the translation of foreign net assets in the translation reserve in equity.
Intra-group transactions (IAS 24 and IFRS 3)
Pricing of deliveries among Group companies is determined using normal business
principles. Intra-group receivables and liabilities, transactions between Group
companies and the resulting internal income have been eliminated.
Revenue recognition (IAS 11 and IAS 18)
The Group’s revenue is generated from various types of security services and the
sale of alarm products. Revenue from security services is recognized in the period
in which it is earned. Alarm installations are recognized in revenue as they are
completed, in accordance with the percentage of completion method. According to
this method, revenue, expenses, and thus, income are recognized in the period in
which the work was undertaken. The determination of the percentage of alarm installations
that can be recognized as revenue is based on the time spent in relation
to the total estimated time. Interest income and borrowing costs are recognized in
the statement of income in the period to which they are attributable.
Segment Reporting (IAS 14)
The Group’s operations are divided into fi ve divisions that provide the operational
structure for internal controls, follow-ups and reporting. For both internal and
external reporting, each division represent a primary segment. The split of Security
Services into Security Services USA and Security Services Europe refl ects both
the internal operational structure as well as the differences between the risks and
rates of return within the two segments. The secondary segments consists of the
three main geographical areas in which the Group is active: Nordic region, Europe
excluding Nordic Region and USA. In addition to this the operations outside these
regions are included in Rest of world. The geographical split represents various
levels of market development in terms of wages, employee turnover, product mix,
market growth and profi tability. The total sales for the geographical split are
given by the location of the sales. The location of the sales in all material aspects
corresponds to the location of the customers.
IAS 14 stipulates that costs in any particular segment (division) should not
include general administrative expenses, expenses for head offi ces and other central
expenses. These expenses are accounted under the heading Other. Moreover, the
segment’s assets and liabilities include only those items that have been utilized/
arisen in ongoing operations. Other balance sheet items, primarily current tax,
deferred tax, and provisions for taxes, are accounted for separately under the
Other heading.
Accounting for Government Grants
and Disclosure of Government Assistance (IAS 20)
Securitas as well as other employers are eligible to a number of grants having to do
with employees. Grants relate to training, incentive for hiring new staff, reduction
of working hours, etc. All grants are accounted for in the statement of income as a
cost reduction in the same period as the related underlying cost.
Taxes (IAS 12)
Provisions are made for all taxes that are expected to be levied on income for the
year, including deferred tax. Deferred tax is calculated in accordance with the
liability method. Deferred tax is based on net changes in temporary differences
between the book value and taxable value of assets and liabilities. The calculation
of deferred tax liabilities and deferred tax claims is recognized in the same way as
the underlying transactions were recognized as of the balance sheet date and refers
to all taxable temporary differences, provided they do not pertain to goodwill
or shares in subsidiares. Anticipated tax rates are applied in the years when the
temporary differences are likely to be reversed.
A deferred tax asset is recognized when it is probable that suffi cient taxable
income will arise that the deferred tax asset can be offset against. Deferred tax assets
are valued as of the balance sheet date, and any potential previously unvalued
deferred tax asset is recognized when it is expected to be usable, or correspondingly,
reduced when it is expected to be wholly or partly unusable against future taxable
income.
Current and deferred taxes are posted directly to shareholders’ equity if the relevant
underlying transaction or event is posted directly to shareholders’ equity in
the period, or previous period if it pertains to an adjustment of an opening balance
of retained earnings as the result of a change in accounting principle, or if it relates
to exchange rate differences in the translation of the balance sheets of foreign subsidiaries
that are posted to shareholders’ equity.
Provisions are allocated for estimated taxes on dividends from subsidiaries to
the parent company in the following year.
Statement of cash fl ow (IAS 7)
The statement of cash fl ow has been prepared in accordance with the indirect
method. Liquid assets include Cash and bank deposits and Short-term investments
with a maximum duration of 90 days at the time of initial recognition.
Notes and comments to the consolidated fi nancial statements
Foreign currency receivables and liabilities (IAS 21)
When preparing the fi nancial statements of individual companies, foreign currencydenominated
receivables and liabilities are translated using the exchange rates
prevailing at each balance sheet date.
Goodwill and other acquisition related
intangible fi xed assets (IFRS 3, IAS 36 and IAS 38)
In accordance with the provisions of IFRS 3:
■ The Group ceased amortisation of goodwill from January 1, 2004.
■ Accumulated amortization as at December 31, 2004 has been eliminated with
a corresponding decrease in the cost of goodwill.
■ From the year ended December 31, 2004 onwards, goodwill is tested annually
for impairment, as well as when there are indications of impairment.
The Group has reassessed the useful lives of its intangible assets in accordance
with the provisions of IAS 38. No adjustment resulted from this reassessment.
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group’s share of the identifi able net assets of the acquired subsidiary/operations
at the date of acquisition. Goodwill is tested annually for impairment and
carried at cost less accumulated impairment losses. Gains and losses on the disposal
of an entity include the carrying amount of goodwill relating to the entity sold.
Other acquisition related intangible fi xed assets arising from acquisitions can
include different types of intangible fi xed assets such as marketing-related, customer-related,
contract-related and technology-based. Other acquisition related
intangible fi xed assets normally have a defi nite useful life. These assets are recognized
at fair value on the date of acquisition and subsequently carried at cost less
accumulated amortization and any accumulated impairment losses. Amortization is
calculated using the linear method to allocate the cost of assets over their estimated
useful lives. Securitas’ acquisition related intangible fi xed assets mainly relate to
customer contract portfolios and the related customer relationships. The valuation
of the customer contract portfolios and the related customer relationships is
based on the Multiple Excess Earnings Method (MEEM) which is a valuation
model based on discounted cash fl ows. The valuation is based on the churn rates
and profi tability of the acquired portfolio at the time of the acquisition. In the
model a specifi c charge, contributory asset charge, is applied as a cost or return
requirement for the assets supporting the intangible asset. Cash fl ows are discounted
on an after tax basis using the Weighted Average Cost of Capital (WACC) adjusted
for local interest rate levels in the countries of acquisition. The useful life of
customer contract portfolios and the related customer relationships are based on
the churn rate of the acquired portfolio and are normally within the range of 3 to
20 years corresponding to a yearly amortization of 5 percent to 33.3 percent.
A deferred tax liability is calculated at the local tax rate on the difference between
the book value and tax value of the intangible asset. The deferred tax liability
is amortized over the same period as the intangible asset, which means that it
neutralizes the impact of the amortization of the intangible asset on the full tax
rate percentage on the income after tax. The initial recognition of this deferred
tax liability increases the amount of goodwill.
Goodwill and other acquisition related intangible fi xed assets are allocated to
cash-generating units (CGU) on a level which is consistent with the level that
Securitas monitors performance that is per country in a division (segment). This
allocation is also the basis for the yearly impairment testing.
The amortization of acquisition related intangible fi xed assets is shown on the
line Amortization of acquisition related intangible fi xed assets in the statement of
income.
Acquisition related restructuring costs
Acquisition related restructuring costs are costs that are either recognized on a
cash basis that is in the period when the corresponding payment is made or costs
that are recognized as provisions for restructuring in accordance with IAS 37. The
costs that have been recognized in the statement of income for 2004 and 2005 are
all costs recognized on a cash basis and thus no provisions are recognized.
Other intangible fi xed assets (IAS 36 and IAS 38)
Other intangible fi xed assets are recognized if it is probable that the expected
future economic benefi ts that are attributable to the asset will fl ow to the Group
and that the cost of the asset can be measured reliably. Other intangible fi xed
assets normally have a defi nite useful life. These assets are recognized at cost and
subsequently carried at cost less accumulated amortization and any accumulated
impairment losses.
Linear depreciation is used for all asset classes, as follows:
Software licenses 12.5–33.3 percent
Other intangible fi xed assets 20–33.3 percent
Rental rights and similar rights are amortized over the same period as the
underlying contractual period.
SECURITAS 2005 81